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Edited Transcript of YRCW earnings conference call or presentation 3-May-18 1:30pm GMT

Thomson Reuters StreetEvents

Q1 2018 YRC Worldwide Inc Earnings Call

OVERLAND PARK Jul 10, 2018 (Thomson StreetEvents) -- Edited Transcript of YRC Worldwide Inc earnings conference call or presentation Thursday, May 3, 2018 at 1:30:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Darren D. Hawkins

YRC Worldwide Inc. - CEO

* James L. Welch

YRC Worldwide Inc. - Senior Advisor & Director

* Stephanie D. Fisher

YRC Worldwide Inc. - CFO

* Thomas J. O'Connor

YRC Worldwide Inc. - President of YRC Freight

* Tony Carreno

YRC Worldwide Inc. - Vice President, Investor Relations

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Conference Call Participants

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* Albert Brad Delco

Stephens Inc., Research Division - MD

* Amit Singh Mehrotra

Deutsche Bank AG, Research Division - Director and Senior Research Analyst

* David Griffith Ross

Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics

* Scott H. Group

Wolfe Research, LLC - MD & Senior Transportation Analyst

* Willard Phaup Milby

Seaport Global Securities LLC, Research Division - Associate Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to YRC Worldwide's First Quarter 2018 Earnings Call. (Operator Instructions)

Please note this event is being recorded. I would now like to turn the conference over to Tony Carreno, Vice President Investor Relations. Please, go ahead

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Tony Carreno, YRC Worldwide Inc. - Vice President, Investor Relations [2]

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Thanks operator, and good morning, everyone. Welcome to YRC Worldwide's First Quarter 2018 Earnings Conference call. Joining us on the call today are Darren Hawkins, Chief Executive Officer of YRC Worldwide; Stephanie Fisher, Chief Financial Officer of YRC Worldwide; T.J. O'Connor, President of YRC Freight; and James Welch, Senior Advisor to YRC Worldwide.

Before we begin I must remind you of the inherent uncertainties in any forward-looking statements in our discussion this morning. During this call, we may make some forward-looking statements within the meaning of federal securities law. These forward-looking statements and all other statements that might be made on this call, which are not historical facts, are subject to uncertainty and a number of risks, and thus, actual results may differ materially. This includes statements regarding the company's expectations, assumptions of future events and intentions on strategies regarding the future. The format of this call does not allow us to fully discuss all of the risk factors. For a full discussion of the risk factors that could cause our results to differ, please refer to this morning's earnings release and our most recent SEC filings, including our Forms 10-K and 10-Q. These items are available on our website at yrcw.com.

Additionally, please see today's release for a reconciliation of net income or loss to adjusted EBITDA on a consolidated basis and operating income or loss to adjusted EBITDA on a segment basis.

During this call we may refer to our non-GAAP measure of adjusted EBITDA, simply as EBITDA . In conjunction with today's earnings release, we issued a presentation which will be referenced during the call. This presentation was filed in an 8-K, along with the earnings release and is available on our website.

The format of this morning's call will include comments from James, followed by an overview of the first quarter from Darren. Next, Stephanie will discuss our financial results and T.J. will provide an update on YRC Freight. Following their prepared remarks, Darren, Stephanie, T.J. and James will be available for a question-and-answer session. I'll now turn the call over to James.

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James L. Welch, YRC Worldwide Inc. - Senior Advisor & Director [3]

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Thanks, Tony, and good morning. I just want to make a few comments before Darren gives the first quarter update. We announced earlier in the week that we went ahead and named Darren the CEO, and that I will continue to serve on the board and remain employed as a Senior Advisor, before I retire on July 31. I've been very pleased with the pace of our transition and believe the timing was right to accelerate the CEO change, while still allowing me the opportunity to help Darren until I retire.

My goal, when I return to YRCW in late 2011, was to leave the company in a better place than I found it. Now, while we've made a lot of progress, there's still much left to do. I'm very confident that we have a talented team of executives in place who can continue moving YRCW forward. I firmly believe better days are ahead for this company.

Since this will be my last quarterly call, I also wanted to -- I also want to let the analyst community know how much I've enjoyed our interaction over the years. For sure, I've learned a lot from each one of you. With these comments, I will now turn the call over to Darren.

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [4]

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Thank you, James, and good morning, everyone. Before commenting on the quarter, I want to thank James for his leadership and his commitment to all of our stakeholders, including our customers, our employees and the investment community. James's vision has been instrumental to the evolution of YRC Worldwide, and I am grateful for his contributions and personal support. I look forward to the opportunity to continue James's legacy of strong leadership and working closely with him to ensure a smooth transition.

Turning to Q1. The overall financial results were in line with our expectations, and let me reiterate what we said we would do. We are executing our strategy to secure the right price and freight mix with our customers, who value the service and capacity that Holland, New Penn, Reddaway and YRC Freight provide. The pricing and demand environment remains favorable, and we're especially focused on improving yield in our corporate channel.

In Q1, YRC Freight and the regional carriers reported the highest year-over-year increases in revenue per hundredweight, excluding fuel surcharge, since 2015. Although, the year-over-year tonnage per day was down in Q1 at YRC Freight, predominantly due to the corporate channel, the year-over-year monthly results improved sequentially during the quarter and turned positive in March. While the regional carriers year-over-year tonnage per day was slightly positive during the quarter, we are also investing in our fleet by on-boarding a significant amount of revenue equipment this year. During Q1, we took delivery of more than 500 tractors, with approximately another 400 scheduled for delivery in 2018. The tractors come with improved safety equipment, are more fuel efficient and require less maintenance than the units they replace.

We also took delivery of more than 400 trailers in Q1, with approximately another 2,100 expected to be delivered in 2018. As we upgrade our fleet with these units, we expect the number of more expensive short-term rentals to decline over time. We remain confident that our business is positioned for a better year in 2018, with year-over-year financial improvement to be weighted to the second half of the year.

On a segment basis, YRC Freight improved its year-over-year results and was positively impacted by an increase in revenue from stronger yield. The regional segment reported similar positive yield results, however, this segment was unfavorably impacted by the severe weather in early January and the series of nor'easters in March, which contributed to a decline in the regional segments financial results compared to last year.

In closing, the yield momentum that we're seeing, along with the investments we are making in our fleet, continues to give me confidence that YRC Worldwide is moving in the right direction. I would like to thank our nearly 32,000 employees for focusing on providing award-winning customer service and putting safety first in everything we do. With these comments, I will now turn the call over to Stephanie for a review of our financial results.

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [5]

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Thanks, Darren, and good morning. For the first quarter 2018, YRC Worldwide reported consolidated revenue of $1.21 billion, which is up from $1.17 billion in the first quarter 2017, even with 1/2 less working day this year. In terms of consolidated operating results, the company reported an operating loss of $4.3 million, which included a $3.2 million loss on property disposals. This compares to operating income of $0.3 million, which included a $2.7 million loss on property disposals in the first quarter 2017. On an adjusted EBITDA basis, YRC Worldwide reported results of $45.7 million for the first quarter 2018 compared to $43.2 million in the same period last year. The earnings release and presentation issued this morning include 2018 segment financial information and statistics, therefore, I will keep my segment comments focused on a few key first quarter stats. At YRC Freight, the first quarter 2018 year-over-year tonnage per day was down 2.4%, this was comprised of year-over-year decreases of 6.1% in January and 1.3% in February and an increase of 0.6% in March. Preliminary, April results indicate YRC Freight's year-over-year tonnage per day was down approximately 3.8%. As a reminder, the year-over-year comp was strong, with April 2017 reporting a 6.2% year-over-year increase in tonnage per day, which was the biggest month of increase at YRC Freights in 2017. Additionally, for the first quarter 2018, year-over-year revenue per hundredweight, including fuel surcharge, was up 6%. And revenue per hundredweight, excluding fuel surcharge, was up 4.4%. Year-over-year revenue per shipment, including fuel surcharge, was up 8.3%, and up 6.7%, when excluding fuel surcharge.

Turning to the stats for the regional segment. The first quarter 2018, year-over-year tonnage per day, was up 0.2%. This was comprised of year-over-year decrease of 0.8% in January and increases of 0.7% in February and 0.6% in March. Preliminary, April results indicate the regional segment's year-over-year tonnage per day was down approximately 1.6%.

For the first quarter 2018, year-over-year revenue per hundredweight, including fuel surcharge, was up 5.3% and revenue per hundredweight, excluding fuel surcharge was up 3.6%. Year-over-year revenue per shipment, including fuel surcharge was up 9%, and up 7.3% when excluding fuel surcharge. In terms of liquidity, our cash and cash equivalents and managed accessibility under the ABL facility at March 31, 2018, was $117.2 million, which is in line with year-end 2017. We maintained our liquidity during what is typically the most demanding quarter for cash, and we expect to strengthen our position by the end of 2018.

The company's total debt at the end of the first quarter 2018 was $918.7 million, which is a reduction of $86.1 million compared to a year ago, and the lowest balance in 13 years. Reinvestment in the business continued during the first quarter, with the capital expenditure equivalent of $97.2 million or 8% of operating revenue. The total represents a $72.5 million increase over the $24.7 million invested in first quarter 2017. Regarding our credit facility covenant. At the end of the first quarter 2018, the last 12 months consolidated adjusted EBITDA was $276.7 million, and the funded debt to adjusted EBITDA ratio was 3.32x compared to a maximum credit facility covenant of 3.5x. As a reminder, the covenant maximum remains at 3.5x through the end of 2018. Although, we typically do not provide forward-looking information, I would like to mention the potential for nonunion pension settlement charges at YRC Freight. These charges will not impact the company's cash balance or liquidity and will be excluded from adjusted EBITDA and from operating income. The charges are expected to total approximately $5 million to $20 million, with a portion impacting the second and fourth quarters of 2018.

In closing, I'm encouraged with the progress we're making to secure the right price and freight mix so the customers will materially invest in our company. As you heard from Darren, we expect improved year-over-year performance in 2018, that is weighted to the second half of the year.

At this time, I'll turn the call over to T.J to discuss YRC Freight.

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Thomas J. O'Connor, YRC Worldwide Inc. - President of YRC Freight [6]

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Thanks Stephanie, any good morning, everyone. I'm excited to be part of the YRC Freight team once again. It has been energizing to reconnect with the company and many of the people I spent a good portion of my earlier career working with to deliver on our customers expectations.

In the first quarter, YRC Freight reported year-over-year improvement in revenue, operating income, operating ratio and adjusted EBITDA. These results largely reflect the progress that we are making with our strategy to improve yield. As Stephanie mentioned, excluding fuel surcharge, first quarter revenue per hundredweight increased 4.4% and revenue per shipment increased 6.7% when compared to the same period last year. Including fuel surcharge, these increases were even more significant. Core pricing results accelerated as the quarter progressed, and we are very encouraged by the current state of demand in the marketplace. This is clearly one of the strongest freight environments in several years.

In fact, our customer contract negotiations increased an average of 6.2% during the quarter. The 8 new distribution centers we discussed last year, as part of our latest network enhancement, became fully operational in the first quarter of 2018 and are handling freight as designed. As planned, we made progress bringing on revenue equipment in the first quarter. These units are a meaningful investments in the heart of our operation and should drive the many benefits we have previously discussed, including a reduction in our short-term rental needs over time. While YRC Freight reported improved financial results over last year, we are far from satisfied with our overall performance. As we move forward, our focus will remain on our strategic objectives of enhancing safety, service, efficiency and quality as well as drive our hiring.

We also plan to continue leveraging the favorable industry dynamics to ensure that we are compensated appropriately for the capacity and services we provide to the marketplace. I would like to thank all members of the YRC Freight team for their continued efforts to meet our customers needs and expectations. Thanks for your time this morning. We would now be happy to answer any questions that you may have.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And the first question comes from Brad Delco of Stephens.

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Albert Brad Delco, Stephens Inc., Research Division - MD [2]

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James, first off congrats to you and best of luck to you in your new role. And Darren, congrats on your new role, and I guess T.J. as well.

I wanted to ask a couple of questions here. I guess first, on the quarter, could you talk about the cadence of when you took delivery of these tractors? And to the extent you can provide us, any sort of color around what you saw that do to your short-term rentals throughout the quarter? I'm just trying to figure out, how much short-term rentals did cost you in the quarter and at what pace or cadence we should see that come off in the second quarter.

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [3]

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Brad, it's Stephanie. As we went through the quarter, unfortunately, those rentals did not come in all at the beginning of the quarter. In fact, most of them came in the back half of the quarter, in March. And so we did experience higher short-term rentals in Q1 on a year-over-year basis, kind of consistent with what we saw in Q4. We did -- we were able to reduce short-term rentals slightly towards the end of the quarter. But as you can see from our purchase transportation line, we did experience a significant increase on a year-over-year basis. The other piece of that purchase transportation line is really some additional solutions that we are providing to our customers. In the environment that we are operating in, our customers are demanding more than just LTL solutions, so we're providing a suite of solutions for our customers, and that business continues to grow. And it's business that we recognize a margin on.

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Albert Brad Delco, Stephens Inc., Research Division - MD [4]

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Got you. But in terms of sort of quantifying the short-term rentals, I think you said in the release, PT included $9.9 million increase in equipment lease expense, $5.5 million of which was long term. That's something separate than what you're referring to as short-term rentals, right?

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [5]

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That's right. But the other piece of the $9.9 million is the short-term rentals.

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Albert Brad Delco, Stephens Inc., Research Division - MD [6]

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Okay. So we could assume its like -- what is that?

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [7]

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$4.3 million

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Albert Brad Delco, Stephens Inc., Research Division - MD [8]

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$4.3 million. Okay.

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [9]

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Brad, this is Darren. Just a little more color on that. Certainly, all the units didn't come in on January 1. But we've got a good pace of delivery. T.J. and his team have worked well with the OEMs, and we like what we're seeing there. And once the tractors do hit the network, they're immediately beneficial. So we're on a good pace now.

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Albert Brad Delco, Stephens Inc., Research Division - MD [10]

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Okay. Good. And then the loss on property disposals. Is that your equipment or is that real estate? What exactly -- or -- is that, that you're losing money on the disposal?

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [11]

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Most of it's equipment. There are a few property sales in there, but those are the minority of that. Most of that is equipment write-offs from items that we either failed or we scrapped.

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Albert Brad Delco, Stephens Inc., Research Division - MD [12]

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Okay. And then given, sort of, the weather we saw in Q1 and your results close to flat, I guess, on an adjusted basis year-over-year. Why are you suggesting that improvement wouldn't happen until back half of the year? It seems as if, we could see something more in 2Q. Is that cautiousness or is there some other item we need to be cognizant of that could impact Q2 and prevent you from seeing meaningful improvement then.

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [13]

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Yes. A couple comments on that. First of all, really proud of YRC Freight and the way they responded to the weather. I attribute that to the network enhancement with the 8 new distribution centers that were opened in existing end-of-the-line terminals. T.J. and team were able to respond quickly and recover much more efficiently than we've been able to do in the past. That also gives me some confidence about summer capacity needs and being able to respond to that effectively. Regional companies, certainly bigger weather impact there, especially in the Northeast. At our Northeast carrier who had 8 business days heavily impacted by weather. And one of our largest carriers in the Midwest impacted with over 3 business days with that weather. So certainly, impact on Q1 and to come out of it flat, I think, is a win for the company. As far as Q2, we've got good yield momentum going into Q2. Certainly, the tonnage piece, our focus is to be flat to up. I think with what we saw in Q1 around corporate business, the business that left the companies was the right business to leave. And we welcome it back at the new pricing and expect to make progress on that in Q2. So there's several encouraging signs. But we're also following our previous comments around the short-term rentals and getting that under control in the first half of the year.

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Operator [14]

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Our next question comes from Amit Mehrotra of Deutsche Bank.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [15]

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James, wish you the best of everything. Really nice to work with you. Couple of quick questions. I guess, first maybe at a high level. Darren, we're obviously in the strongest environment for LTL in over a decade. The company's still reporting an operating loss in freight, small profit in regional. Obviously, there's some legacy issues there, company-specific issues as well with respect to the ability to invest, which actually seems to be inflecting possibly now, maybe gaining some momentum. But would love to maybe just get a sense of you -- from your perspective, I guess, what needs to change, whether it's culturally or cost structure wise, what needs to be accelerated to maybe get that OR down and how quickly can you get there.

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [16]

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Yes. I'll start with yield platform that we built at the companies. That's certainly one of the largest levers to profitability in any LTL operation. Both regional and YRC Freight had the strongest yield increases since 2015. And that was also with weight per shipment increases. So yield not being a pure price metric but when your weight for shipment is rising like ours is right now, yield is coming along at a pace of 6% at YRC Freight, and 5.3% at the regionals, it's encouraging. And then you put the contractor yields on top of that, with YRC Freight being at 6.2% and the regionals at 6%, it's very encouraging. The last metric I look at there, just to make sure the companies are on the right track and that I watch closely, is the revenue per shipment. And once again, just seeing some really strong numbers there, with 8.3% at YRC Freight and 9% at the regional. So the yield strategy is the first piece of the play. We're investing in the fleet. That's certainly on a progress to -- profitability is one of the most impacting levers that we have, and those are immediately beneficial the day we put them into service. Our technology investments, that I've talked about for a long time and certainly they're innovative approach, but they are coming along nicely. And I expect those productivity improvements to come along with the benefit realization of that technology over time. The network enhancement at our national carrier, I think, will give us a strong summer and a way to respond to the demand for capacity that we all see in the summer months. And we can't ignore the economy. Regardless of other outlooks, demand is still firm, and I anticipate the pricing environment to remain favorable for a period of time in LTL. It seems that all carriers are very consistent in approach and focused on recapitalizing their assets over time, which is exactly what we're doing. And the last comment I'll make on just 2018 perspective is fuel prices have the potential to remain a tailwind for the company over the next few quarters.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [17]

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Okay. That's helpful. And then just on that yield comment, obviously, which you started off talking about. Just given the fact that it's not necessarily a pure proxy for price, could you help us with what the -- I don't know if you mentioned this earlier, but what the contractual renewals are trending at in terms of pure price perspective.

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [18]

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Certainly. 6.2% in Q1 for YRC Freight and 6% at the regionals. And those trends are continuing and don't appear to be letting up.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [19]

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Okay. And then just last question for me in terms of just the EBITDA progression. You guys did $275 million or so of EBITDA in 2017. It looks like if this potential for $300-plus million of EBITDA, sort of low double-digit growth, we should imply obviously, kind of a doubling in the run rate of EBITDA as you move from the first quarter to the second quarter and even the third quarter. Any thoughts on sort of EBITDA progression as you move through the years? So just we can recalibrate some of our expectations. And then also, I don't know if you can also mention kind of CapEx. If you've changed, at all, your view on CapEx and how that would trend for the year.

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [20]

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Thanks for the questions. I'll answer the EBITDA piece and then let Stephanie comment on the CapEx. All the things that I mentioned, certainly, it's a long list of positive momentum. One item I left out was we also had solid retention on our general rate increase this year. So all those factors, together, build into a foundation of continued performance improvement. That's my expectation for all of our companies and the president's that lead those. And even though we don't comment forward-looking, I would say that I'm sitting in a position of -- confident about what we'll be able to do in 2018 around our previously stated improvements geared toward the second half of the year. So -- and Stephanie, if you'd give a little color on CapEx.

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [21]

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Sure, yes. From a CapEx perspective, for the first quarter, we were at 8% of revenue. Some of that was spillover from items that we did not take delivery of from the fourth quarter. So we continue to expect that our CapEx will be in that 5% to 6% of revenue range and will do so for the foreseeable future.

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Amit Singh Mehrotra, Deutsche Bank AG, Research Division - Director and Senior Research Analyst [22]

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And that's net right? So net of proceeds from sales?

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [23]

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Correct.

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Operator [24]

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Our next question comes from David Ross of Stifel.

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David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics [25]

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So I guess, I'm going to start with T.J. Now that you kind of moved off the West Coast, and you're looking at YRC freight on the long haul side, what's been better than expected? Since you got into the weeds there and what's been more challenging work?

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Thomas J. O'Connor, YRC Worldwide Inc. - President of YRC Freight [26]

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It's been, as I stated, very energizing. There is lots going on at YRC Freight. And it's very encouraging, frankly. The ability to [emit] a larger network and to implement the recent chops, change of operations, which is performing pretty much as designed, getting my arms around the thousands of dedicated employees that some new, some been around for quite awhile and some I knew previously, et cetera, but very encouraged and energized by kind of these free to core, if you will, that people are just -- have a very positive and can-do attitude engaged in the business. The sales organization, is very much engaged to the customers, looking at new solutions for new and existing customers. The yield environment is very favorable, so that makes what we do even more rewarding and enjoyable. So our challenges -- continued pressure on hiring of -- like everyone in the industry, there's not enough drivers out there. So we're growing our own, we're recruiting, different methods, different ways. We're focused on key locations that are somewhat universal for the industry that are under-hired right now and doing the very best we can to bring on additional talent that meets our standards in those markets. So that was a challenge in the regional side on the West Coast and it's a challenge here. So obviously, the bigger impact that braces because of the size of the organization. But all -- overall, very optimistic and very encouraged by what I'm dealing with and what I see as opportunity for the organization.

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David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics [27]

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That's good color. And then, Darren, there were issues last year with, I guess, a surge in heavier-weighted shipments. I knew that caused some issues on the pricing side and margin side. Can you comment on, I guess, what's been done? Given the tight truckload environment, there's going to be a tendency for shippers trying to push some of those truckload-type shipments down your throat. And what have you guys done to make sure that if you are hauling that type of freight that you're getting appropriately compensated? And that it doesn't have any negative network impact on the broader LTL system?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [28]

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That's a good call out, David, and something we spend a lot of time on internally. And I'm very thankful that we started addressing that in Q2 of last year, when we started seeing that happen. So when you take YRC Freight and Holland, our 2 largest companies, and look at their truckload business combined, you're talking about over 1,000 shipments a day, which is bigger than most truckload carriers, so there's a lot of exposure there and it's growing. Now the spot side of that business is very positive for us. It fills empty lanes, it does the right things in our network that in that business comes with very nice margin. The part of that business that's a little more complex and that you have to identify and address quickly is in corporate contracts, where at 10,000 pound line of rates so that corporate customer could actually put a truckload shipment onto an LTL drop trailer and then it gets into your network and doesn't pay its way. That's the piece that we started addressing in the middle of 2017. I feel like we have a good handle on it. It's a continuous improvement process. But it's also being addressed in all of our contract negotiations from Q3 last year forward. So I like the position we're in. I like the truckload business that I'm seeing, which is predominant at the 2 companies I mentioned. And also, we're seeing the yield numbers on that truckload segment even exceed the LTL numbers in some cases. So it's a good segment of business for us. And I feel like I won't be talking about it as an issue, maybe speaking to it as more of an opportunity moving forward.

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David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics [29]

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Yes. So it sounds like there might be a little bit of a tail to the issues as contracts come up for renewal, but by the end of 2Q, you will have gone through a whole annual repricing cycle since you started addressing it. And then -- the back half of the year, it won't be a headwind anymore. Is that a fair way to put it?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [30]

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Yes. And you're probably -- like I did, I listened to some of the other carriers from the NASSTRAC meetings this week and heard that same approach from a couple of other LTL carriers. So you stated it well.

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David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - MD of Global Transportation and Logistics [31]

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And then last question for me. When does the fun start and you guys start talking to the teamsters?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [32]

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Well, certainly, March of 2019 is the expiration of our current agreement. There's frequent communication, not specifically on that topic, but on all the opportunities we have as a teamster organization. T.J. mentioned the dedicated employees, so that's why we're still here. And that's why I believe our opportunities are expanding moving forward. Those partnerships and relationships, they're well informed on our business and our strategy and we will continue doing that all the way through the process.

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Operator [33]

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Our next question comes from Scott Group of Wolfe Research.

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Scott H. Group, Wolfe Research, LLC - MD & Senior Transportation Analyst [34]

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Best of luck to James.

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James L. Welch, YRC Worldwide Inc. - Senior Advisor & Director [35]

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Thanks, Scott.

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Scott H. Group, Wolfe Research, LLC - MD & Senior Transportation Analyst [36]

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Stephanie, you gave us April tonnage updates. Can you give us anything on yields for April?

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [37]

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We're continuing to see the same trends that we've seen in the first quarter. I think, Darren mentioned our price increases, both at YRC Freight and regionals are trending around that 6% range. But actually yield trends are trending in the same direction they were in first quarter.

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Scott H. Group, Wolfe Research, LLC - MD & Senior Transportation Analyst [38]

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Okay, helpful. And then as we think about going forward, is the focus on continuing to get a lot of price? And it's okay if tonnage is still down or do we want more of a balance? What's the goal from a price versus tonnage mix going forward?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [39]

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Good question, Scott. I watch that closely, and of course you and I have discussed it in the past. Revenue expansion, that's important to me and I'm getting that through yield. There's a band slightly negative to slightly positive on tonnage that I'm comfortable with. Especially, in a really tight capacity environment where cost per hire is going up, and we certainly want to make sure that we're covering the cost of our network. So there's a band there that I watch closely. And I believe in the current environment that I'll be able to stay in that band. So that's why my references around volume are typically flat.

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Scott H. Group, Wolfe Research, LLC - MD & Senior Transportation Analyst [40]

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Okay. And then if I were -- you made a couple of references to pricing best since 2015. That year you saw 1.5 points of margin improvement at Freight. Any reason you think it should be different this year?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [41]

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I can't give you reasons, so -- that I think about it differently, the items I listed out, they're leading indicators in our business. And there's certainly things that you can't predict. In 2017, we got into that short-term rental piece that made things difficult. But overall, with what we've laid out here today and the leading indicators that I see, it feels like a very similar environment. But I will say that the pricing points actually feel stronger from a demands standpoint.

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Scott H. Group, Wolfe Research, LLC - MD & Senior Transportation Analyst [42]

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Okay. And then last one, Stephanie. Just on the liquidity front, so sort of flat sequentially. Your point is that first quarter is typically when we burn cash, and we should build cash and liquidity from here. Is that right? And if so any targets on where you think liquidity can get you by the end of the year or where you'd like it to get to?

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [43]

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Yes, Scott. I feel really good about our liquidity position at the end of first quarter. If you think about where we were at the end of the year, we basically maintained our liquidity through the quarter, even with nearly $25 million of CapEx actual spend, plus the heavy demand that we see in first quarter on a typical basis. So as we move through the year, we'll continue to build cash. We'll be in that $150 million to $200 million range by the end of the year, as I mentioned, is my comfort zone.

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Operator [44]

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Our next question comes from Willard Milby of Seaport Global Securities

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Willard Phaup Milby, Seaport Global Securities LLC, Research Division - Associate Analyst [45]

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If I could go back to the tractor additions in the quarter, of the 500, can you help us out on how many of those maybe went to replacing older equipment versus went to replacing those short-term rentals? What kind of the split was there?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [46]

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The rentals, it's a -- it's not a one-for-one. But typically, in the rental situation and expanding the fleet, we have a good idea about equipment that we're going to remove from the operation. So it's a close to a one-for-one on the rental piece, once all of the tractors get into service.

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Willard Phaup Milby, Seaport Global Securities LLC, Research Division - Associate Analyst [47]

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So of the 500 that were added, all went to kind of replace the rentals? Is that what we were to take away from this?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [48]

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It's replacing. And we put the new ones in our line haul fleet. And a lot of the rentals occur in our local city operations. So...

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Willard Phaup Milby, Seaport Global Securities LLC, Research Division - Associate Analyst [49]

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Okay. All right. And has there been a kind of change in thinking about adding the remaining 400 tractors throughout the year? Just picked up on your wording of 400 in the remainder of 2018. And I think last quarter, we talked about getting all those in, in the first half of the year.

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [50]

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It might be timing versus when we can get from them -- from the manufacturers, so it might be 2Q versus 3Q. But we're getting them as soon as we can. Part of it is the hold up at the manufacturing.

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [51]

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Yes. There's tremendous demand in that area. We order those well in advance. And certainly our significant customer these days. So we'll implement those into the fleet as soon as possible.

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Willard Phaup Milby, Seaport Global Securities LLC, Research Division - Associate Analyst [52]

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Okay. Then I guess, same story for the trailers, having some issues getting those. And maybe back half loaded on those deliveries as well?

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Willard Phaup Milby, Seaport Global Securities LLC, Research Division - Associate Analyst [53]

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Yes. That's a good way to look at it.

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Willard Phaup Milby, Seaport Global Securities LLC, Research Division - Associate Analyst [54]

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Okay. And T.J., if I could touch on the 8 new -- I guess, not new -- but transition to DCs that are up and running fully right now. Are those running as efficiently as you're expecting right now? Could there be improvements? And maybe that's part of why we're gonna see a step-up in the last second half of this year?

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Thomas J. O'Connor, YRC Worldwide Inc. - President of YRC Freight [55]

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Yes, Will, I -- the universal absolute is we expect improvement everywhere. And the 8 new DCs or newest DCs in the system are performing as designed, but we also see some upward opportunity for each of those 8 DCs.

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Willard Phaup Milby, Seaport Global Securities LLC, Research Division - Associate Analyst [56]

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All right. And last one for me. Just I think, Darren, you said that GRI is holding well. Just I was wondering if you all could talk a little bit about that, given that some of the competitors haven't chosen to implement one as of yet.

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [57]

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Yes, we measure that from a retention standpoint. And we're seeing as good or better retention by geography as we have in years past. So that piece was encouraging to me. And we've seen a large piece of the industry follow that and the timing of it was good for the YRC Worldwide company. So...

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Operator [58]

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Our next question is a follow-up from Brad Delco of Stephens.

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Albert Brad Delco, Stephens Inc., Research Division - MD [59]

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Darren or T.J., you guys are rolling out the line haul optimization and the P&D optimization software. Can you just give us an update on where that stands? And then to the extent you can provide us any metrics like what improvement you're seeing with load factor or other sort of metrics? Can you give us some of those to help us sort of gauge the impact that's having on the cost structure?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [60]

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Brad, I'll start with that and then turn it over to T.J. and of course, we don't provide any metrics at that level in the organization. I'm pleased with the optimization effort. I believe that is an opportunity for YRC Freight to have significant, continuous improvement in, and also, I would say in Q1, what I saw from the YRC Freight companies and in that area was impressive from not having the number of diversions and other things in the network. The Quintiq pick up and delivery solution, we've got a -- as the operating officer for the company, the last 3 months, that's been a focus of mine across all of our companies, because it's such an impactful metric. And I like what I'm seeing there. But I'll let T.J. give you an update on the P&D side. So take it away, T.J.

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Thomas J. O'Connor, YRC Worldwide Inc. - President of YRC Freight [61]

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Thanks, Darren. So Brad, I'll tell you that the Quintiq solution is not an office shelf solution, and as I'm digging in and learning more about that in my new role, it's customized at each location. So when we complete an install, we like what we see and as we proceed with that, we still have a fair amount of work to do because it's customized, if not at specific location, certainly by size location and the nuances of particular operations to get it customized to that location, to maximize the benefit of the technology. So that continues to be rolled out, we like what we see. But we still have a fair amount of work to do in terms of full implementation.

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Albert Brad Delco, Stephens Inc., Research Division - MD [62]

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Okay. Maybe, if I can ask it a different way. I mean, when you guys were talking about the opportunities that these systems would have on the organization, have we seen 20% of the benefit at this point or we're seeing 60%? How, as an investor, should they gauge, what's still to come with the investments that have been made on these systems?

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [63]

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I think it's weighted toward -- there's more benefit in front of us than behind us.

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Albert Brad Delco, Stephens Inc., Research Division - MD [64]

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Okay. And then maybe -- I know there's been a lot of questions about equipment. And maybe this is for you Stephanie, given the significant orders we've seen in deliveries to come, has there been any analysis on what impact on returns it may have to buy some of these 4- or 5-year-old used equipment? Or these tractors that may come on the market here over the next 6 to 9 months? Is that even being contemplated? Or is it sort of new? And I guess why?

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [65]

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Yes. So, absolutely, we're always looking at the used markets. Part of what doesn't make those attractive is sometimes the specs aren't right for us. So we absolutely look at any piece of used equipment that we can find, but we often find that they aren't to the specs that we like. What we are doing though, as units are coming up for either lease renewal internally or coming off lease, we are purchasing those as we are able. So you'll see more purchases in 2018 than we've done in the recent past, and we'll continue to evaluate purchase versus lease, as we continue to grow liquidity.

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Albert Brad Delco, Stephens Inc., Research Division - MD [66]

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Just to make sure I understand that, so instead of renewing some operating leases, you'll be purchasing these assets and you still expect to sort of grow your cash balance to $150 million to $200 million by end of the year.

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Stephanie D. Fisher, YRC Worldwide Inc. - CFO [67]

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Exactly.

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Operator [68]

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This concludes our question-and-answer session. I would like to turn the conference back over to the company for any closing remarks.

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Darren D. Hawkins, YRC Worldwide Inc. - CEO [69]

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Thank you, operator. I'm excited about the opportunity that we have at YRC Worldwide, and I certainly have a great deal of confidence in our leadership team. The transportation industry and overall business climate remains strong, and we intend to continue the investments that we believe benefit our customers, employees and investors well for the long term. Thanks, again, to everyone for joining us today. Please contact Tony with any follow-up questions that you may have. This concludes our call, and operator I'll turn the call back to you.

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Operator [70]

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The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.