Yellow Corporation

Bri Simoneau - Vice President and Controller Darren Hawkins - Chief Executive Officer Stephanie Fisher - Chief Financial Officer T.J. O’Connor - President, YRC Freight

Brad Delco - Stephens Scott Group - Wolfe Research David Ross - Stifel Jeff Hoffman - Loop Capital Willard Milby - Seaport Global Securities

Thank you, Operator, and good morning, everyone. Welcome to YRC Worldwide’s third 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; and T.J. O’Connor, President of YRC Freight.

Before we begin, I must remind you of 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 these risk factors. For a full discussion of the risk factors that could cause the 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 reconciliation of net income to adjusted EBITDA on a consolidated basis and operating income 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.

The 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 includes an overview of the third quarter from Darren followed by Stephanie who will discuss our financial results and T.J.

who will provide an update on YRC Freight. Following the prepared remarks, Darren, Stephanie and T.J.

will be available for a question-and-answer session. I will now turn the call over to Darren.

Thank you, Brianne, and good morning, everyone. For the third quarter, our LTM adjusted EBITDA improved $15.8 million to $289.2 million, the highest level in nearly two years, which reflects the continued execution on the strategies we laid out at the beginning of the year.

Our focus has been on yield discipline, reducing expensive local purchase transportation and exiting short-term rentals. We saw positive progress in all three of these areas during the quarter.

The strong freight environment has served as a catalyst for solid yield expansion as each of our segments continue to execute on improving freight mix, while also driving price which are evidenced by our contractual rate increases averaging approximately 7.4% and the deployment of dimensioners throughout our companies continues to protect these positive trends. Looking into October, these pricing trends remain strong.

As I have stated in the past as long as our companies are in the band of slightly negative to slightly positive tonnage, we will continue to prioritize price overbuy to ensure we maintain optimal mix in our network, while balancing our revenue equipment and driver capacity to meet the supply chain needs of our 250,000 customers. On a segment basis, YRC Freight reported its sixth consecutive quarter of positive year-over-year increases in revenue per hundredweight excluding feel.

As you will hear from T.J., YRC Freight had positive expansion in revenue, revenue per hundredweight, revenue per shipment, operating income, operating ratio and adjusted EBITDA. The regional carriers reported their highest year-over-year increase in revenue per hundredweight excluding fuel in more than 10 years.

However, our largest regional carrier with a footprint and one of the most competitive driver hiring markets in North America was forced to turn away profitable business due to compacts of the constraints, which along with fleet maintenance negatively impacted the overall regional segment results. Our regional companies have invested in additional recruiting resources, including dock to drive programs, internal driving skills, military recruiting partnerships and CDL tuition reimbursement.

The fleet is always the underlying story. We continue to make solid progress on the reinvestment for tractors and trailers in Q3, through the first nine months of 2018, we have taken delivery of more than 1,000 tractors, the majority of which benefited the YRC Freight segment and provided operational improvement in our Q3 results.

We expect to take delivery on another 300 tractors in the fourth quarter, which are being deployed at our largest regional carrier to offset the rise and maintenance expense. We have also taken delivery of more than 2,300 trailers with another 1,500 expected to be delivered this year.

As a reminder our new tractors come with enhanced safety equipment and generate positive returns to the improve fuel mileage, lower maintenance expense and enhance driver satisfaction while driving short-term rentals out of our networks. On the labor front, we are in the fifth year of a five year agreement that expires March 31, 2019.

As a reminder we renegotiated our largest debt instrument in the third quarter of 2017 and extended the maturity day to July 2022, which separated the maturity of the loan from the expiration date of the labor agreement. We have not formally started negotiations, but anticipate that occurring later this year or in early 2019.

In closing, we expanded revenue while executing our yield strategy. While generally in line with expectations we incurred unfavorable adjustments primarily associated with a single significant third-party claim, and higher than expected vehicle maintenance, which we addressed with the onboarding of new equipment.

I would like to thank our nearly 32,000 employees for placing safety first in everything they do, and for their continued loyalty and dedication to deliver award winning customer service. With these comments, I will now turn the call over to Stephanie for a review of our financial results.

Thank you, Darren, and good morning, everyone. For the third quarter 2018 YRC Worldwide reported consolidated revenue growth of 4.2% or $1.3 billion, which is up from $1.25 billion in the third quarter 2017.

Operating income was $41.2 million, which included a net loss from property disposals of $1.9 million. This compares to operating income of $43.4 million, which included a net loss on property disposals of $1.3 million in the third quarter 2017.

On an adjusted EBITDA basis, the company reported $84.2 million for the third quarter 2018, compared to $81.4 million for the same period last year. The earnings release and presentation issued this morning includes segment financial information and statistics.

Therefore, I will keep my segment comments focused on a few key third quarter stats. At YRC Freight, the third quarter 2018 year-over-year tonnage per day was down 4%.

This was comprised of year-over-year decreases of 3.8% in July, 3.1% in August and 4.9% in September. Preliminary results for October indicate YRC Freight’s year-over-year tonnage per day was down approximately 7%.

For the third quarter 2018, year-over-year revenue per hundredweight, including fuel surcharge, was up 7.1% and revenue per hundredweight, excluding fuel surcharge was up 4.8%. Year-over-year revenue per shipment, including fuel surcharge was, up 6.8% and up 4.4%, when excluding fuel surcharge.

In terms of October tonnage, it’s important to note that the decline is largely influenced by truckload shipment, which is showing a year-over-year tonnage decline for the first time in 2018. While shipments over 10,000 pounds have a meaningful impact to our tonnage statistics, our shipment per day trends are consistent with the three prior quarters in 2018.

Turning to the stats for the Regional segment, the third quarter 2018 year-over-year tonnage per day was down 5%. This was comprised of year-over-year decreases 6.3% in July, 3.4% in August and 5.4% in September.

Preliminary results for October indicate the Regional segment year-over-year tonnage per day was down approximately 6%. For the third quarter of 2018, year-over-year revenue for hundredweight, including fuel surcharge was up 8.5% and revenue for hundredweight excluding fuel surcharge was up 6.3%.

Year-over-year revenue per shipment including fuel surcharge was up 10.6% and up 8.4% when excluding fuel surcharge. Overall, our operating performance is consistent with our expectations.

Growing yields were minimizing third-party transportation cost. As Darren noted, we expected volume declines in our networks as we worked to manage our freight mix for profitability and address capital reinvestment to our fleet and driver capacities constraints that are affecting certain markets.

Having said this, I want to address our performance with respect to operating income. On the positive side, we successfully executed on our commitment to reduce the usage of local purchased transportation and short-term rentals for revenue equipment, which resulted in a decrease of $6.2 million for the third quarter compared to the same period in 2017.

Offsetting this progress in purchased transportation, our unfavorable adjustments on third-party claims for the third quarter 2018, resulting in an increase of $5.5 million as compared to the same period in 2017, an unfavorable vehicle maintenance expense of nearly $2 million for our Regional segment as most of the new tractors placed into service in 2018 went to YRC Freight. Finally, as it relates to operating income, our rebuilds reflect increased costs for the third-party customer specific logistics solution.

It’s important to note that these services result in incremental margin and our expansion of our existing logistics business to address the increasing complexities of our customer supply chains and evolving business requirements. In the environment that we operate in, our customers are looking for a suite of solutions that complete the LCL services we provide.

Additionally, during the third quarter of 2018, we incurred a non-union pension settlement charge of $7.2 million at YRC Freight. We expect an additional charge in the fourth quarter ranging from $3 million to $7 million based on projected lump sums for the remainder of the year.

Moving to liquidity, our cash and cash equivalents and managed accessibility under the ABL facility at September 30, 2018 was $225.2 million, which is an improvement of approximately $15 million from the end of the third quarter 2017. The company’s total debt at the end of the third quarter 2018 was $904.4 million which is a reduction of $58 million compared to a year ago.

Consistent with Darren’s earlier comments, we are committed to reinvest in our fleet and during the third quarter we spent $45.9 million on capital expenditures. Additionally, we entered into new leases for revenue equipment with capital value equivalent of $32.2 million for a total of $78.1 million or 6% of operating revenue.

Recurring in our credit facility covenant at the end of the third quarter 2018, the last 12 months consolidated adjusted EBITDA was $289.2 million and the funded debt to adjusted EBITDA ratio was 3.13 times, compared to a maximum credit facility covenant of 3.5 times. The covenant maximum remains at 3.5 times through the end of 2018.

This week YRC Freight closed on the sale of one of two docks at their Harrisburg Pennsylvania facility. Harrisburg remains a critical location for YRC Freight.

However, due to the network enhancements that were implemented in 4Q 2017, the operations at Harrisburg are now managed on only one dock. The sale generated approximately $31 million in net cash proceeds and our fourth quarter operating income and adjusted EBITDA results will reflect a property gain of approximately $29 million.

This gain will not be excluded from our adjusted EBITDA as we have continuing operations at this facility on the remaining docks. Net proceeds from the sale are first offered to our term loan lenders, which would reduce future required principal payments for the near-term.

At this time, I will turn the call over to T.J. to discuss YRC Freight.

Thank you, Stephanie, and good morning, everyone. In the third quarter, YRC Freight reported year-over-year increases in revenue, operating income, operating ratio and adjusted EBITDA, with adjusted EBITDA reaching the highest third quarter level since 2007, 11 years ago.

We obtained customer contract increases averaging 7% in the third quarter, which reflects the overall strength of the freight industry, as well as our continued efforts to secure the right kind of business at the right price for our network. Our current business levels along with the receipt of new tractors have allowed us to make meaningful reductions in our use of expensive local purchase transportation, virtually eliminating short-term track rentals, while improving our fuel efficiency and reducing our vehicle maintenance costs.

We are encouraged with our earnings growth, which would have been stronger if they have been not for A, single third-party claim which occurred in 3Q. Similar to last quarter, while our overall tonnage was down in the third quarter, we experienced year-over-year growth in shipments over 10,000 pounds due to the tight truckload market and efforts of our sales force to secure this business.

As a reminder, although, the absolute number of truckload shipments handled remains a small percentage of the overall shipments, the much higher weight per shipment in excess of 14,000 pounds can had a meaningful impact on the revenue metrics we report. While unfavorably impacting our overall revenue for hundredweight results, the increase in volume shipments had a positive impact on our tonnage and revenue per shipment statistics.

We remain confident that we are placing the volume shipments appropriately to then be profitable and also to assist in balancing the YRC Freight’s network. As stated by both Darren and Stephanie, we made good progress on replenishing our trailer fleet in 3Q and have now received over two-thirds of our orders for the year.

Looking forward, our focus will remain on execution the strategic initiatives of enhancing safety, service, efficiency and quality, as well as driver hiring. I am pleased with the progress we are making and remain confident in our continued improvement.

I would like to thank all members of YRC Freight team for their continued efforts to meet our customers’ needs and expectations each and every day. Thanks for your time this morning.

We would now be happy to answer any questions that you may have.

Hey. Good morning, guys.

Good morning, Brad.

Hi, Brad.

I guess, I just -- the real big question I think on most people’s minds is we are in one of the strongest LTL environments we have seen with yields and we haven’t really seen the margin improvement or the operating income or EBITDA performance I think that most were expecting. So I know there have been some puts and takes on the local PT, on rentals, on third-party claims and on maintenance, but at the end of the day how can we have some visibility on this really strong yield environment driving margin improvement in earnings growth?

Brad, this is Darren. I will start out with that and then let Stephanie jump in as needed.

Certainly, the yield piece, we are proud of that initiative has played out like we described. As, I mentioned in this script, the fleet is certainly always the underlying story of our company.

We have made a lot of progress there this year and moves faster than we have and certainly this environment has allowed that with the over a 1,000 tractors that we brought in. From a maintenance perspective YRC Freight showing good progress in that area and outside of the significant claim that we mentioned YRC Freight had good progress in Q3.

From a regional perspective, certainly driver hiring is a focus there, but also the tractor and trailer situation caught up with us at the largest regional carrier, which we are correcting as we speak with 300 tractors, that’s coming into their networks, with the EBITDA margin, we see at the regional carriers, and the value proposition they bring, I have got a lot of confidence there and what we are doing and certainly with the additional insertion of tractors and trailers it makes all the difference. But if you were to say what is the main difference between us and some of the other competitors in the market is, as our fleet is older than we would like and we are on a dedicated mission of changing that as quickly as we can.

Okay. And Stephanie, I don’t know, did you want to comment it at all on that?

Well, the only other thing that I would add is to just help on the Darren’s final point on CapEx is that. As we continue to move into 2019, we are going to continue on this cadence of additional equipment into the fleet both at the regional segment and at YRC Freight to help alleviate the vehicle maintenance issues, any additional purchase transportation we experience from short term rentals, that started in third quarter last year, we really got a good handle on that here in 2018 and now we will continue to focus on the vehicle maintenance expense with additional equipment.

So this will be a cadence that you will continue to see as we move into 2019 as well.

Okay. And then, Stephanie, I just want to touch base on something you said.

You said there would be a $29 million gain in fourth quarter and that would not be excluded from adjusted EBITDA?

Yeah. That’s correct.

So according to our term loan adjusted EBITDA definition of property gains and losses from properties that have continuing operations are not an exclusion, and so therefore, it will be part of our adjusted EBITDA calculation in the fourth quarter.

Brad and just to elaborate little further on that from the Harrisburg Pennsylvania standpoint that was one of the largest facilities in YRC Freight’s network. And you remember when we did the network enhancement in 2017 and opened additional sort centers that relieved congestion and pressure at Harrisburg.

We went into some detail back then about the inefficiency of operating a single facility with two separate docks. We also gain efficiency at the larger dock that we still operate out of and use in Harrisburg.

Okay. I think that’s it from me for now, but I will get back in queue.

Thanks guys.

Hey. Thanks, Brad.

Thanks, Brad.

Hey. Thanks.

Good morning, guys.

Good morning, Scott.

Good morning.

So, is there a tonnage level where you say, hey, we have gone too far on price and we need to sort of soften that because we can’t have tonnage down 7%?

Yeah. When I talk about that narrow bands and especially when we look at what played out in October, the tonnage decline was larger than what we have been seeing but that was in the truckload category, the shipments stayed consistent with where we have been throughout the year certainly with our recapitalization plan.

We are going to continue to prioritize price overbuy.

And so we have had three LTLs report so far, they are all seeing weaker tonnage, slower tonnage in October at some point you have got to think slower tonnage leads to slower pricing for LTL, is there, when do you get start to worry about sustainability of some of these pricing increases that are obviously really good right now?

Certainly we see October with the same strength that we saw in Q3, that hasn’t led up any. We see our peak in the fourth quarter, the second week in November through the second week of December that’s largely been the case for the last four years or five years with our increasing exposure to e-commerce.

I feel good about where we are at, what’s in front of us the pricing discipline that we have got in play. I think a lot of that comes as much from the full deployment of dimensioners, in the past we would see decline quicker, now we have got such a clear view of the actual pounds per cubic foot for shipments that are moving in our networks that we are able to stay very consistent with pricing and also as we bring our new business we know right away whether it’s contributing like we planned and we addressed that much earlier in the shipping cycles with our customers.

When I look at the volume of negotiations that we have done this year, it gives me confidence just because of the large majority of those in the second half rolled all the way through the second half of next year. It -- the LTL side of the business still feels firm to us.

Okay. When I think about this truckload rated freight sort of going away again.

Is this better or higher or lower margin business than your LTL -- traditional LTL freight?

Typically the heavier weight shipments we handle come with nice margin, because we are pricing those based on empty lane movements in our network and they have a high contribution to our overall efficiency. So the point T.J.

was making in his statement was just that. At our national carrier, it makes a nice positive contribution and typically even when the truckload market is not as tight as it has been, we are successful in securing those loads on a spot basis.

As with the number of customers we have got doing business with our companies, we have a high level of quoting activity on our spot markets on a daily basis, which typically provides value to the customer and is a very nice complement to our network.

So, with that, my just big picture if we -- if next year is a year of mid single-digit yield but mid single-digit decline in tonnage, is that environment where you think margins at freight will improve?

I really like to position YRC freight is in and when I mention with Brad about the equipment, the fleet always being the underlying story that’s just that. What I am seeing going on at YRC Freight right now just with the injection of the large number of tractors and as Stephanie mentioned that we are going to stay on that cadence, it really makes a big difference for them.

I am excited to see that same game plan play out at the Regionals over the next two quarters and the fleet is the underlying story and with what we are doing in that area and launching these into our long haul networks gives me a lot of confidence about 2019.

Okay. Why don’t you just sort of talk about potential labor disruptions at UPS Freight.

Are you hearing anything from the customer about maybe moving some business your way, do you think that the business is going to want to move, if there is business moving around do you think it’s going to want to move to another union carrier, are there customers that just like to deal with unions and so you’d have the first shot at that business?

Well, certainly, we have seen this movie before and specifically with us involved, so I won’t comment specifically on what’s going on there. I will say that from a timing aspect, October is -- when you go way back October used to be one of the peaks of the year, is no longer the case, e-commerce and changes in the industrial economy overall have changed that.

October is typically a month now for the last in modern times, the last six years or seven years where LTL carriers to get an opportunity to really get their networks reset after the summer and after all the employees are back from vacation, we get a good level set, we typically get into some good efficiency in October, because our networks are running much smoother. So from a timing aspect there’s some capacity at YRC Worldwide and even what I mentioned about our largest regional carrier, their network is current and they are capable of handling additional shipments in tonnage.

So when I look at the position we are in, if there were to be, if next week were to be busier than it normally is, the YRC Worldwide companies are in a decent position to handle that. Now I will say nothing changes with our pricing philosophy, our focus on not bringing a lot of short term rentals into our network from a tractor and trailer perspective.

We will be very disciplined around our network and not exposing ourselves to expensive short-term rentals. There’s been such nice progress last quarter in that area.

I am not willing to give that back.

Okay. And then just last one just real quick for me, if you are willing, just share any sort of insights as you prepare for your labor negotiations.

Should we think that is the goal more about maintaining the prior concessions from past deals or is the goal about winning additional concessions?

Yeah. I am glad you brought that up, it actually allows me to address it publicly.

And what I said in the script is our only comments naturally, that’s not something we will talk about publicly while we go through the process and address that with what I can say at this time and we anticipate those negotiations beginning either late this year or the beginning, early beginning of next year.

Okay. Thanks a lot for the time guys.

Appreciate it.

Thank you, Scott.

Yes. Good morning, everyone.

Hello, David.

Good morning, David.

Hi.

So back on the equipment side, you know Darren you mentioned keeping up the same cadence on equipment. Does that mean about 300 tractors per quarter, is it that -- what’s going to be added in 4Q, so would that be the biggest quarterly delivery expected in the next year?

I will let Stephanie address that one, David.

Yeah. Good morning, David.

As we look at our 2019 plan for CapEx, it’s about $300 a quarter give or take and we are trying to be diligent about making sure that that gets both at YRC Freight and the regional companies, obviously, the YRC Freight will be taking more just due to the size of their network.

And do you have length of the haul in the quarter?

Hey, David. Good morning.

It’s T.J. So length of haul for the quarter year-over-year, it was up 5 miles, 12 miles to 76 miles versus 12 miles to 71 miles.

And I guess, Darren, if you could go back to the IT roll out in the Optum and the Quintiq and the efficiency gains that you have been talking about for a couple of years, where do we stand on that? You don’t seem to be seeing a lot of the benefits that to come, if there have been hold ups?

Yes. Great question.

That -- the lion’s share of that investment is it YRC Freight and I will let T.J. comment on that.

I will just say that from a Quintiq standpoint as a reminder for everyone, that’s our pickup and delivery technology that we have been installing at the facilities. T.J.

we will have close to 100 terminals up and running by the end of the year on the Quintiq technology and in Q3, even though we don’t report out on individual operating internal metrics, that pickup and delivery progress at YRC Freight was part of their success, especially in eliminating that expensive local purchase transportation. From an Optum standpoint, we have been able to expand Optum’s presence not only at YRC Freight, but also throughout the regional companies, and also with a focus from a network aspect not just on one individual company, but on the floor as a whole as we do interchange freight between the regional companies and with each other and then also with VRC Freight.

So now we have got the ability to plan for that across the entire network not just an individual network. So both those moving nicely VRC Freight seeing the lion’s share the benefit.

I will let T.J. make a few comments as he see in that a positive exposure in Q3.

Yeah. Thanks, Darren.

So, David, I would say that while we will be up to close to 100 installs by the end of this year, each install is a unique application. We don’t have an off-the-shelf solution, that, we can deploy across 259 locations, so simultaneously or even sequentially rather we have to understand unique customer requirements by location and so it is intensive labor work to document standardize, and implemented plans that to take all of those requirements into account.

We are making nice progress on it, when, I say that we are into -- close to 100 terminals by the end of the year, naturally those are fuller size terminals. So we are getting into next year and we will see some -- of our larger operations impacted by this technology.

And so far what we have seen has given us the confidence of -- that we will see some efficiencies, as -- not just now, but as we go forward and it will be more obvious as we get into larger facilities.

Thanks. And Darren, the stocks are up 21% today, is this somebody doesn’t like what they read obviously.

Are you anymore encouraged today than you were at the beginning of the year, about the margin opportunity and what’s going on at YRC Freight?

Yeah. YRC Freight specifically, they were a, the progress they made in Q3, I like what I see outside of that non what we believe is an unusual event that we spoke about.

I think YRC Freight is in a very good position and they are in a stronger position from an equipment aspect and that’s really been a big holdup for YRC Freight. We have got very good operators in place, the network enhancements that we made at the end of 2017 have worked well and also contributed in a positive way.

I see the Regionals and a similar position that YRC Freight got into in the second half of 2017 from an equipment aspect, but the good news there is it gets corrected much quicker at the Regionals with the injection of equipment that’s coming into the network. So from where I sit, I think we are in a good position to show the progress that we have been talking about and we still stand by our statements earlier this year that our financial performance is weighted toward the second half of the year and we haven’t changed our thoughts about Q4.

Thank you.

Hey, guys. It’s Seldon [ph] on for Amit.

Hi, Seldon.

Could you just give us an update on your monthly tonnage fronts?

Yeah. So do you want a full third quarter or just for October?

I guess September and then October to date as well.

Okay. So for YRC Freight in September down 4.9% and October is projected to be approximately 7%.

And then for the regional segments, September was down 5.4% and October is projected to be down approximately 6%.

Okay. And I think you mentioned earlier that you are comfortable managing by both YRC Freight and Regional, and kind of like a plus or minus tonnage growth.

Is this like what we are seeing in October and September, a little bit weaker than where you are comfortable managing the business or is that still in the range that you feel comfortable?

Yeah. Thank you for the questions.

And when I look at that from a shipment aspect and also from the health of a network standpoint, I am comfortable where we are. Certainly, as I mentioned earlier, even though we were in some capacity constraints early in Q3, this is the time of the year where we do have additional capacity available but we are capable of running our networks efficiently with the shipment counts that we have.

So in our situation and what I have said about the fleet we will continue to focus on the pricing side of the equation and keep the rentals out of the network, keep the expense of local purchased transportation out of the network and gain these efficiencies from the new equipment as we go.

Okay. So could you give us a sense of like how much freight you are pushing away and what the actual underlying demand is with some of your more profitable smaller accounts?

Well, from a customer aspect, that’s one of the big advantages of our company. When you think about the 250,000 customers that we do business with, the long-term relationships we have and then also 384 facilities across North America.

It puts us right where our customers want us to be. I think that’s driven a lot of our success in the contractual negotiations.

We bring a tremendous amount of capacity to the marketplace, and the marketplace has certainly placed value on that, and I think they will continue to do that. From an economic standpoint, the direction of the economy always plays into service-related businesses like ours, but this unique situation of the driver shortage across truckload and LTL, and I believe has gotten more into LTL this year than ever before in my career.

I think that keeps things consistent for us to maintain our strategy of prioritizing price over volume and that we stay sufficient on the volume side as we just manage our networks with a cost conscious mindset.

All right. That’s helpful.

And then, I guess, just looking out next year, is there -- given update on the number of tractors you are bringing online, but is there a kind of like a bogey you need to hit in terms of fleet replacement to start seeing volume growth come back or tonnage growth come back and to see like really any meaningful improvement in operating leverage?

So from a tractor perspective, we just need to continue on that normal cadence of that 6% to 7% of operating revenue. Industry averages in that 5% to 6% range.

So we would be a bit ahead of the industry by bringing on additional tractors and trailers. Most of that will be just replacement tractors and trailers and not really growth, but there is capacity in each of the networks today that we can find from a growth perspective.

Okay. So just I will pass, I will definitely, I guess when we start to see that replacement like the, the new equipment coming online start to meaningfully translate into margin improvement?

Well, we saw that in Q3 at YRC Freight, when we bring the tractors on, there is a 15% improvement in efficiency and they are, there’s no execution risk. Those tractors go into service and go into the longest lanes immediately.

So the benefit comes quickly on all of these and with that cadence staying at the pace that we have done previously this year it will drive improvement every quarter in those areas.

Okay. Could you give us a sense of just on that and this I will wrap up over this, just how the average age of your fleet has kind of trended up this year and maybe if you don’t want to give specific numbers just give us a sense of how it’s changed and maybe how that should change next year.

Just, so we can understand really like how meaningful these replacements are in terms of your entire fleet?

Yeah. We don’t comment on average, it’s certainly older than we would like.

But I will say the progress that we are making in our overall line-haul networks. We have got a segment of tractors that are used in the pickup and delivery.

We have got a segment of tractors that are dual use that are used in both pickup, delivery and line-haul and then we have got a set of tractors that are in our line-haul operations specifically. We are getting those tractors that have the exposure to the most miles replaced quickly and we have made a tremendous amount of progress on the overall percentage of miles that we run as a company-owned equipment that’s three years or newer.

Okay. Thanks for the questions.

Thanks Seldon.

Thank you very much. Hey.

Good morning, everyone.

Hey. Good morning, Jeff.

Hi, Jeff.

Good morning. Quick question for Stephanie and then a couple for Darren and TJ.

Stephanie, if I look through the noise in the quarter what’s the right effective tax rate that I should be thinking about for third quarter and for fourth quarter?

Yeah. So from a tax rate perspective our tax expense is impacted by state and foreign taxes which obviously don’t affect our quarterly tax rate.

I think for us with the NOLs that we have having a normalized tax rate is probably not something that we will have as we think about the state and foreign taxes that we have. So, unfortunately, without giving you a forecast I can’t really give you that number, but normalized from a tax rate perspective probably doesn’t exist for us.

Okay. Let me move on to the fleet and maintenance then.

If I look across both the regional and the YRC Freight, approximately how many tractors and trailers do you have in the total fleet right now?

We have 14,000 tractors and 45,000 trailers.

All right. And can you help me understand and let’s compare it whether you want to look at it as maintenance expense per vehicle or maintenance expense per mile or whatever metric you think is right.

Can you help put in perspective for me what your maintenance expenses for say a truck in its first year versus say a vehicle truck or trailer in its fourth year versus say its sixth or seventh year, just so I can get an idea of magnitude of differential.

Jeff, from my perspective what I can share is you know since 2015 those numbers Stephanie gave, since 2015, we have replaced almost a 30% of the tractors and 21% of the trailers. That 15% return, we have mentioned -- that’s even with a leased unit from a tractor perspective, YRC Freight saw a very nice progress in lowering their maintenance expense throughout Q3.

The opposite happened at the Regionals, as YRC Freight got the lion’s share of the tractors this year, and as we transition to the Regionals getting those tractors, as we speak. I expect to see that same trend there from maintenance expense perspective, and it -- they are continuing to go down.

Maybe a different way to ask it, if you replace 30% of the tractors since 2015, is it safe to say that 60% to 70% of your tractors are still getting less than six miles a gallon?

We don’t comment on the actual fuel miles per gallon, but when you get into the age of that category and what the majority of those being in local pickup and delivery operations, I would not argue that -- I would not argue that point at all, Jeff.

Okay. And as you brought in the new equipment, are you -- have you changed nameplates at all?

Or is it still the same models of truck that you were buying previously?

Well, we have got -- we use several OEMs, we use Freightliner, Peterbilt, Kenworth, Volvo and we even go beyond that on some of our strike trucks and other pieces. So we have got a pretty good mix across the board.

We do have a large internal maintenance group and certainly we take into account the number of different models we have and in our fleet to ensure that we are not grabbing maintenance expense in the round direction by not having good consistency there.

Okay. Well, thank you very much.

Thanks, Jeff.

Thanks, Jeff.

Thank you.

Hey. Good morning, everybody.

Just had one on capacity, kind of touching on where Scott was going. You mentioned there is available capacity across the network?

UPS is stopping their pickups as of -- for long haul as of today or tomorrow I believe. Does that make sense to go after incremental freight like that?

Is it, do you see freight like that, it is long lasting or maybe flash in the pan? Is it, as you look at your network, is they kind of a surge of freight from an event like this more disruptive than it’s worth?

Can you kind of comment on strategy wise what makes sense?

Well, yes, I will make a few comments, and I will let T.J. make a few comments.

Certainly, YRC Freight has the most exposure here in the situation and any time you have got a hurricane or weather disruption, one regional network that may be impacted, things like this come along where there’s a lot of shipments that become available in a very short period of time. We have a priority process that we go through existing customers that come to us and make request, and then it goes from there depending on capacity at individual terminals and other pieces.

So we do have a very disciplined process that we go through to work through this event appropriately and make sure it doesn’t disrupt our operations for a long period of time. I will let T.J.

make comments specifically around YRC Freight.

Thank you, Darren. Well, our approach, so this still had a few inquiries recently.

It’s really a hierarchy of how we are going to judiciously use our capacity, and certainly, the hierarchy would include honoring commitments to existing customers and those customers that ask for additional capacity beyond what we currently give them, we would be respectful of that to the degree that we can. And then, certainly, we would look for, we are not going to turn our operation inside out to accommodate a unique opportunity for a week or two week from corporates that don’t have a relationship with us.

So we are going to honor our longstanding relationships, we are going to work in conjunction with our customers to help them as best we can, and we have got a hierarchy setup that really analyzes each opportunity on its own merits. But there is a hierarchy and there is a disciplined approach to how we will use our capacity in any situation that creates new opportunities for us.

All right. And presumably there is a volume commitment at certain prices that you have guaranteed.

Assuming a customer at the top of that hierarchy comes to you with more volumes, how much more incremental is the pricing, say, if they go above and beyond what was already agreed upon?

Yeah. Well, we don’t really get into that, but I would tell you that in this market, it doesn’t make sense to do anything irrational.

Okay. And actually one more on the new equipment, looking to pickup the remaining tractors and trailers here in Q4, has there been any constraints from the actual pickup of the tractors, is that limited your ability to bring in those and then bring those into the network.

It looks like I guess Q3 may be picked up 100 tractors with the 300 anticipated in Q4. Was there a supplier picked up 100 tractors with a 300 anticipated in Q4.

Was there a supplier constraint that kind of limited the Q3 additions? Or was that more intentional?

Yeah. I think that’s just the way our orders were placed for the year and we got quite a few in the first quarter and second quarter.

So it’s just the way the orders were placed for the year, no constraints from the OEM.

Yeah. I will add, we ran into that -- at the beginning -- early at the beginning of the year and actually use some of our drivers to retrieve the tractors from the delivery point, but that has not been the case in the second half of the year.

Their networks appear to be operating well, and we are getting the tractors timely.

All right. I appreciate the color.

Thanks for the time.

Thank you, Will.

Thanks.

Thank you, Operator, and thanks again to everyone for joining us today. Please contact Bri with any follow up questions that you may have.

This concludes our call, and Operator, I am turning the call back to you.