Old Dominion Freight Line Inc (ODFL) — Q1 2015 Transcript

Good morning. Thanks for joining us today for our first quarter conference call. With me this morning are David Congdon, Old Dominion's President and CEO; and Wes Frye, our CFO. After some brief remarks, we will be glad to take your questions. Old Dominion had a great start to 2015 with strong first quarter results despite severe weather in many regions during the quarter and a somewhat stagnant economy. Although our revenue growth for the quarter reflected the expected decline in fuel surcharge, we continued to produce double-digit growth in tons per day with a strong yield improvement. As a result, we achieved a company record for first quarter revenue earnings and operating ratio highlighted by a 200 basis point improvement in OR for the quarter and a 37.7% growth in earnings per diluted share. We continue to credit our substantial and consistent long-term growth with our ability to deliver on-time, claims-free service throughout our expansive network at a fair price. The success of this value proposition reflects the high level of commitment by our outstanding team of dedicated employees. We will continue to provide our employees with the tools and technology with training and education and the infrastructure and equipment capacity that is necessary for us to continue to exceed our customers’ expectations. We expect that our continued successful execution of our business model will drive further growth in market share, earnings and shareholder value. Thanks for being with us today, and now here is David Congdon.

Good morning. We continue to be pleased with Old Dominion’s outstanding performance as evidenced by a strong profitable growth for the first quarter of 2015. Growth in tons per day of 11.4% for the quarter in which our revenue per hundredweight, excluding fuel surcharge, increased 6.2% is a compelling indication of the demand for our truly differentiated value proposition. We continue to deliver on our promise to provide superior customer service during the first quarter with all-time service of over 99% and a cargo claim ratio of just 0.36%. We have been able to sustain this performance over the long term through our focus on execution, discipline and investment. Our success in executing our business model is evidenced by the long-term consistency of our industry-leading service performance. The sustainability of our model has been tested by economic downturns, severe winter weather, strong volume and market recoveries, and even by the 17% increase in employees over the past year. Yet throughout, we have maintained our commitment to best-in-class customer service. Our discipline is also evidenced on the decisions we make every day. We operate a proven, flexible and innovative business model but it requires constant discipline in yield management and investments in our network, people and technology to make it work well. These steady investments in our network infrastructure and equipment have created strong long-term gains in productivity and efficiency, as well as giving us the flexibility to take advantage of industry consolidation and strong volume growth. It also created and continued to enhance a cutting-edge technology-based operation that offers our customers tremendous transparency under the services we provide them. To leverage this investment and capacity in technology, we also invest in our employees. Our focus is not only to give our entire team the education and training they need to exceed our customers’ expectations but also to sustain a companywide service-oriented culture that rewards the innovation and flexibility with which our employees approach their jobs. Old Dominion’s long-term performance validates our business model with a consistent focus on execution, discipline and investment in creating a strong, unique and competitive market position that increases our ability to drive long-term growth in earnings and shareholder value. We think we have also redefined what it takes to be competitive in our industry. Thanks for joining us today and for your interest in Old Dominion. Now Wes will review our financial results for the first quarter in greater detail.

Thank you, David, and good morning. Old Dominion’s revenue was 696.2 million for the first quarter, which was up 12.2% from 620.3 million for the first quarter of 2014. With a 200 basis point improvement in our operating ratio from 85.1 for the previous quarter, earnings per diluted share grew 37.7%, to $0.73 from $0.53 in the first quarter of last year. Our financial results were driven by an 11.4% increase in LTL tonnage per quarter, which was comprised of a 13.5% increase in LTL shipments and a 9.8% decrease in LTL weight per shipment. LTL revenue per hundredweight increased 0.4% for the quarter, and excluding the revenue per hundredweight of fuel surcharge, increased 6.2%. Revenue per hundredweight was favorably affected by the decrease in weight per shipment while the length of haul was roughly flat. Holding the weight per shipment constant, we believe our increase in yield was just under 5% for the first quarter at the net point of our guidance of between 4.5% and 5.5%, which was based upon that assumption. On a monthly basis, LTL tonnage per day increased sequentially by 1.3% for January from December, decreased 0.3% for February and increased 8.3% for March. This performance compared with our 10-year average sequential month trend that shows an increase of 1.9% for January and increase of 3% for February and an increase of 5% for March. From a comparable quarter basis, LTL tonnage per day increased 15.3% for January, 9.4% for February and 9.2% for March. We expect April 2015 LTL tonnage per day to increase approximately 9.5% versus April of 2014. The second quarter of 2015 assumed normalized sequential trends, we expect LTL tonnage per day to increase in a range of 9% to 12% compared with the second quarter of 2014. Monthly, year-over-year tonnage increased during the second quarter of 2014 compared to 2013 by 14.1% in April, 15.5% in May, and 14.8% in June. The second quarter of 2015 has the same number of workdays as the second quarter of 2014. We expect revenue per hundredweight, excluding fuel surcharge, to be in a range of 5.5% to 6% for the second quarter compared to the second quarter of last year. This expectation assumes our year-over-year LTL weight per shipment will be down 3% to 3.5% with a flat length of haul. In April, our LTL weight per shipment is expected to be down 3.4%. Strong improvement in Old Dominion’s operating ratio primarily reflected our increased density and strong yield. A significant decline in yield prices resulted in a 450 basis point reduction in operating supplies and expense. However, the decline in yield prices also decreased our fuel surcharge revenue. Revenue is the denominator in the operating ratio equation. Other expenses expressed as a percent of revenue increased during the quarter as a direct result of the decline in fuel surcharge revenue. For example, hourly wages, salaries, and benefits expenses increased 270 basis points despite only a slight reduction in productivity and an improvement in our group health and workers' compensation costs. Capital expenditures for the first quarter of 2015 were 72.2 million. We continue to estimate CapEx for the entire year of 2015 will be approximately 463.3 million, including planned expenditures of 164.7 million for real estate, 279.8 million for tractors, trailers, and other equipment, and 26.8 million for technology and other assets. After anticipating asset sales, we expect total net CapEx of approximately 458 million, which we plan to fund primarily through operating cash flow as well as our available borrowing capacity, if necessary. Our effective tax rate for the first quarter of 2015 was 38.6% compared with 40.6% for the first quarter of 2014. We expect an effective tax rate of 38.6% for the second quarter of 2015 as well. This concludes our prepared remarks this morning. Operator, we’ll be happy to open the floor for any questions at this time.

Great. Thanks. Good morning, guys. Maybe starting with a question on the cost side, you mentioned the headcount up 17% and as we’re still seeing very robust volume growth but maybe at a slightly slower pace than what we’ve seen in the last several quarters. How should we think about that going forward? Do you feel like you’re staffed appropriately for the growth you expect this year, or should that continue to ramp up? And maybe how do you think about that in terms of the incremental margins you’re able to put up knowing that you don’t give guidance on that topic?

Chris, this is Wes. It’s kind of unusual that we will add – in the first quarter we’ll add employee counts faster than our revenue growth in anticipation of the seasonal uptick in the second quarter, because of one reason, just because of our training timelines, so it’s not unusual. It happens pretty much every first quarter as we anticipate further tonnage growth.

Okay. So this is typical seasonality is the way to think about it. And when you think – thinking about sort of the second quarter and maybe the rest of the year I guess, are you seeing any sort of pockets of softness within the customer base that you’re looking at and sort of how are you guys thinking about maybe sort of the rest of this year as it might play out? Are you a little bit more concerned about the pace of tonnage growth? I know it’s still very robust. You’re taking share. But I just kind of want to get a sense of how you’re thinking about the world.

I guess we can address that by just talking a little bit about some of the details of what we saw in the first quarter. As we mentioned, our weight per shipment in the first quarter was down 1.8%. If you look underneath that, it was clear to us that the biggest industry sector of that decline was in the retail sector. And I think two things went on there. Number one, as you obviously know, the GDP overall and even in the retail sector was fairly stagnant. I think it was like 2.2%. And so we expect that to be slow. And the second thing is the truckload spillover, as you recall, last year; it’s our opinion that the retail sector was diverting a lot of what would normally be truckload over to LTL to get goods to the market. And that’s one reason why we saw and are still seeing a pretty robust velocity in the number of shipments, albeit they’re just lower weight – is that we’re having to get those to the market. We’re still seeing in April, which I mentioned, our weight per shipment is down 3.4% and that we still think that’s still a combination of macro and still a combination of the change and the truckload spillover. So hopefully that helps. It’s just the retail is probably the most – we actually saw industrial weight per shipment in velocity very strong in the first quarter and are still seeing that. So I guess the bottom line is you got to produce it before you sell.

All right, that’s very fair. Thanks for the time, guys. I appreciate it.

Thanks. Good morning. So just following up on that last point. Expectations for weight per shipment continue to be down in the second quarter. What is that sort of telling you about sort of the macro environment going forward? Are your customers concerned about inventory levels? Do you think at some point the consumer will actually start buying some goods? What’s your overall view there?

Allison, this is David. Let me throw in just one more element that Wes didn’t mention, and it has to do with the port strikes and all the backlog of container ships and so forth that when the product finally hit the shores where it can be shipped, shippers were shipping what they had – they’ve been shipping what they had to ship what they had available to ship and waiting for the product to hit the shore. And I think that had an impact on the overall weight per shipment in our industry in the first quarter. Will we see a decline in weight per shipment in second quarter and is it a macro? It’s really hard to say, because the retail shipments were slower in the first quarter, and that’s what Wes was saying, and their shipment sizes were slower. I think a lot of that did have to do with that port congestion and their issues on the West Coast. Another thing that might be affecting our weight per shipment is that it’s obvious that we are winning some market share, and it’s basically coming across the board, across the country. Our industry peer group has a lower weight per shipment than we have. And so it stands to reason that if we’re winning market share then that might be pulling our weight per shipment down a little bit.

Okay. That’s actually good color. And then just following up and speaking about headcounts, just sort of its tonnage and store demand does fall off, what’s your sort of contingency plan for headcount for the balance of the year?

Keep in mind we still guided second quarter to be in a range of 9% tonnage growth, so I wouldn’t call that falling off. But to David’s point, that tonnage is based on the fact that we’re seeing a reduced weight per shipment. And as he also pointed out, we don’t really know. If we do get some traction on retail and GDP in the second quarter, it could be that that weight per shipment does start to go up again.

Another point I’ll add is that you’ve seen our history of managing through downturns, upturns or whatever, we have very good control over how our turns are going and our headcounts that we need to serve our customers and keep our cost in control.

Absolutely. All right, thank you guys so much for the time.

Thanks.

Good morning, gentlemen. Thanks for taking my question. Wes, the first one for you, is there any way to sort of quantify on a year-over-year basis what the weather comp looked like for you? I know weather was an issue this quarter, but was it – anyway you could put dollars to what it was this year versus last year?

Keep in mind, Brad, that there is a way to do it. We just haven’t really spent a lot of time doing it and the reason is, in neither the first quarter of 2014 or 2015 had any spring-like characteristics to it. They were both kind of bad. So to try to get the differential, we take it the differential this year without going back and seeing what the effect was last year, and to tell the truth, we think that that was kind of neutral. And January 2014 was the really tough month of weather in 2014 and it turns out that it looks like February was a really tough month regarding weather this year. So it’s kind of an offset between those two months, but overall they both had very similar negative effects. So to get the differential, it may not be that much and we didn’t take time to look at that. We still improved the operating ratio 200 basis points.

No, results were clearly good. I was just trying to get a sense in terms of a comparison, was it a better weather quarter year-over-year or roughly the same? It sounds like it was roughly the same.

Well, roughly the same as we had last year.

Yes, both terrible in the description, correct.

Wes, regarding your comment about revenue per hundredweight increasing by 5.5% to 6.5% year-over-year, that's an acceleration from what you initially projected for the first quarter. It's clear that weight per shipment will influence that figure. Would it be accurate to say that if you adjust for weight per shipment, the core pricing, excluding mix, is around the 4% range?

I mentioned in my script that if you keep the weight per shipment consistent in both quarters, the revenue per hundredweight yield would have increased by approximately 5%. Considering this perspective and the guidance we provided in the first quarter, which projected increases of 5% and 6.5%, it’s important to note that these figures were based on the assumption that we are at the midpoint of that estimate. If we keep that constant this quarter, we would still be around the 5% range.

Okay. Perfect. That’s just the point of clarification.

I apologize.

No worries. Well, thanks for the time, guys. Congrats on the good quarter.

Hi, there. Good morning. Wes, I just want to ask for a little bit of clarification on some of the second quarter guide. So we’ve got a little bit of slowing tonnage growth but not so bad, but you’ve hired in advance so I assume we’ll see some productivity as those new employees get up and become more productive. We typically think of the second quarter seasonality being a 400 basis point improvement in margins, but second quarter is often a really strong quarter. So how do you weigh those pieces, tonnage growth slowing a little bit, yields holding but productivity getting better? My sense is it could end up being quite a good quarter, even though I know you don’t give guidance, but I’m just trying to think through the puts and takes there.

You want me to answer all those questions? Well, the basic question is, can seasonality, is that a reasonable basis for thinking about the second quarter, because there are a lot of moving parts. I think overall, the second quarter was a little bit tougher comparison evidenced by our tonnage growth in the second quarter '14 over '13, so that the comparisons make it a little bit tougher but still I think the 9% and 10% guidance is based upon what we’re seeing in April and we’re still getting tremendous velocity on a number of shipments. The fact is that the weight per shipment is down to 3.4% and that’s kind of what I based our guidance on. If that should change, then we can be a little more optimistic. But right now, we don’t see that transparency at this point. Hopefully, we will, but we have some slippage over the last five to six months, or maybe even longer on the dock because we had hired so many people and we have so much ongoing training expense with them. And to be honest, I think it takes a dock worker at least six months to get up to speed and get to where he can produce at the level that the more seasoned dock workers produce at. So we would expect some incremental improvement in our dock productivity during the second quarter, because we are fairly stabilized with our quantity of people handling our current shipment levels. The other thing, Bill, our increase in our 559 was effective this year on January 1 of 2015, so we got the benefit in terms of yield on that for the entire quarter, whereas in the second quarter when we looked at kind of the lower – on the yield guidance, it’s based upon the fact that last year we had a May 1 implementation. And I know that the yield guidance was actually stronger in the second quarter than what actually was in the first quarter, but that’s because the weight per shipment is down 3% as opposed to 1.8 in the first.

Okay, that’s very helpful color. David, I would like to sort of run one question by you and I know – we don’t know if this will happen yet, but in so far as we got 33-foot trailers approved here, Old Dominion’s always been out and ahead on productivity. How big a deal is that for you from a productivity standpoint?

I think it will be – take a little bit longer to gain the productivity on this because if we get 33-foot trailers, we will obviously shift the production of 28s to 33s and start gradually putting them into our network and determining which traffic lanes we will be running these 33s in. So I see us implementing this thing on some of our longest haul lanes that had the highest amount of freight lane density first. So it will be something that we will be putting them in as we buy new trailers. We have not made any decisions yet on retrofitting or extending our current 28s. The cost of that has turned up a little bit higher than we originally thought, but I just see it as not a major transformational thing. If we were able to haul triple trailers all of a sudden across the country, then we’d see a transformational change.

Okay, very helpful. I appreciate the time. Thanks so much.

Thanks. Good morning. I have a question on labor productivity. Your shipments per employee or tonnage per employee have been sort of trending down since 2013. And I know you said that you’re adding headcount ahead of growth, which makes a lot of sense. But I’m wondering, can you get back to 2011, '12 levels of productivity and how long does that take?

Obviously, you’re dividing that by total employees and total employees, all of them don’t move freight. And so we’ve been into monetization and we’ve had to add IT resources and others as we grow. But I think we can still get back as we – of course, getting back to that productivity somewhat implies that maybe we’re not growing as strong, and we don’t think that that will be the case. We’ll always have a certain amount of new employees that are in the training mode, as David mentioned earlier. But I certainly think that we can get back to the '12, '13 levels. But the dynamics of freight moving continues to change and more and more requests for appointment freight and certain characteristics that just take more labor as well. Now the question is, if that happens, can you get that in the price, and apparently, we’ve been very successful in doing that.

Yes, that’s definitely right. And I guess just also with regard to utilization levels since I’m trying to understand, like your incremental costs associated with additional volume you’re bringing on. I’m wondering where are your service yield utilization rates at presently? And can you continue to push more shipments or more tonnage through per station?

Yes, that’s an ongoing process when it comes to service centers and capacity and how much more you can push through stations. As evidenced by our CapEx for service centers, we continually have to expand and/or build new centers for our largest cities where we grow the fastest, whereas some of the smaller cities that we may have 50 doors in the city that only needs 20 or 25 and heck you could more than – we could handle a heck of a lot more freight through some of our service centers. So it’s just kind of an ongoing evolutionary thing.

Hi, Earl. Hi, David. Hi, Wes. Guys, thanks for the time this morning. Wes, going back to the weight per shipment trends, obviously the West Coast port is probably throwing a little monkey wrench in the comparison. Are you seeing now in 2Q, now that the port stuff moving and the cleanup going through, are you seeing more retail shipments here early in 2Q?

I’ll say that the weight per retail shipments starting off in April is not down as much as what it was in the first quarter, so that’s an indication that perhaps it has improved. It’s still not positive, it’s still down but that would indicate some improvement there.

So is the weight per shipment on the industrial side that’s dragging down more in 2Q then for you?

Well, the weight per shipment on the industrial side in the first quarter was relatively flat. At least in April at this point, we’re seeing it down slightly. So they produced them in the first quarter. Now they’re moving them and now they got to start producing some more. But we still see the macro at this point. I don’t know how else to characterize it other than very sluggish at this point. And I know the economists are talking about 3% GDP for the year and it was only 0.2% for the first quarter. There should be a pickup in them. So we’ll be interested, as everyone, to see if our weight per shipment and demand increases. And to tell the truth, we expect it to.

You know how estimates are, Wes. You make estimates and you make them often. On the 3PL side of business that you’re doing with the 3PL, are you seeing a change in the shipments that you’re getting from them either up or down?

About the same. In the second quarter, weight per shipment for our 3PL and logistics partners were maybe down slightly but okay and it’s still down. But keep in mind that that’s a pretty good mix of retail, industrial and we don’t necessarily have transparency on that across the board. But we still are growing favorably and developing very good relationships with our 3PL partners.

Okay. I think, Wes, that about does it for me, so I appreciate the time as always.

Thank you, Jason.

Hi. Thanks. Good morning, guys. As a quick follow up to Jason’s last question, Wes, with your comments about the 3PL shipments, were you speaking as a percentage of your total shipments or just the absolute numbers in terms of it being flattish to slightly down?

I was speaking of the weight per shipment, Rob, on 3PL in the first quarter.

Okay. I guess, Wes, then if you’re thinking about just the overall shipments, did that remain pretty constant as a percentage of the book or it kind of tail off?

It remains fairly constant but growing. Right now, it’s around 34% to 35% of our total shipments. Okay, that’s really helpful. Wes, if I could switch gears a little bit to some of the ancillary services that you’re offering, it looked like that growth accelerated a little bit last quarter. How are you guys thinking about the growth there? Are there any new verticals that you’re adding to the suite of services like kind of the home delivery – well, not home delivery but home movement services that you’re already offering and the dredge business? Of course, in the first quarter, our dredge business was significantly impacted by the West Coast ports, as you might imagine, and resurgence there as we speak. And as far as the home moving, of course, that’s a seasonal business and while it’s growing very nicely, we expect that to continue to grow at least from a revenue standpoint. So we expect still continued growth in all those services; freight, forwarding, dredge and our specialized LTL services like home moving and expedited. So we do expect a couple of brokerage and we do expect continued growth in all these segments of our business.

Okay. So it sounds like it was just more execution as opposed to adding any new services in terms of last quarter.

I think so, yes.

Great. Thanks. Good morning. I just wanted to ask on the balance between share repurchases and CapEx, it’s going to be a heavy CapEx year and it feels like it’s going to be building in the next couple of quarters. You were buying back some stock here in the first quarter. How do you think about share repurchases? Do you look at that opportunistically? And if CapEx is going to go up, do the share repurchases slow then?

No, not at all. I think we have a strong organization structure that we will do both. And keep in mind we are in fact doing both. We have repurchased just under 28 million of shares since its effective date in December currently and that’s on the – even though we’ve indicated 460 million of CapEx. So we will still be both, executing and investing in growth in terms of our network, et cetera, while also looking at returning proceeds to shareholders in terms of repurchase. So I think our balance sheet, our structure, our profitability and margins allow us to do both, and we’ll continue to look at that.

Okay, that helps. And then, Wes, just maybe a follow up for you. The insurance and claims here in the quarter, do you view that as kind of a normal rate for the first quarter? Was there anything that was elevated? And how do we think about that going forward? It’s a good number. I was just curious if you viewed that as being normal for the first quarter.

Yes, we’ve observed that this is fairly normal, which includes our DIPD coverage as well as our cargo claims. We’ve been actively managing both of these expenses, and we continue to see that as a positive figure, regardless of whether it increases or decreases as a percentage of revenue. As mentioned in our script, the perception of that isn't as significant as it may seem.

We showed it going from 1.3% to 1.4%. But if the revenue is down because of the fuel surcharge, the number is actually better as a percent of our fuel surcharge revenue.

That’s a good point. I’d say probably it’s more flattish, but I think that’s a range we expect to maintain this year.

Yes, and that’s why I framed up the question the way I did because I think it’s optically a little bit confusing, so I just wanted to get your thoughts on how insurance felt during the quarter. So I think I got what I need with that. Thanks for the time this morning.

Thanks, Todd.

Good morning, gentlemen.

Good morning, David.

There’s been a lot of M&A activity in the 3PL landscape and you talked about having a good amount of your business moving through the 3PL network. Can you talk about any impact you’ve seen from consolidation of the larger brokers on the business or how you see that playing out in the marketplace?

David, I don’t think – as far as we’re concerned, we’ve not seen any effect on our relationships with the 3PLs that we do business with. Our stance on how we work with 3PLs will remain the same and we’ve had successful relationships with 3PLs.

And then just on the equipment side, you guys spending over 270 million this year. Anything different in what you’re buying versus prior years in terms of new specs for the tractors, different brands or OEMs, different engine types, anything there that’s changing?

Our mix of brands is the same this year as it has been the last couple of years from the tractor standpoint; trailers are about the same. There’s nothing in particular different in any major way; mix of engines and the whole thing it’s all about the same. We’ve testing some automatic transmissions or what they call it, semiautomatic transmissions, but we’re not – haven’t moved ahead with anything in a big way on that.

Have you guys looked into nat gas trucks at all for any of the P&D routes? What’s your current thinking there?

We’ve been observing the natural gas developments over the last few years and we are certainly taking a wait-and-see approach. We don’t believe we are prepared for that, nor is it ready for us.

Keep in mind, David, that our tractors that are used in the P&D routes were previously line haul tractors as we get the 10-year economic life, so we do not buy a separate pickup and delivery fleet, so that makes it a little more cumbersome to try. And in line haul, clearly, natural gas just isn’t even close to being practical for us as I assume for the industry.

Excellent. Thank you very much.

Hi. Thanks. Good morning, guys.

Good morning.

So, I wanted to ask about the impact of fuel and from a couple sides here, do you have a kind of an estimate on how it may have hurt the operating income or not in the quarter, and how you think it might impact second quarter? And then just separately on fuels, since you guys didn’t change the fuel surcharge or I don’t think you changed the fuel surcharge, have you heard from customers that that’s been an impact in terms of incremental market share gains for you?

On your first question, yes, we did realize a little bit tailwind in the first quarter, maybe 20 to 30 basis points on the fuel. We expect that to reverse to a slight headwind as the year progresses and as fuel costs start to go up, and fuel surcharge perhaps lags that a little bit. So that was our current. What was your other question, Scott?

About the surcharge and the customers, we have not had obviously not a lot of direct feedback nor any way to really measure whether our stance of not taking the increases on our fuel surcharge tables, whether that has contributed to market share gains we really have not – it’s impossible to measure that. I would just say that our 559, which is where that was reflected saw pretty nice growth in the first quarter.

And not necessarily above what would be the overall, it’s hard to make a conclusion that we got additional, but we still think that was the fair thing for us and the right thing for us to do.

No, that makes sense. And then I know there were a bunch of questions already on headcount, but I don’t think I heard – did you give an estimate of what headcount is going to be up in the second quarter?

We have not given that guidance.

Okay. And that’s not something you want to share with us?

Right.

Okay. And then one last thing, just how does lower weight per shipment impact incremental margin? We understand the impact on revenue per hundredweight, but I’m not sure I’m clear on how it impacts incremental margins?

Well, we had a lower weight per shipment in the first quarter and I think our incremental margin was 30%.

Okay. Thank you.

If you think about that versus overall yield and density across the network, I think yield and density across the network were more influential to our 200 basis point improvement in OR. It would have maybe a slight negative effect on the incremental margin in that. We do haul shipments. So we’re hauling more shipments, which means that you got more movement on that, but the impact would have been minimal. As David points out, the real question is are you getting appropriately compensated in terms of yields. And certainly we have and expect to.

Okay, helpful guys. Thank you.

Hi, guys. Good morning.

Good morning.

Just with how weird this economy is and that, I’m just kind of wondering if you’ve had any major shifts in kind of the breakdown between your overnight, second day, and third day deliveries? I kind of look at it as about 30% overnight, 40% second day, and 30% third day or later but it’s been a while since I’ve asked you about that.

It’s been relatively constant although our overnight and second day is growing perhaps slightly more than our longer haul, and that’s kind of been the trend. But other than that, we haven’t seen any sudden or significant shifts in that.

Okay. And then, David, on the issue of the 33-foot trailers, do you have some thoughts on either age or mileage where you would use a trailer kit to expand the length of the trailer versus buying brand new 33 footers?

We are keeping our trailers, our pup trailers in the range of – I think it’s 18 to 20 years. Is that about right, Wes?

Yes.

And so I think you would probably only make a conversion if they were less than 10 years old would be my – that’s just my educated guess right now.

Okay. Obviously if it gets past, you’ll study it a little bit more. The other thing kind of back to the headcount, would it be fair to sort of extrapolate that there’s a good chance your headcount will actually lag your tonnage growth in the second quarter, just because you already did so much advance hiring?

It could go either way.

Okay. And you’re still actively hiring quite a bit it sounds like then at least at the beginning of the quarter.

And even at a – sequentially, our tonnage will be obviously higher in the second quarter than the first, and year-over-year we’ve only discussed 9% to 10% tonnage growth. And even more shipments growth. Keep in mind that probably the more comparable metric is number of shipments growth with respect to employees, not tonnage growth, because we actually move shipments, not necessarily tonnage. So we anticipate with the tonnage growth that the shipment growth will be higher, and that means we got to have the people in place to move it. So we would definitely be hiring people during the second quarter because June will be another peak month, just like March is the peak month to the first quarter; June is the peak month to the second quarter. And we’ve got to be getting geared up to be able to handle the volumes in June. And then we hope everybody takes a little bit of a vacation in July and then here we go again in the peak in September.

Last question, just on a typical week or month, however you might look at it, approximately what percentage of your shipments are being run through a freight dimensioner?

Keep in mind we don’t – the percentage isn’t necessary relevant. I mean if you’ve got a customer and you need to run – say it’s a new customer. You only get a sampling of that shipment to see if the cube and the weight per cube is what was agreed on from a pricing standpoint. If I had to guess, I would say 30% to 40% of our shipments go through a dimensioner on a daily basis.

Okay, that’s helpful. Thank you. I appreciate it.

Wes, you – thanks for taking my question. You said earlier that your next day business is up a little more than the long haul business. Does that mean expedited, your expedited shipments are going faster than your overall business?

Well, keep in mind expedited doesn’t necessarily mean next day. Expedited is expedite regardless of the length of haul. If we have a customer that needs a shipment going from the East Coast to West Coast, that’s expedited but that doesn’t necessarily has anything to do with the transit time is with the immediacy of the shipment. So that wouldn’t necessarily be the reason why our next day shipments as a percent of overall is increasing. It’s just – one of the things, it isn’t continued growth in our regional obviously business, but it’s not necessarily expedited.

Right. So is expedited increasing about the same as your overall business or faster?

Faster.

Faster. And is that any change or that’s – it seems like in the past, it hadn’t grown faster but maybe it has.

Yes, it has.

Yes, it has and I’m not sure how you know that number, because we don’t disclose that amount of detail.

Just guessing.

It’s coming off a lower pace of revenue too, so that’s why the percentage of growth might be faster.

All right, thanks a lot.

Hi. Good morning, guys. Wes, can you remind us what type of sensitivity do you have to the 15% to 20% long-term incremental margins that you’ve guided to, specifically on the bottom end? What is the bottom end of that incremental margin target assume from a core pricing standpoint? And is the bigger risk to falling below that long-term incremental margin target range, is it core price or is it continued productivity gains?

I think as long as the macro is in place doing okay, as long as we see continued discipline from a pricing standpoint and assuming that we still have the density improvements, all of which we think is the case, there’s no reason why our incremental margin will be definitely at the high-end range. And of course it’s been above that with those ingredients in place. For it to get to the low range, I think we will have to pursue all of those things having a negative effect and therefore just not doing well, and that’s for you and the economists to decide if that ever happens. But that would be the reason why it would ever get down to the low end of that range would be because of those factors for it being not positive.

Okay, that’s really helpful. Thanks.

Well, as always, thank you all for your participation today. We appreciate your questions and your support of Old Dominion. Feel free to call us if you have any further questions. Thank you and good day.