Old Dominion Freight Line Inc (ODFL) — Q1 2021 Transcript

Good morning. And welcome to our first quarter conference call. With me on the call today is Adam Satterfield, our CFO. After some brief remarks, we will be glad to take your questions. We are pleased to report a great start to 2021 for Old Dominion. Our financial results were highlighted by new first quarter records for revenue, operating ratio, and earnings per diluted share. The operating momentum that began in the second half of 2020 continued through the quarter, and we also benefited from an improving domestic economy. Our revenue increased to $1.1 billion as a result, which is the highest level of quarterly revenue we have ever achieved. The 14.1% revenue growth rate was also our highest since the fourth quarter of 2018. After essentially going through two flat years in 2019 and 2020, our revenue was relatively flat over the past two years, which was an unusually long period for us to go without growth. We maintained our commitment to our long-term strategic plan and invested during those times for our future. Our first quarter financial results validate the benefits of this long-term strategy. Our strategic plan has worked throughout many economic cycles. We generally see our largest increases in market share when the domestic economy is strong, and industry capacity is generally limited. This is the environment in which we are now operating. We have also recently received encouraging feedback from many of our customers regarding the ongoing recovery of their business levels and their increased demand for our services. As a result, we expect to see a continued acceleration in our market share trends as we progress through this year. Our focus is never to simply increase market share and revenues. Our objective is to win market share in a way that can produce profitable revenue growth. We achieved this goal in the first quarter, as our ability to deliver best-in-class service at a fair price contributed to the increase in our volumes, resulting improvement in density, and an increase in yield that exceeded cost inflation led to a 76.1% operating ratio for the quarter and a 53% increase in earnings per diluted share. The favorable operating environment and improving trends prompt us to invest significantly in all elements of capacity this year to support our revenue growth initiatives. This starts with our OD family of employees, which already grew by over 1000 new full-time employees during the first quarter. We intend to hire additional employees this year to further increase the capacity of our workforce. In addition, we will support our team's ability to deliver superior service by investing approximately $605 million in capital expenditures during 2021. This total includes new tractors and trailers, as well as an expansion of our service center network that could include an additional four to six service centers. We will also continue to invest in new technologies that are designed to improve customer service and increase the efficiency of our operation. Our team will be diligent in managing productivity, cost, and capacity this year to maximize our ability to produce profitable growth in 2021. This diligence, however, will not affect our focus on the long-term opportunities for our business. We believe we are the best-positioned company in the LTL industry to win market share in both the current environment and over the long term. This provides us with confidence that the continued execution of our strategic plan, combined with our financial strength and available network capacity, can produce additional growth in earnings and increased shareholder value. Thank you for joining us this morning. And now, Adam will discuss our first quarter financial results in greater detail.

Thank you, Greg, and good morning. Old Dominion's revenue for the first quarter of 2021 was $1.1 billion, which was a 14.1% increase from the prior year despite having one less workday. Our operating ratio improved by 530 basis points to 76.1%, and earnings per diluted share increased to $1.70. Our per-day revenue growth of 15.9% included a nice mix of increases in both our LTL tons and yield. LTL tons per day increased 10%, while our LTL revenue per hundredweight increased 5.6%. We are winning market share as demand for our industry-leading service has increased while the domestic economy is improving. In addition to our service advantage, which includes 99% on-time performance and a cargo claims ratio of 0.1%, our proven strategy of investing in service center capacity ahead of anticipated growth has also provided us with a capacity advantage in the marketplace. This strategy is different from many of our competitors, as we believe the average number of service centers operated by the other large LTL carriers has decreased over the past 10 years. We currently have approximately 25% excess capacity within our service center network, which is in line with our long-term targets, and we plan to further expand our network this year to stay ahead of our growth. Our plan is to ensure that our network is never a limiting factor to growth. On a sequential basis, revenue per day for the first quarter increased 3.3% compared to the fourth quarter of 2020, with LTL tons per day increasing 0.7% and LTL shipments per day increasing 1.5%. These were all above our normal sequential trends, which typically decline from the fourth quarter. The monthly sequential changes in LTL tons per day during the first quarter were as follows: January increased 0.3% compared with December, February decreased 4.4% versus January, and March increased 10.7% compared to February. The 10-year average change for the respective months is an increase of 1.2% in January, an increase of 2.2% in February, and an increase of 5.1% in March. While there are still many workdays remaining in April, our revenue performance has remained strong. Our month-to-date revenue per day has increased by approximately 45% to 50% when compared to April of 2020. As a reminder, our revenue decreased 19.3% in April 2020 due to the significant impact of the COVID-related shutdowns. We will provide the actual revenue-related details for April in our first quarter Form 10-Q. Our first quarter operating ratio improved to 76.1% with improvements in both our direct operating costs and overhead costs as a percentage of revenue. We have said many times before that long-term improvement in operating ratio requires an improvement in density and yield, both of which are generally supported by a favorable macroeconomic environment. The strength of our first quarter results reflects how important these factors are to our success. Our direct costs benefited from an improvement in our line-haul laden-load average and pickup delivery shipments per hour during the quarter. We lost a little productivity on the dock, but that is common when business levels accelerate and we add a significant number of new employees. While we would like to see our platform productivity improved, we believe it is more important for these employees to properly load our trailers to maximize employee safety and line-haul efficiency while also protecting freight from damage. As Greg mentioned, we will continue to add drivers and platform employees during the second quarter as our volume trends continue to accelerate. We will also continue to use purchased transportation to supplement our workforce until the capacity of our team can support our anticipated growth. We improved our overhead costs as a percentage of revenue during the first quarter primarily by successfully leveraging revenue growth. As expected, and mentioned on our fourth quarter call, certain costs that were reduced in 2020 because of the pandemic have started to increase. While many of these costs, such as travel and customer entertainment, are not completely back to pre-pandemic levels, we expect that there will be sequential increases in aggregate overhead costs this year. We will maintain our disciplined approach to controlling discretionary spending, however, and make every effort to minimize cost inflation and other areas. Old Dominion's cash flow from operations totaled $310.3 million for the first quarter, and capital expenditures were $51 million. We currently anticipate our capital expenditures to be approximately $605 million this year, which includes $275 million for service center expansion projects. We utilized $309 million for our share repurchase program and paid $23.2 million in dividends during the first quarter. The total share repurchase amount includes $275 million attributable to an accelerated share repurchase agreement that was executed during the first quarter. Our first quarter shares outstanding reflect the initial delivery of shares under this agreement, and a final calculation of total shares repurchased will occur no later than the end of August of this year. Our effective tax rate for the first quarter of 2021 was 26.0% compared to 26.3% in the first quarter of 2020, and we currently expect our annual effective tax rate to be 26.0% for the second quarter of 2021. This concludes our prepared remarks this morning. Operator, we would be happy to open the floor for questions at this time.

Great. Thank you. Good morning and congrats on a great quarter, guys.

Thanks, Jack.

Let's begin with April. I understand the month isn't over yet, and you want to wait for specific comments until the 10-Q is released. However, Adam, could you provide a broader perspective on what you’re noticing in April compared to March? The year-over-year and sequential comparisons this year are unusual due to last year's situation and the strong performance in March. Can you discuss the differences in tonnage and shipments between April and March, considering typical seasonal patterns?

And it's hard to get into the details of that on a tonnage and shipments basis, because the trends have been a little more unusual, if you will, and not following the same types of patterns in the sense of the way our weight per shipment has been trending intra month and so forth. We've been seeing some wider shipments earlier in the month, and then it just strengthens throughout and then gets heavy at the end. But nevertheless, our overall revenue, obviously 45% to 50% on a comparison basis with April suggests that we are seeing continued strength and acceleration in our business. We had incredibly strong performance in March, at tonnage per day, that was up 10.7% versus the normal 5.1% increase, that was the 10-year average. And then that followed the weakness that we saw in February. So probably, a little bit of recovery there, that helps support that number. And then just the way the math works. But I think that we're continuing to see revenue perform pretty much in line with what we'd expect from a sequential standpoint. As you mentioned, the year-over-year weights and shipments are going to look a little unusual. Whereas last year, we had such an increase in late March and through April and the weight per shipment. So that certainly will throw things off a bit. But we'd look to see continued strong revenue performance, and whether that's coming through in tonnage, shipments, and yield, I think it's really all of the above. They're all performing well and contributing to excellent revenue quality, and obviously in the first quarter that's contributing to really strong profitable growth for us.

Absolutely. Absolutely it is. So that's great to hear on the April trends. And then, I guess maybe a bigger picture question to follow up. We're hearing from a number of LTLs, both public and private, that they're highly capacity constrained, given what's happening in the broader market. And they're taking steps to actually limit the volume that they're taking in from their customers. And I would think that given the latent capacity that you guys have in your network, you mentioned 25% in your prepared comments, this is going to give you a chance to really demonstrate your value proposition, potentially, to new customers. So I guess, how are you thinking about balancing the approach between making sure you're handling the needs of your existing customer base that are surging volumes, but also perhaps using this opportunity in a capacity constrained environment to expand your customer base? How do you balance those two factors?

Jack, as you know, we've consistently discussed our ability to grow and surpass our competitors when the market is strong, as it is today. We're definitely observing the proof of that. We're not facing any capacity restrictions. We've made significant investments over the last 10 to 15 years to boost our capacity, and it's clearly producing results for us. Therefore, we're in a unique and advantageous position with the market performing as positively as it is today. Regarding limiting volumes, we haven't had to do that. We did restrict some truckload shipments that were coming in much stronger back in March compared to now. However, we haven't faced any capacity constraints. We're moving ahead full speed as we work on hiring and expanding our workforce to meet the increasing demands, and so far, we're experiencing success. I sometimes wish it could happen a bit faster, but we're in a strong position looking forward, and everything is on track.

Right, Greg, Adam, thanks for the comments. Appreciate it, guys.

Thanks. Congrats, Adam, Greg on a great quarter. If I think about the sequential acceleration in April, just trying to understand if you're seeing that in yields as well. Or yield holding kind of at these levels, at these high levels, and you're seeing tonnage and shipment growth accelerate? And the reason I just asked this question is I'm trying to understand when OpEx per shipment has to inflect more meaningfully getting back to closer to that 4% to 5% level, because it's actually been declining over the last couple quarters. Partly, I assume, because of the attribution to growth from yield and pricing. So just talk about yields, where yields are moving prospectively from here? And when you think OpEx per shipment needs to get back higher as shipment growth moves up?

Yes. The yield numbers are similar to the conversation we just had about volume. They're going to look a little unusual as well. Last year in April, our average weight per shipment was 1,677 pounds. And we've been trending now around the 1,600-pound range. So we're going to see, if things continue, a pretty meaningful drop, and that similar to what we experienced in March as well. So you can see with a big decrease in the weight per shipment, obviously that has a favorable impact on revenue per hundredweight. And we've got a big inflection there. Not to mention that last year in April was when the fuel dropped significantly. So we're going to have a bigger contribution from the fuel surcharge as well. You might be looking at, and certainly we saw double-digit type increases in revenue per hundredweight. And that doesn't tell the story necessarily from a pure yield and revenue per shipment standpoint. And we saw a nice improvement in the first quarter on revenue per shipment. And that benefited from both higher weight per shipment and a higher length of haul as well. And all those metrics go into our yield management process. We've got a process that's focused on individual account profitability, and one that focuses on continuous improvement as well. And I think that our sales team, our pricing teams, they've worked really hard over the last couple of years to make sure that we're seeing continuous improvement in each of our customers operating ratios. And that's certainly bearing fruit when you look at our numbers and how that may transition into the second quarter as well. So, it's probably going to be more of just looking at that pure number, looking and comparing it on a sequential basis from first quarter revenue per hundredweight that I know drives everyone's models in that normal sequential transition from 1Q to 2Q. And if you look at it excluding the fuel, we were right at $21 on a revenue per hundredweight basis in 1Q. And typically, we see an average about a 1.5% increase from 1Q to 2Q if mix is held constant. So that would suggest another $0.25 to $0.30 sort of sequential increase, if you will, and that revenue per hundredweight metric excluding the fuel. But we're going to continue on with our focus and you asked about OpEx as well. The long-term plan has always been to balance our revenue per shipment versus the cost per shipment performance and having a positive delta there to support the ongoing investments and capacity that essentially we're making on behalf of our customers, as well as investments in technology, tools, and so forth. It can help us keep our cost structure lower, so that we can improve profit per shipment without having to rely completely on pricing initiatives. But if we can continue to keep costs in check through productivity, and certainly right now, we're benefiting from the strong top-line growth and just the increase in shipment is creating operating leverage that that's benefiting our cost structure there. And as you mentioned, we did see a decrease in cost per shipment in the first quarter. But we were expecting, like we mentioned at the beginning of this year, core inflation of kind of 4% to 4.5%. We're just benefiting right now significantly from the leverage and productivity, yield performance in our business.

Yes. Do you expect a decrease in operating results from the first quarter to the second quarter? I assume you anticipate that as well. However, the first quarter was quite strong, and pricing has been robust. What are your thoughts on the expected progression in operating results from the first quarter to the second quarter?

Yes, this is definitely the quarter where we typically see the most improvement. It's usually when we observe the highest sequential increase in revenue performance as well, with revenue per day rising about 10% in the second quarter compared to the first. This allows us to leverage our existing cost base, creating opportunities. In any year, we've generally improved the operating ratio by 360 to 420 basis points, and we certainly expect some improvement this year as well. We've performed well over the last three quarters with nice sequential changes aligning with our normal progression. However, we are now assessing the costs you mentioned, anticipating some increases in our overall overhead costs. We did very well in the first quarter and encountered favorable costs in certain categories. We'll see if everything aligns as we move into the second quarter. Our main goal remains to generate as much profitable growth as possible, and we'll continue to leverage revenue improvements alongside our productivity initiatives. We experienced some productivity loss on the dock as we continue to onboard new employees into our operations, which has created some headwind in that area. Nevertheless, our operations are running very smoothly right now, and our primary focus is on maintaining our service metrics at a best-in-class level, with productivity as a secondary focus. Ultimately, we aim to generate as much profitable growth as we can.

Yes. Low 70s OR in the second quarter implied by seasonality would be pretty impressive. Thanks so much, guys. Appreciate it. Congrats again.

Thanks. Good morning, Greg and Adam. So I just wanted to ask about the length of haul I mean, it's been increasing for the last few quarters, and you're now sort of at the longest haul, I think you'd have to go back five years or so. So I'm just curious to understand. And do you think this is mainly a function of cyclicality? Or would you attribute this to some kind of secular shift, maybe e-commerce or something like that? Just trying to understand your view, if you think there's an underlying shift in the market or the freight dynamic?

I don't think there's necessarily a big underlying change. The big picture changes that we feel like length of haul will probably shorten and that we will continue to see improvement in our regional business. But we still have a very high quality, long haul and medium haul business. And I would say, over the past 12 months, really, since the COVID impact on the mix of our business, that we've probably just seen a little bit more market share with our contractual business, and certainly saw more growth. And for many periods out of the West right now, our growth is very balanced across all of our regions, but a lot of times the freight coming out of the West will have a longer length of haul associated with it. So we've seen tremendous growth there. And that's probably been causing a little uptick. But long term when we think about that continued shift and tailwind that we believe exists with e-commerce freight, we'd expect to see that market share and those regional lanes continue to increase and probably pull the length of haul back down with it.

Okay. So length of haul comes down and probably over time and then right now just be more mixed driven. Is that the way to characterize it? Is that fair?

Exactly.

Okay. On the labor front, everyone is facing challenges with hiring drivers, dock workers, and warehouse staff. Are you finding it more difficult to hire compared to past cyclical upswing or tight capacity conditions, and are you falling behind your hiring plans? Or are you managing to meet your goals? Also, could you discuss the broader wage inflation and your expectations regarding that? Thank you.

Allison, it is certainly more challenging than in previous years. However, we are experiencing success. As I mentioned earlier, I sometimes wish progress would be faster. Nonetheless, we are making strides and hiring where necessary. In areas where we hold job fairs and promote ads, we are receiving a strong response. Overall, we are meeting our recruitment needs, even if it’s not as quick as I would like. We’ve seen a notable increase in business, with a 45% to 50% growth in April, although we were down last year. This growth presents the challenge of fulfilling demand as it arises swiftly. Despite this, I believe we are managing well. We need to stay focused and continue bringing in new team members, and I am confident we will succeed in this effort. Therefore, I do not anticipate any limitations in the future.

Regarding labor inflation, we implemented a wage increase in September of last year, and we are currently observing its impact. This increase contributed to an overall core inflation rate of 4% to 4.5%, likely closer to 3% to 3.5% in total. We expect to see these effects until this coming September. We are continuing to utilize purchased transportation, which has remained consistent with the fourth quarter levels. We had hoped to see a decline in this area as we move through the second quarter, but it has maintained its level thus far. We will continue to rely on purchased transportation to support our workforce until we are fully prepared to accommodate anticipated growth with our complete team. We still expect purchased transportation to decrease in the latter half of the year, albeit possibly a bit later than anticipated. The main objective is to ensure our workforce is adequately prepared not just for this year, but also for 2022.

Okay. That's great. That's very helpful. Thank you.

Hey, thanks. Good morning, guys. Maybe just want to pick up on the pricing side. Can you talk a little bit sort of contractual pricing renewals. Where that's coming in? I know you guys are making some efforts to keep some of the truckload business out of the network. But obviously, a strong overall freight environment right now. So kind of just curious if you give us a little bit of color, how those numbers are trending?

Yes. That was probably long-winded in my initial response. But we're coming right in where we would want to be and consistent with how we've trended over many years, because we've had a long-term consistent process. And we've averaged an increase in our revenue per shipment of about 4.5%. And that is a target over our cost inflation of 75 to 100 basis points. So, certainly the strong demand when you've got a yield management process that focuses on individual account profitability. In a demand environment like this, we've got to think about opportunity costs with how we allocate capacity. And certainly when you've got accounts that may not be the best performing from an operating ratio standpoint, then we try to work through those as those accounts may be asking for more capacity from us. And so, certainly we would try to get a little more in an environment like this when we may not be able to get as much in environments that are a little bit weaker. But core increases are going well. We're seeing good increases as the contracts are coming up. But that's what we shoot for year-in and year-out. We think we have a differentiated approach where we tried to be consistent year-in and year-out with our customers and talk about the cost inflation that we're experiencing and the increases that we need to offset that inflation. But again, also supporting the continuous investment and capacity that we're making on behalf of our customers. So that's all going well, right now, and certainly the environment is very supportive of our pricing initiatives this year.

Yes. Certainly seems like the case. And then just picking up on what you just mentioned in terms of the capacity additions, and maybe some of the real estate opportunities that you guys are looking at this year. Are those becoming more challenging? Is it difficult to continue to sort of keep that sort of physical footprint capacity growth in line with what you'd want it to be just given obviously, a very strong demand environment that we're seeing, but obviously, sort of tightness in kind of across the base and commercial, industrial real estate. Just kind of curious how you guys are seeing that process playing out? And do you see any maybe potential inflation creeping into those numbers? Or you okay with where you are?

Chris, that's a great question. If you recall, we've discussed this extensively over the past few years. It's definitely more challenging now to expand our brand in the real estate sector than it was before. However, we are putting in a significant effort. Our real estate department is actively seeking out opportunities where we have identified needs, and we're working to anticipate those needs as effectively as possible. We’re experiencing some success, although certain regions of the country present more challenges than others. In those difficult areas, we need to put in extra effort compared to the more rural parts of the Midwest. Overall, I believe we’re achieving the success we want, though it's become more difficult and understandably more expensive. We shared our numbers, highlighting a $300 million real estate capital expenditure budget this year. Much of that increase is due to inflation in the real estate market. If we were executing the same plan this year as we did 10 or 15 years ago, the costs would be significantly lower. Inflation is definitely a factor, but I remain optimistic about our progress. It's just a bit more costly now, and we certainly have to work harder.

Yes. Okay. That's very helpful. I appreciate the time this morning. Thank you.

Thank you. Good morning. Greg, you mentioned in response to an earlier question about limiting some of the traditional truckload business from your network. We are noticing many reports about traditional truckload tonnage moving into the less-than-truckload networks. Can you quantify how much of your tonnage growth has been from traditional truckload? Additionally, how reliable is this freight? Will it be a temporary addition that you can take on to achieve better pricing, or can you establish a longer-term, potentially contractual arrangement to support your growth?

It's not sticky at all, Jon. That business is about as slippery as it gets. It'll move between truckload and LTL depending on the capacity that the truckload market has at the time. So it's very slippery. It comes and goes. And that's why, we certainly don't want to load our network down with truckload type shipments when we certainly feel like we've got obligations to service our normal regular LTL type business. So we will continue to try to manage that as long as we have a need to manage it. So, as far as how much that amounts to? I don't know, Adam, you probably got a better feel for that than I do.

Yes. Many of those shipments typically flow through our spot quote network and other volume shipments. In the past, they accounted for about 3% to 5% of our revenue, but currently, they represent only about 1% to 2%. We have definitely experienced a decrease. However, some shippers, particularly larger accounts, shifted to heavier types of shipments on their contractual rates last year when our weight per shipment increased. This means some details may not be transparent to us, such as a customer attempting to move a 6,000-pound shipment via truckload if they could find a carrier willing to perform a multi-stop service. It’s not always straightforward. What is clear is our effort to understand the characteristics of freight movement, the costs associated with each shipment, and the revenue that we require from each shipment we handle.

Now, that makes sense. And then as a follow-up and a follow-up to Chris, in early February, you mentioned plans to open two to three terminals in 1Q, hopefully, six or so through the rest of the year. And then just given some of those commercial real estate challenges, and Greg, your comment on having to work harder. You get to the point where maybe you look outside of organic growth, and there's kind of inorganic ways to make up for some of that growth at a time when most of your competitors are standing still, if not even contracting?

Jon, we're experiencing success with the service centers we have planned for this year, and those projects are progressing well. We're not in the stage of searching for real estate or constructing new locations yet. If we've discussed opening however many centers, you can be assured that those plans are advancing, or we wouldn't bring them up. We're still acquiring real estate and making the necessary plans for additional locations, and those efforts are also in progress. As we mentioned previously, we believe there is significant growth potential in the LTL segment, which is our focus and has been our strategy for years. We will continue to move forward with that plan.

Great. Thank you, Greg. Thanks, Adam.

Great. Thanks and good morning. I know you've touched on this kind of a couple different ways throughout the call. But thinking about the weight per shipment right now at around 1,600 pounds, it's down from where it was in the second quarter of last year. But it's still above where you had been trending in 2017 and 2018, and even into 2019. So how do we think about kind of your freight basket? Is it kind of back to pre-pandemic levels? Are there still pockets that have customers that haven't come back? Or is there any shifts that are happening within the mix to see the weight per shipment works out right now?

I think that the 1,600-pound range, where we are, I think really reflects the strength of the economy. Typically, an increase in weight per shipment goes hand in hand with an improving economy. And to think about what I just mentioned, with the decrease in the number of spot quote shipments, oftentimes spot quote shipments are averaging 8,000 to 10,000 pounds. So when you've got that mix of business that has now shifted into a percentage of business rather than shifted into our 559 tariff base customers and our larger contractual customers, I think it just reflects the underlying demand for our customers businesses. But we've seen really good performance with our smaller accounts. In recent months, our tariff based business is continuing to improve as a result and actually is trending slightly ahead as a percent of overall revenue than where we were pre-pandemic. And then our contractual accounts, which performed well for us all last year, continue to perform strongly as well. And so they actually are picking up a little bit more as well. And we're just seeing the higher balance in both of those categories versus that decrease in the mix from the spot quote. So it's good to see across the board, that when we look at our accounts and think through the increase in weight per shipment kind of goes hand in hand with the feedback that we're getting from our sales team that our customers' businesses are improving. And there's just the increased demand for widgets out there that's creating freight opportunities for us. And certainly, we're taking advantage of that opportunity with our market share improvements.

Yes. Okay, Adam. That makes sense. So it sounds like that the mix is normalized. And the change in weight per shipment is more a function of the economy at this point than kind of big shifts in the customer base right now?

Yes.

Okay. And then just to follow up. Do you care to share kind of any expectations around headcount growth, either sequentially into the second quarter, or kind of what your thought process would be for the full year? I know you shared some expectations in the first quarter, obviously, sounds like you're trying to catch up and ramp up on the headcount side. So if you have any kind of overall numbers, that would be great? And then also thoughts around productivity. I think that historically, maybe it's been six to nine months to get new employees up to a level of efficiency of more experienced hires. Is that kind of the right way we should think about this cycle? Are there any things that would impact that? Thanks.

On the average headcount side, in the first quarter, initially, we were up 4.3% versus fourth quarter. And typically, our headcount is pretty flat. So there was a big increase and shift there, reflecting on the success and the programs that Greg mentioned. Our HR team has done a really great job of continuing to bring people on board and get them ready for the acceleration in freight that we typically see through the second and third quarters. An average second quarter headcount is normally up a little over 2% for us. The biggest year we ever had was in 2014, again another strong period. Headcount was up 5% that year, in the second quarter. And I think we're going to see probably a number more like that. We're still trying to catch the curve, if you will, with the growth that we're seeing. And still having to make use of some purchased transportation as mentioned. So we would expect to see that we're on the high end of that scale, and possibly even exceeding that, on that 5% metric in terms of the sequential change from first quarter to second quarter. And the productivity that you mentioned, like we mentioned, our prepared remarks, especially on the dock, it's pretty typical to see a loss of productivity. But it's certainly more important to make sure that the team is they come in new, they're learning, they learn our ways for claims prevention. They're following our safety protocols and so forth. And we're trying to maximize the loads that we're moving, our line-haul costs, they're the biggest cost element that we face. So we've got to make sure that we're properly loading these trailers to maximize the overall efficiency of the operation. And certainly, that's something that we'll continue to experience as we're increasing headcount. But when we've got the top line revenue growth, that gives us a little covered offset, maybe some of this higher cost inflation that we're seeing.

Yes, understood. Thanks for the time this morning, guys.

Hi. Good morning, Greg, and Adam. Nice quarter. So, for my first question, I wanted to ask about salaries and benefits line. It was the best quarter as a percent of revenue that it's been in a number of years as far as I can tell. And I know last year, you had some special bonus payments, that it sounds like probably won't be recurring this year. And if I look at average salaries and benefits expense per employee, it took a step down sequentially. And I assume that's related to some new hiring, which presumably is coming in at slightly lower wages. So I guess my question is, when I think about comp per employee, can it stay in this range sequentially? Or does it take a little bit of a step up, given some of the wage inflation pressures that we're seeing and some of the challenges that other LTL carriers have spoken about with regard to hiring?

I think going back to just pure comp per employee, again, we gave the wage increase last year of between 3% to 3.5%. I think that when you start looking at things on a year-over-year basis, all of the comparisons in the second quarter are going to be pretty unusual. But we're going to have higher costs related to group health and dental benefits. I think that we'll see our benefit cost per employee, some acceleration there. As we progress, we have pretty good performance. So those fringe benefit costs as a percent of normal salaries and wages in the first quarter were 33%, 33.2%. And so, that was good performance. We were anticipating somewhere more like 34% for this year, 34% to 34.5% was kind of my initial forecast. And so, saw good performance there. I think that it's possible that we'll continue to see some inflation there. The other factor is, we're certainly seeing inflation, when it comes to the performance-based compensation that we have. With our improving financial results, we're going to see increases there as well. And that's something that really gets back to when we talk about our focus for hiring people. It all starts with our company culture and the family spirit that we have. That certainly has made it easier to both attract and retain employees. But the connection to the financial performance and that direct link of the engagement of employees with connecting the company's financial success to their personal success through improved wages and benefits and contributions into our 401-K retirement program. Those are all things that helped keep driving the performance of the company. So those will continue to increase as the financial performance, both revenue and income are increasing as well. But I think we're in a great spot. And to keep getting some leverage. If we see that salary, wages, and benefits line, there should be some natural inflation there too, as we in-source and reduce our reliance on purchased transportation. So there shouldn't be some corresponding decreases once we kind of catch back up to the curve there. So multiple factors that's going to be driving that number for us.

Got it. That's very helpful. For my second question, you mentioned that this will provide 25% available capacity, which suggests significant growth potential. Considering the anticipated increase in capital expenditures, could you clarify what that 25% capacity means for your ability to grow sequentially from these levels? Many transportation companies have noted that the first quarter has been somewhat challenging due to weather-related issues affecting freight movement. When looking at sequential growth from this point, how much potential is there to exceed the typical sequential trends?

That 25% reflects the door capacity that we have in our network. In an LTL network, it's the doors that are required to process freight. And it's obviously very critical and a long-term investment and a long time to expand capacity, as we've discussed earlier on the call. So, that's something that we always have to stay focused on. And we feel like far ahead of our growth curve to make sure the network is never a limiting factor to us. But that's one of three key elements of capacity within LTL. The next would be on the fleet side. And I feel like we're in a really good spot, based on where our fleet is and the ability to handle the freight that we have today, as well as the ongoing increases that we would be anticipating this year. In coordination with the $290 million CapEx spend that we have planned for equipment this year. So I feel like our fleet's in a really good spot. And obviously, you don't want to carry that much excess capacity like we do on the service center network side in your fleet; there's higher depreciation per unit cost there. You want to have enough to be able to handle the peaks at the end of the month and the end of quarters and to be able to accommodate growth. But you don't maintain that same excessive level. And then finally, and most importantly, is the people's capacity. And certainly, that's something that we manage more in relation to revenue and volume trends. And it's something that we're constantly balancing here. And the lever we pull, like we're pulling right now when we're a little short is we make use of purchased transportation. And we'll continue to do that until we complete the additions to the team that just sort of catch up with the freight volumes that we're currently experiencing. So, we're in a good spot across the board. And I think we've got a good plan, a very detailed plan, and it's different by service center and by region for how we're continuing to add drivers and platform employees to the team to continue to handle the accelerating volumes that we're seeing.

Okay, understood. Thanks for the time.

Hey, thanks. Morning, guys. Adam, can you just talk about the impact of higher fuel and what it means for top line, bottom line incremental margin this year?

From a top line perspective, we are finally seeing an improvement, especially since we encountered challenges last year with declining fuel prices. Currently, fuel prices are approximately 25% higher than they were in April of last year, which is beneficial for our top line. Regarding the bottom line, like we discussed last year, we aimed to keep our fuel scales neutral for our internal operations as well as for the scales of our major contractual clients, regardless of whether fuel prices rise or fall, and we put those to the test. Although we did not elaborate much on this previously, we believed that as fuel prices dropped, we could mitigate the impact on our bottom line due to lower fuel scales. Now that we're seeing a year-over-year increase, we also expect to minimize any bottom line impact, while continuing to manage this on a customer-by-customer basis. We are focused on evaluating revenue and cost inputs to optimize our profitability.

Okay. And then just a longer-term question. What if anything, are you guys doing as relates to electric and autonomous trucks? Do you see any use cases for either over the next five years or so?

Yes, we are currently in the process of making a few purchases for testing. Based on what we see and hear, the technology isn't quite ready to assist us yet. However, we plan to test some electric vehicles, whether they are switchers, trucks, or forklifts. This is underway, but I don't anticipate any impact from it in the near future.

And autonomous?

Any impact I'm saying from electric. Yes. On the electric side, right?

Yes. Regarding autonomy, we believe that the technology is still advancing, and we will keep monitoring developments. From a regulatory perspective, it’s difficult to imagine fully driverless vehicles sharing the roads with passenger cars. However, as the technology evolves, it is likely to enhance safety and potentially provide some additional benefits. That said, the technology may advance more quickly than regulatory approvals can keep up. We will continue to observe this situation. Additionally, we have one of the youngest fleets in the industry and consistently invest in safety and efficiency tools. We have the financial capacity to invest as new options become practical for our operations, and we are eager to leverage any opportunities presented by manufacturers.

Thank you guys.

Yes, good morning. So I have two questions for you. One, you commented about the very strong, I think is that, I don't know 45%, 50% revenue per day growth in April. Are the comps much different in May, in June? Or do you think that commentary on April kind of could be representative of the quarter?

April was definitely the most challenging month we faced last year, experiencing the largest decline as freight and revenue levels plummeted significantly. After that initial drop, we saw a good recovery with sequential increases moving forward. In terms of daily revenue trends, we were down 19.3% in April. In May 2020, the decline was 16.2%, and in June 2020, it was 11.5%. Each month presented increasingly difficult comparisons, yet we reflected sequential improvements. Overall, revenue for the second quarter of 2020 was down 15.5%.

Okay. That's good. That's helpful. Thank you. Greg, if I look back at periods when you've had kind of peak tonnage growth, it seems like you've gotten a couple of times up to maybe 15% year-over-year tonnage growth. Is that possible you achieve that this year? I mean, you've got obviously a super easy compare in second quarter. And then you talk about the 25% door capacity. But obviously, you got the other two elements that Adam highlighted. So, is it feasible to get to a mid-teens type of tons growth this year? Or is it hard to achieve for people or trucks or whatever?

15% tonnage, Tom, that's pretty steep. I'm not sure I recall those days. Maybe my memory seems. But we had 15 in 2018. But anyway, that's pretty steep. We'll see it obviously, in the second quarter when we were so far back in 2020. But I'm not sure once we get back to normal type comparisons, we're going to see that kind of growth, that's probably a stretch. And to be clear, on that percent capacity, that's not a year-over-year growth. I mean, that's capacity from the freight levels that we're handling here in March in the first quarter. Incremental growth on top of that while we're also continuing to expand every day.

When you say that's hard to achieve, I think you did it in 2014, and 2018, you're probably close in 10 and 11. Is it just people, Greg, or what's the reason that you couldn't do or it'd be tough to do 15%?

It's hard to ramp up, Tom at that pace. I mean, obviously, if we knew we were anticipating that. If that was realistic, then it would certainly be more realistic, but I'm not sure we'll see that kind of number. I'm not sure the economy's quite that strong. While things are certainly good and positive, that 15% is a bit over where we are today. Got to remember right, we just came off the rim. I just wanted to mention, reiterate, we came off the highest revenue quarter we've ever had in the first quarter. So you're talking about big numbers, bigger numbers on top of big numbers, if you will. And he's in obviously ignoring the year-over-year column. That's much easier. Again, second quarter, we'll have some impressive numbers. I would certainly expect. But we get in the, like I say, more normal comparisons. I don't think we'll see that. The first and fourth quarters are more normalized versus the middle part of the year, where we've got some easier comps.

Okay, great. That's helpful. Congratulations on the great quarter.

Thanks, Tom.

Alright. Just a big picture question. With the strength in LTL and the strong demand for freight, considering your capacity and capital spending, do you have any concerns about the industry trying to add capacity? It's not just the public companies; there are also private LTL players involved. Is there currently a push to increase industry capacity?

I’m not sure we’ve observed that fully. I think some companies might be trying to take action, but overall, we haven’t noticed significant movement. Occasionally, some carriers might add a terminal here and there, but on a longer timeline, the reality is we’ve actually seen a decline in the number of service centers operating across the country, while we are focused on growth. We’re pursuing this due to the market share opportunities we still believe exist. We are certainly better positioned than anyone else because of the service levels we provide and our overall value proposition. In this environment, we see that more shippers are prioritizing value, which is something we emphasize. Our services, along with our capacity, offer significant value to our customers, who are benefiting from our investments in capacity and their contracts with us. We are equipped to handle increased business from them, and we're receiving feedback indicating that many of our competitors are struggling to keep up with the growth they're experiencing. This trend has been apparent in the first quarter and continues, as our capacity advantage is effectively attracting freight to us. Anecdotally, based on the feedback from customers and the overall trend in service centers, we see that the average number of operational centers is decreasing. We are taking advantage of this situation at a time when we believe the industry is benefiting from favorable conditions, creating more opportunities for Old Dominion.

Thank you.

Thanks. Once again, Greg, your initial comments on market share, I don't think I've heard you sound as explicit or as aggressive on the share gain opportunity as you did, which is obviously great to hear. But can you just kind of unpack that a little bit. Is that something to do with the kind of structural changes in the industry you’ve seen in the last couple of quarters? Do you feel like some of your competitors are more vulnerable? Is it a function of the cycle where it is? Is it some kind of internal change and go-to-market strategy or messaging? Kind of what drove that?

I don't think it's a change in strategy at all. It's the strategy we've been talking about for a long time. And like I've mentioned before, and we've talked about over the years, we will grow more when the economy is strong. And when our competitors' capacity is as limited as it appears to be, then the customers come to us. And that's what we've seen happening in recent months. And I expect that we will certainly have much stronger growth than most all of our competitors. So, we're waiting to see, but it's not anything that we've done, the change. It's just the continued execution of the strategy that we set forth back some years ago. And like I said, before, we're executing and having success doing so. I feel good about where we are and the things that we've done. And now it's a time when it starts to pay off for us. Yes. Pretty positive from that standpoint, for sure.

Understood. And if I can follow up on the labor question, which you hit a few times. And I think you even hit the autonomous truck question once, but if I can just keep on that topic. What's the opportunity for automation on some of the other kind of labor parts of the business, kind of on the dock and the terminal side, rather than the autonomous driving side, which I think it should be here rightly shorter?

I assume you're talking about robots and that kind of thing?

Yes. I'm saying, have you done any studies? Or is there any opportunity at all to increase kind of automation on yes, things like robotic forklifts or things like that that can help you load the trucks and reduce the need for labor intensity there?

Not that we've seen. Not at this point in time.

Okay. Got it. Thank you.

Thank you. Thank you all for your participation today. We appreciate your questions. Please feel free to give us a call if you have anything further. Thank you and have a great day.