Jack Atkins:

Thank you, Gary, and good morning, everyone, and welcome to the second quarter 2024 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through July 31, 2024, by dialing 1 (877) 344-7529, access code 9201305. The replay of the webcast may also be accessed for 30 days at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. As a final note before we begin, we welcome your questions today, but ask that you limit yourselves to just one question at a time before returning to the queue. At this time, I would like to turn the conference call over to Mr. Marty Freeman, the Company's President and Chief Executive Officer for opening remarks. Marty, please go ahead, sir.

Mastio:

Our strong track record of industry leading service also means our customers view us as a trusted partner, which supports our consistent cost based approach to pricing. Our long-term yield management strategy is designed to help offset our cost inflation while also supporting further investments in the capacity and technology that our customers expect. We have been one of the only LTL carriers to constantly and consistently invest in new capacity over the past 10 years, which has supported our ability to almost double our market share over the same period. We are committed to constantly investing ahead of our anticipated growth curve, which is another differentiating quality for old dominion and what has been and what we believe will continue to be a capacity constrained industry. Over the past 10 years, we have invested over $2 billion in our service center network and we plan to invest another $350 million on real estate this year. These investments have positioned us to grow with our customers over time through the ups and downs of the economic cycle, which hasn't been the case with most of our competitors. Maintaining excess capacity in our service center network, which is approximately 30% at the end of the second quarter, does create some short-term cost headwinds during periods with slower demand, but we are confident that the capacity will be critical to support our customers when the economic environment starts to improve and business levels reaccelerate. With all that said, our network investments are not being made simply to handle the overflow during stronger periods of economic activity. Instead, as we look into the future, we believe demand for service sensitive LTF capacity will continue to grow. We believe that the combination of our best-in-class service and disciplined investments in network capacity position us to capture even more of the growing market in the years ahead. Over the last decade, Old Dominion Freight Line has won more market share than any other LTL carrier by consistently executing our strategic plan and remaining focused on long-term opportunities instead of short-term challenges. While we continue to wait on a recovery in the domestic economy, we believe the investments in our network, our technology, and most importantly, our people will continue to drive value to our customers. As a result, we believe we are the best positioned carrier in our industry to win market share over the long-term, while further enhancing shareholder value. Thank you today for joining us this morning and now Adam will discuss our second quarter financial results in greater detail. Now, Adam?

Adam Satterfield:

Thank you, Marty and good morning. Old Dominion's revenue for the second quarter of 2024 of $1.5 billion was a 6.1% increase from the prior year. The increase in revenue was due to a 4.4% increase in LTL revenue per hundredweight and a 1.9% increase in LTL tons per day. Our operating ratio improved to 71.9%, which contributed to the 11.3% increase in earnings per diluted share to $1.48 for the core. On a sequential basis, our revenue per day for the second quarter increased 2.6% when compared to the first quarter of 2024 with LTL tons per day increasing 3.3% and LTL shipments per day increasing 3.2%. For comparison, the 10-year average sequential change for these metrics includes an increase of 8.7% in revenue per day, an increase of 5.8% in tons per day, and an increase of 6.5% in shipments per day. The monthly sequential changes in LTL tons per day during the second quarter were as follows. April increased 0.4% as compared to March, May increased 0.1% as compared to April, and June increased 1.9% as compared to May. The 10-year average change for these respective months is a decrease of 0.4% in April, an increase of 2.7% in May and an increase of 2.3% in June. I would like to note, however, that in years when Good Friday occurs in March, as it did this year, the average sequential change in LTL tons per day from March to April is a 2.6% increase. For July, we expect our revenue per day will increase by approximately 4% to 4.5% when compared to July of 2023 assuming the remaining days of the month follow normal historical trends. The growth rate in our revenue per day through the first half of July was relatively consistent with the second quarter. The comparisons have now become a little more difficult, however; as the final week of July last year was when we began to see freight diversion from a large competitor that ultimately filed for bankruptcy. We will provide the actual revenue related details for July and our second quarter. Form 10-Q. Our operating ratio improved 40 basis points to 71.9% for the second quarter of 2024 due primarily to the quality of our revenue growth and continued focus on operating efficiencies. Our team continued to do a great job of managing our direct variable costs during the second quarter, which allowed us to improve these costs as a percent of revenue. Our overhead costs, however, continued to increase as a percent of revenue despite our best efforts to minimize discretionary spending. As we have often said before, the two main ingredients to long-term operating ratio improvement are the combination of density and yield, both of which generally require a favorable macroeconomic environment. While we continue to execute on our yield management initiatives, it will likely take an improvement in the domestic economy before we see sustained momentum in shipping demand that generally leads to incremental market share opportunities and operating density. We remain confident that once we have both of these elements working again in our favor, our team can produce further improvement in our operating ratio and make progress towards our goal of achieving a sub-70 annual OR. Old Dominion's cash flow from operations totaled $387.8 million and $811.7 million for the second quarter and first half of 2024, respectively, while capital expenditures were $238.1 million and $357.6 million for those same periods. We utilized $551.8 million and $637.1 million of cash for our share repurchase program during the second quarter and first half of 2024, respectively, while cash dividends totaled $56.0 million and $112.6 million for the same periods. This year-to-date total for share repurchases includes $40 million that is deferred until the final settlement occurs on our current accelerated share repurchase agreement, which would be no later than November of 2024. Our effective tax rate for the second quarter of 2024 was 24.5%, which was lower than originally expected due to the benefit of certain discrete tax items. The effective tax rate for the second quarter 2023 was 25.4%. We currently anticipate our effective tax rate to be 25% for the third quarter. This concludes our prepared remarks this morning. Operator we'll be happy to open the floor for questions at this time.

Jordan Alliger:

Yes hi, good morning. Thanks for the update. Hey, I wonder, as you often do, is it possible to get some sense for, given the context of revenue per day and what you're seeing in the economy, how things could look seasonally, 2Q to 3Q in terms of the operating ratio? Thanks.

Jordan Alliger:

And just as a quick follow up, if I could just on the demand, you mentioned the sub-50 ISM and new orders index as well. I mean, as you sort of look ahead and talk to customers, I mean do you feel that there could be finally some change in that as we move through the year or is it tough to tell still?

Jordan Alliger:

Thank you so much.

Daniel Imbro:

Yes, good morning, guys. Thanks for taking our questions. Maybe Adam I wanted to ask one on the pricing side. I think the mid quarter update suggested pricing was stable. June actually seemed to have improved a bit. I guess how has pricing continued into July? Are we seeing any changes? And stepping back just from an industry standpoint, demand remains tepid to your point, can the industry support further GRIs and other rate increases in the back half of this year as comparisons get more difficult? Thanks.

Daniel Imbro:

Thanks so much. Best of luck guys.

Chris Wetherbee:

Yes. Hey, thanks. Good morning. Maybe, Adam, if you could talk a little bit about weight per shipment trends. It's pretty flattish the last couple of quarters and certainly sequentially from 1Q to 2Q, just kind of your general thoughts on how you see that playing out. Obviously that could be part of just a sluggish economy as we're moving forward here. But if we can get a sense of maybe what you're seeing in July if there's any change in that.

Chris Wetherbee:

Got it. Thank you.

Scott Group:

Hey, thanks. Adam, just a couple of follow-ups if I can. First, the 4% to 4.5% revenue, any sense of breaking that down between tonnage and then yield? And then I just want to make sure I'm understanding your commentary about the 50 basis points worse, which is normal. Are you saying even if we don't get the full typical 3.5% sequential revenue increase, we can still stay with the normal or degradation and it's not worse. Is that the message that you're giving?

Scott Group:

And then any just quick thoughts, record buyback in the quarter, is this this a change in sort of capital returns? Is this a new sort of run rate to think about going forward?

Scott Group:

Thank you, guys. I appreciate the time.

Ravi Shanker:

Thanks. Good morning, everyone. This is probably the first up cycle in a while, maybe ever, where it's not just you who has the excess capacity, but a lot of your peers do as well. I think you kind of alluded to that in your prepared remarks as well. Do you get a sense that their approach to having this excess capacity and dealing with the drag on incremental margins is similar to your own or do you feel that they may be going to looking to deploy that capacity a little bit earlier than you guys?

Ravi Shanker:

Understood, thank you.

Thomas Wadewitz:

Yes, good morning. So, Adam, I wanted to see if you could give us, I apologize if I missed this, but I think just like the July tonnage and shipments, I think you talked about revenue terms but not the tonnage and shipments. I don't know if you want to give us like normal seasonality, July versus June or year-over-year, but some kind of framework for thinking about shipments and tonnage in July.

Thomas Wadewitz:

Okay, yes thank you for that. Just one other quick one on headcount, how are you thinking about headcount sequentially? Are you in kind of a flattish volume environment? Are we modeling headcount down a little bit sequentially or are you kind of keeping it flat and keeping some capacity for when the volume improves?

Thomas Wadewitz:

Great. Thank you for the time.

Adam Satterfield:

Like I said earlier, maybe to just elaborate on that, but we're continuing to see good yield performance and that's what we expect. I mean this is something that we work on day by day. Our sales team and our pricing and costing teams are all working together and working with our customers to ultimately provide value to their supply chains. But our yield management philosophy is to attain increases that not necessarily are market driven in a sense of the markets in our favor or not. It's what's our cost inflation looking like? And then what are the continuing needs of our business. And that's been a long-term philosophy that is consistent and has worked for us and so that's what we would continue to expect as we move forward as well. We're negotiating and working every day and would expect that as any contracts are coming due, that we will work through and need to obtain increases on those, so regardless of what other carriers and specific issues or areas or whatnot may be going on, we expect that we'll continue to see a disciplined environment in the industry and that's what we've seen thus far. So we'll just continue to manage through that and keep sort of focusing on what we do and what we can deliver and continue to add value to our customer supply chains.

Operator:

The next question is from Eric Morgan with Barclays. Please go ahead.

Adam Satterfield:

Well, generally speaking, when you look over the longer term, when you look at our cost per shipment, if you will, wage cost per shipment, it's generally going up about 3% to 3.5% and more in line with what the wage increase that we give every year has been. There's been inflation that we've seen in our benefit cost, and we experienced some of that as well in the second quarter. And those fringe benefit costs include multiple factors, some of which are improvements to the overall comp program that we offer to employees and things like paid time off benefits that we've improved over the years and the quality of our group health and dental programs as well. So, I mean, those are incremental changes that we're always having to manage. And maybe there's a little bit more variability in terms of when you're self-insured on the health program, you can have changes in one quarter versus the next that aren’t necessarily going in alignment with what shipment volumes may be changing. But looking over time, that's just something that we would expect will continue to change and reflect the improvements. In terms of the benefit program and comp program that we offer employees. But 65% of our costs are salaries, wages and benefits, so that's generally been the biggest driver of our total cost for shipment inflation. That's averaged 3.5% to 4% over the long-term as well, so that all goes into it. We've had a lot of other incremental inflationary items, things like the cost of our equipment, maintenance costs that have been up double digits on a per mile basis the last few years, insurance costs that is a problem for the industry, that have been up double digits for multiple years in a row. All of those things we contend with and that's why there's got to be an ongoing focus on operating efficiency and discretionary spending, and we're managing our costs day by day in good times and bad. If you wait until it's too late, if you wait until they're bad times, you got to have that focus going every day or you may not even know where to start. So that's something that we're always looking at. How can we offset all those other costs to basically keep our cost inflation in check and then, as you know, the yield management philosophy is we try to achieve 100 to 150 basis points of positive spread over top of that cost inflation metric. So that keeps our pricing levels in check with the rest of the industry as well. So it all kind of goes into it, but it's a day by day fight to try to keep our cost inflation minimized as best as we can.

Operator:

The next question is from Bascome Majors with Susquehanna. Please go ahead.

Adam Satterfield:

Yes, so as I've said a couple of times, the fourth quarter and the first quarter are seasonally slower periods, if you will. The fourth quarter, from just a pure revenue per day standpoint, it's just a slight drop off. And then you go into the first quarter and revenue is down, maybe down in the fourth quarter 0.5% sequentially versus the third quarter, and then you drop on average about 1.5% going into the first quarter. From an operating ratio standpoint, the fourth quarter is typically about 200 to 250 basis points higher than the third. And a lot of that is the revenue level softening a little bit. We've got three months of that wage increase. And that normal change, if you remember from last year, we always have actuarial assessment of our insurance reserves in the fourth quarter and those adjustments can go one way or the other and I generally view those as a reconciling item to whatever that normal change is. And last year was an unfavorable adjustment to that insurance and claims line. A few years prior they had been favorable adjustments. So kind of throw that out of the window when just looking at what is that normal cost progression change.

Operator:

The next question is from Ken Hoexter with Bank of America. Please go ahead.

Adam Satterfield:

Yes, and I'll come back to that. Let me just address the second quarter to third quarter change. You're right, the pure math is more about a 10 basis point change, but there are a couple of years in there that skew that. In 2023 last year obviously we had a major acceleration in revenue that allowed us to improve the operating ratio 170 basis points from 2Q to 3Q and then 2020 was similar where you had the COVID cliff that happened and then the reacceleration of business levels. So when I just look at more of a normalized kind of progression, that's typically what we'd expect, unless you've got something unusual going on that would drive some change there. With respect to the tonnage question and shipments, obviously as you said, we had the acceleration that was meaningfully happening last year. If you recall, we were at 47,000 shipments per day, really from December of 2022 through July of 2023, and immediately stepped up to about 50,000 in August and then accelerated further to 51,000 in September. So, step function change that would be well above anything that was really happening with the underlying economy, if you will. So, if we can see some type of normal acceleration, if you will, just like from a tonnage standpoint, our 10-year average from July to August is six tenths of a percent increase there and then about a 3.5% increase in September. So we'll see how that goes. But right now, even if we hit those, it would look like you would have a negative change in those volumes. But overall, I think it's just as we look at things sequentially, maybe more so than just a year-over-year, given that challenge is what can we achieve relative to what normal seasonality would be and what we've seen at least so far through July. From a tons per day standpoint, just from a pure quarter, we're typically up about 1% when we gave the numbers earlier, but in the second quarter, that average is just call it 6% and we were up 3% just sort of rounding numbers. So we were up kind of half of what normal seasonality would suggest. So we've got to make up some ground. Like I said earlier, we always lose a little bit of business in July, and that's normal. And so if we can have kind of a little bit of acceleration through August and then see some acceleration into September, we were almost at normal seasonality in the June period. And the same thing with March, you've got to adjust for the Good Friday, but we're about at seasonality in those stronger growth months of the quarter. So if we can make some progress in August and then see some sense of that strong acceleration through the month of September, I think we'll be okay. And we've position ourselves well, whenever we come out of this true economic downturn, where we're operating at a 72, essentially, and 71.9 [ph] I guess I should take credit for every basis point we have in terms of where we've operated. And when I look at the breakdown of our operating ratio in the quarter and where we are from an overhead standpoint relative to our direct variable costs, I'm really pleased with the improvement that we've made with our direct cost performance. And that just gets into the day-to-day management within our operations in the field, primarily. But everyone is contributing to that overall operating ratio. But our overhead costs have increased. They were 20% to 21% of revenue in the most recent quarter. Those costs have been down to around 17% in the past. So once we get some true density coming back into the network, we've built our network and our system to accommodate more than 50,000 shipments a day. So once we get back into 50,000, 55,000, 60,000, whatever that number is, that's where you'll really see the power of operating density in the model. And you move that scale from 20% to 21% back towards 17% that puts us back in with an overall with the 6 handle on it, back where we were in 2022. So I think we're in a great spot and have managed through this downturn very well and has certainly put ourselves in a great position to capitalize on the market when we actually start seeing some economic wins at our back.

Operator:

The next question is from Brian Ossenbeck with JPMorgan. Please go ahead.

Marty Freeman:

Good morning, this is Marty. I'm going to answer your customer question. I'm still heavily involved with a lot of our top customers and the feeling out there is not all doom and gloom. In fact, our top 50 customers are up mid-single digits year-to-date. So we're getting a lot of positive remarks, especially from our larger customers and they as well see some positive things for the rest of the year. So we're very positive of and that those things will continue. And as Adam said earlier, they feel, and I feel if we can see some interest rate drops toward the end of the year, I think we'll really accelerate. So we're looking forward to that and prepared to handle it. So it's not all doom and gloom out there, trust me.

Marty Freeman:

I agree with that. There are still over 130 facilities that haven't been sold. So that's actually less capacity when things pick up than we had when YRC was still in business.

Operator:

The next question is from Stephanie Moore with Jefferies. Please go ahead.

Adam Satterfield:

Yes, we've opened three service centers this year and we're continuing to execute on our CapEx plan. The current estimate is to spend about $350 million this year, at least on the real estate component of that program. So our plan is we look at the network. We look at the service centers that we feel like need some measure of capacity. And when we look kind of over the next five years, and what the anticipated growth curve may be and the efficiency of the network comes into play as well, the location of where these facilities are and so that kind of goes into the overall plan. And we're a little bit heavy right now, frankly. It's not unusual when we go through a slower economic environment to get a little ahead of the curve. Our long-term strategy is we like having 20% to 25% excess capacity in the system. We're at about 30% today and that's okay. We're comfortable with that. Now, what that may mean is exactly what you said. There may be facilities that are in process today. We will finish those facilities, and if the demand environment doesn't dictate that we go ahead and open them immediately, we'll finish the construction, we'll start the depreciation and so forth of those facilities. But we'll wait until there's stronger demand to really justify the opening and all the incremental overhead cost that goes along with those facilities once they're operational. Not just the overhead, but there's configurations to the line haul network that has to happen, and generally that negatively impacts load factors. So that's something that these other carriers that are opening multiple facilities will be facing the incremental cost there, which is another reason why we don't anticipate seeing reductions in pricing or any pressures there. But so that's something that just goes into it and we'll continue to look and evaluate, but overall continuing to plan and we'll continue to -- the investments that we make are really just based on what we think the market share opportunities are in each of the respective areas. And so we feel like we've got tremendous opportunity ahead and thus we intend to continue to spend 10% to 15% of our revenue revenues every year on total capital expenditures, the real estate, and then obviously on the fleet and the technology side as well to keep pace with our anticipated growth.

Operator:

The next question is from Bruce Chan with Stifel. Please go ahead.

Marty Freeman:

Yes. As I said before, about a third of our business is 3PL related and those are basically the top customers that I was referring to. And most of those that come in here are giving us new opportunities to go in with them and handle their business and for the most part, they're super positive. We have a set of 3PLs in here this morning that I've already talked to, and they're super positive and they've got growth opportunities. So, I'm positive as well that we'll see some positive results from these customers and hopefully next year in the geopolitical environment, if we see some change there, I think it will be even more positive. Adam?

Bruce Chan:

Yes, thanks for that.

Jason Seidl:

Thank you, operator. Hey, Marty, hey Adam. Thanks for squeezing me in here. I just wanted to follow up, Marty, to some of your comments. You mentioned that you've been talking to a lot of your big customers and it's not all doom and gloom. I was wondering sort of what areas those customers just spread across the board is this more consumer versus industrial? And the other one would be, we've heard a lot about some business being pulled forward from peak season into the 2Q and I guess the startup 3Q here. I'm wondering if you guys have seen any impacts from that and how should we look at that going forward?

Jason Seidl:

Okay. In terms of the pull forward, have you seen any impact?

Marty Freeman:

Yes, me either.

Adam Satterfield:

Thanks, Jason.

Jeff Kauffman:

Thank you very much and thanks for squeezing me in at last here. Marty, bigger picture thought question, and I'm just curious, your view. If I look at the ATA/LTL tonnage index, it's down about 8%. And a year ago, before Yellow, the volumes of the publicly traded LTL carriers were tracking more closely to that. Since Yellow happened, the publicly traded group is showing kind of flat to up 2% tonnage, but the ATA tonnage index is still showing down about 8%. Is there something going on? Why would it diverge so much? And is there something going on maybe where the smaller LTL carriers might be struggling a little bit more than you and some of your larger peers? Can you help me kind of bridge this gap?

Jeff Kauffman:

So the bigger point I'm going for here is, as you mentioned earlier, you got the PMI down in negative territory. Right now, industrial production is kind of flattish. You're 50%, 60% industrial. When we look at your tonnage growth of 2% and you're nothing chasing any Yellow business, the industry is probably a lot weaker in aggregate than what the five or six publicly traded truckload companies are reporting, that that 2% tonnage growth actually is stronger than the industry appears to be if we look at it through a broader lens, and not just the lens of the publicly traded guys.

Jeff Kauffman:

Thank you for your insight.

Marty Freeman:

Thank you all for your participation today. We appreciate your questions and please feel free to give us a call if you have anything further and I hope you have a good day and a good rest of your summer. Thanks.

Jack Atkins:

Thank you, Andrea, and good morning, everyone, and welcome to the First Quarter 2024 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through May 1, 2024, by dialing 1 (877) 344-7529, access code 5260631. The replay of the webcast may also be accessed for 30 days at the company's website.

Ravi Shanker:

So great summary of where we got to this point. Is 2Q the quarter where kind of we see the best of what this industry looks like in a post yellow environment, and if tonnage picks up and you have 2024 pricing that comes in, kind of how do we expect 2Q to trend versus seasonality?

Operator:

The next question comes from Daniel Imbro of Stephens.

Adam Satterfield:

Yes, I would say right now, underlying domain has felt relatively consistent, but it does feel like things are improving a bit. And obviously, like I just mentioned, we've seen some sequential acceleration obviously, January, we see pretty good with winter weather, and we saw the impact of that. But we increased from there through February and then saw again some of the sequential improvement in shipments through March and thus far into April.

Jordan Alliger:

Just curious if you could talk to a little bit more the yield side of the equation, perhaps a little more color around mix, core pricing you're seeing as your contracts come up? And I guess, broadly, is this any way -- is the yield deceleration -- I don't know, is it tied in some way to more intense competition out there given industry spare capacity?

Bascome Majors:

I think your long-term shareholders can be happy with the discipline you've held through this 2-year protracted down cycle on sticking to your guidance and strategy and waiting to really monetize the capacity in the better part of the cycle in the future here, especially with all the changes in the competitive landscape and capacity moving around at some of your peers.

Adam Satterfield:

Yes. I think certainly, time will tell and it's something that we continue to watch. And the business levels, our market share trends. All of those are pretty much have been in line with what we would have otherwise expected when we go through a slower economic environment. It's something where our market share is generally flattish and a little hard to track market share right now with the disruption post Yellow's closure.

Operator:

The next question comes from Amit Mehrotra of Deutsche Bank.

Amit Mehrotra:

But Adam, if I could just quickly follow up on that for a second because the strategy seems to be we're going to sit around and wait for somebody to get screw up, and that's when the market share opportunity is going to come. And that maybe have been the case in the last 10 or 15 years, but what's plan B? Like what happens if no national player screws up because everybody is focused on service and they actually deliver, what is the plan of action then?

Operator:

The next question comes from Eric Morgan of Barclays.

Operator:

The next question comes from Bruce Chan of Stifel.

Adam Satterfield:

Yes. I've got a teenage daughter, so I can't help but hear certain types of music in the house. But on the pricing front, we've not really seen any material change in activity or bid activity. And for us, it's pretty consistent through the year in terms of how bids come in. And so pretty much just business as usual there. And again, like we said earlier, continuing to get the same types of increases on a core basis that we've seen in the past.

Unknown Analyst:

This is Adam [ Rusckowski ] on for Ken Hoexter. The team and Jack, I hope the other side is treating you well. So why don't you get back to the excess capacity comment you noted about 30%. Could you remind us of the current capacity expansion plan maybe in the near term or over the next couple of years? And then average headcount was up slightly sequentially. How should we think about the headcount run rate for the balance of the year? And maybe could this serve as a potential cost lever?

Kevin Freeman:

Yes. From a capacity standpoint, we always try to maintain at least 25%. And with the 30% that we have now, some of that comes from what we started as a -- enlarging some of our docs that we had experienced some tight door pressure in which we keep a door pressure report going on a monthly basis. But some of those things are finishing up from expansions in 2022, that's the reason for the 30%.

Operator:

The next question comes from Stephanie Moore of Jefferies.

Joseph Lawrence Hafling:

Great. And then maybe just on that point, have you heard any maybe anecdotes from customers lately on any service issues? Or is the environment just still too weak right now, so that's really become an issue?

Operator:

The next question comes from Jason Seidl of TD Cowen.

Adam Satterfield:

Yes, I think so, Jason, I agree with you. And I felt like post-pandemic, we were going to stay in more of an adjusting case type of inventory management style. But once things get tight and you start managing cost, you have to look at all elements and managing tighter inventory is one way for shippers to improve their overall bottom line.

Adam Satterfield:

In terms on a sequential standpoint or...

Adam Satterfield:

Yes. So far, I mean, obviously, we're not completely done, but we're somewhere around 48,000 shipments per day. So just up slightly from where we were in March. And we'll see hopefully, that will increase a little bit that average count, if you will. But when we look at what normal seasonality, the 10-year average is a 0.4% increase from March into April for shipments.

Operator:

The next question comes from Brian Ossenbeck of JPMorgan.

Adam Satterfield:

Yes. We hope to see it continue to increase. That's typically an indicator of an improving economy as well. Like I mentioned, an increase from February to March, it's increased a little bit from March thus far into April as well. So that's something that we're probably on the low end of the scale in terms of how that metric changes.

Thomas Wadewitz:

I wanted to -- it seems to me like the -- I guess, the freight environment improvement is a key catalyst for what you're going to see on the tonnage side and give you a chance to benefit from the capacity and service you can offer. What have you seen in terms of industrial customers versus the kind of retail and consumer customers where there's any kind of difference in behavior or trend or optimism.

Adam Satterfield:

Yes. Overall, the retail continued to reflect -- or the industrial rather reflect the weakness that we've seen in the industrial economy. And in the first quarter, we had 1% revenue growth, but it was actually a slight decrease when you look at just our industrial-related accounts group together. So a little bit better performance on the retail side to offset that in the first quarter.

Operator:

The next question comes from Scott Group of Wolfe Research.

Adam Satterfield:

Yes. And again, to repeat, nothing is changing with respect to the core contract increases that we're achieving and that we're targeting. We continue to target cost plus increases, and we're getting those. It's just a little bit different in the mix of freight that we're seeing. We've seen a little bit of a decrease in length of haul.

Adam Satterfield:

No, but it's staying consistent with where we were. The rev per shipment performance in April thus far is pretty consistent with what we just had in the first quarter. We were up 3.8% revenue per shipment in the first quarter, excluding the fuel surcharge.

Adam Satterfield:

Well, I think that's something that obviously depending on how much volume growth we actually see in the quarter or not sequentially. We've invested significantly in many factors that we detailed earlier that create short-term costs. So if we can see some further improvement and if weight and shipments really accelerate kind of from here forward, and obviously, there's a lot of leverage that would therefore come from that.

Jeffrey Kauffman:

And Jack, congratulations, really looking forward to working with you in this role. A lot's been asked, so I just want to take a step back. It's been a weird couple of years, right? We had COVID, big up, big down, inflation. We've had inventory destocking. We've had the Yellow closure. We've had a lot of growth in private fleets. All of this, I think, makes it difficult to predict what's going to happen with business.

Adam Satterfield:

Yes. I don't have my Carnac the Magnificent happier handy to be able to predict on when things are going to change, but that's probably the most buzziest thing is when will the inflection point happen. We -- obviously, it's called a cycle for a reason, and we will get back into a robust demand environment at some point. And when we do, we will be able to take advantage of that.

Adam Satterfield:

And that's a great observation.

Kevin Freeman:

Yes. I'd like to thank all of you today for your participation, and we really appreciate your questions. If you have anything further, please feel free to give us a call, and we'll be glad to answer it. And I hope you have a good rest of the week. Thank you.

Drew Andersen:

Thank you. Good morning, and welcome to the fourth quarter and full-year 2023 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through February 7, 2024, by dialing 1-877-344-7529, access code 2607922. The replay of the webcast may also be accessed for 30 days at the Company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. As a final note, before we begin, we welcome your questions today, but we ask in fairness to all that you limit yourself to just one question at a time before returning to the queue. Thank you for your cooperation. At this time, for opening remarks, I would like to turn the conference over to the Company's President and Chief Executive Officer, Mr. Marty Freeman. Please go ahead, sir.

Adam Satterfield:

Thank you, Marty, and good morning. Old Dominion's revenue for the fourth quarter of 2023 was $1.5 billion, which was a 0.3% increase from the prior year. This slight increase in revenue was primarily due to a 3.0% increase in LTL revenue per hundredweight that more than offset the 2.0% decrease in LTL tons per day. Our quarterly operating ratio was 71.8% and earnings per diluted share were $2.94, which was a 0.7% increase from last year. As Marty previously mentioned, this was the first quarter with an increase in both revenue and earnings per diluted share since the fourth quarter of last year. While it certainly has not felt like one of our record years from the past, $2.94 also represents a new company record for fourth quarter earnings per diluted share. On a sequential basis, our revenue per day for the fourth quarter increased 1.9% when compared to the third quarter of 2023, with LTL tons per day increasing 0.6%, and LTL shipments per day decreasing 0.3%. For comparison, the 10-year average sequential change for these metrics includes a decrease of 0.8% in revenue per day, a decrease of 1.6% in tons per day and a decrease of 3.4% in shipments per day. The monthly sequential changes in LTL tons per day during the fourth quarter were as follows

Unidentified Analyst:

Good morning, team. This is Matt on for Bruce Chan. Thanks for taking our question. You've highlighted some market share gains in the past couple of quarters here post-Yellow, and wanted to get your sense of to what extent do you expect these to continue as more competitors bring on new capacity?

Unidentified Analyst:

Great. Thanks for that. And as a quick follow-up, how do you see industry capacity this year versus last year? And do you have a quick view of what percentage of latent off-line capacity might return as we progress throughout this year? Thanks a lot.

Unidentified Analyst:

Thanks for the time.

Ravi Shanker:

Thanks. Good morning, gentlemen. Maybe I have a follow-up on that. And I would just love to get your thoughts on how the Yellow asset auctions spanned out versus your expectations? And maybe a broader question there is based on that. Do you think the next up cycle is going to play out differently with the redistribution of capacity from one entity like Yellow that was constantly seeding share over several years to a handful of entities now trying to gain share? Do you think that changes the competitor dynamics at all?

Ravi Shanker:

Very helpful. Thank you.

Christian Wetherbee:

Hey, thanks. Good morning. I guess I wanted to talk a little bit sort of near-term and get a sense of how things are progressing, I guess, first quarter. We've seen some weather here in January. I think typically, OR gets a little bit worse as we go from 4Q to 1Q, but maybe you can put some – help us a little bit. I think there were some moving parts, in particular, in the fourth quarter with the gain as well as some of the insurance actuarial stuff that was going on there. So just kind of get a sense of how you're thinking about the first quarter both from sort of an operational perspective, but also from an OR standpoint?

Christian Wetherbee:

And just one point of clarification. So for 4Q, do you think that with those two big moving parts, that's sort of the number that we have is the right jump-off number as we think about that normal sequential progression of OR?

Christian Wetherbee:

Okay. That's very helpful. Thanks for the time. I appreciate it.

Ken Hoexter:

Great. Adam, just to clarify that insurance and claims that was an annual adjustment, right? So when you talk about normalizing, I just want to understand that actuarial change. But my question would be on – you didn't bid for the – or I guess, maybe win the centers, maybe your thoughts on in the industry, if you think there was – I presume you think then there was overpayment, right, given you were trying to be the stalking horse bid. So what does that mean for the environment? Do you think those peers need to get a return quickly on that investment, and you see increased pricing competition? I just want to understand your thoughts or view on what the impact of overpaying from your peers' competitive perspective means?

Ken Hoexter:

And I'm sorry, thanks for that. Great answer, but do you mind clarifying on the insurance?

Ken Hoexter:

Great. Thanks for that. Appreciate the time.

Amit Mehrotra:

Hey. Thanks. Adam, I think in your prepared remarks, you mentioned that maybe there's a need to add headcount in anticipation of volume growth. Can you just put a little bit more color around that? How far ahead of this inflection of volume, when could we expect the headcount to go and how quickly? And then, the industry is always – another follow-up to that. The industry has obviously been disrupted over the last six months and the dust is settling, curious to get your view on like how you think the competitive dynamic has evolved from both a service quality perspective and a pricing perspective. Have you seen service disruptions? I know there's maybe early signs of that in the third quarter, but have those fixed itself or you continue to see services structure to create market share opportunities for you? And what are you seeing on the competitive pricing side that makes you feel better or worse or neutral about kind of where the discipline is in the industry?

Amit Mehrotra:

Yeah, agreed. Okay. Thank you very much.

Jonathan Chappell:

Thank you. Good morning. Adam, thanks for the commentary around the 4Q to 1Q move in the OR, given some of the noise in the fourth quarter. As we think about the rest of the year, and I know it's difficult to predict the volume landscape, so let me frame it, if you will. It sounds like you're in a good position, 30% capacity. Maybe you can see the whites of the eyes on adding headcount, maybe both PT lever if necessary, if things kind of accelerate quicker than expected. But should we expect a return to kind of normal seasonal trends in the OR this year? Or can we see even better in the first maybe nine months, if you get some of the volume back on a stickier basis, more of an industrial recovery and then maybe lag a little bit some of the resources that you need to handle that just given your spare capacity today.

Jonathan Chappell:

Yes. Okay. Thank you, Adam.

Thomas Wadewitz:

Yes. Good morning. I wanted to ask you just on pricing and I guess if we look at the January, I think you said the January is up like 6.4% and 4Q was 7.5%, I believe, for revenue per hundredweight ex-fuel. Do you think there's kind of further deceleration in the pace of year-over-year pricing that you would expect looking forward? And where do you think things settle out? Is it 4 or 5? And then I guess, just one other kind of related question. How do you think we ought to think about cost inflation this year compared to what it was last year? Thank you.

Thomas Wadewitz:

Right. Okay. Yes, that's all very helpful. Thanks, Adam.

Bascome Majors:

Yes. Thanks for taking my questions. Just to follow-up on that last question. Based on the recent contract conversations, you said, certainly, your peers continue to raise price. Do you feel fairly confident you can maintain your historic 1 to 1.5 point spread above that cost inflation this year?

Bascome Majors:

Thank you.

Jason Seidl:

Thank you, operator. Good morning gentlemen. How should we think about sort of normal seasonal patterns as we move throughout the year and your year-over-year comparisons with tonnage in terms of when you first started seeing the freight come over from Yellow?

Jason Seidl:

Right. But you didn't see it earlier as they started to bleed a little bit in June?

Jason Seidl:

Okay. Makes sense. I want to clarify also something that you guys said. You mentioned you expect an exit of capacity once the dust settles when you were talking about the terminals. Are you talking an exit of capacity from where we are now? Or are you talking a total exit of capacity from when Yellow was an operator?

Jason Seidl:

Yes. Well, I'm hoping it comes back in 2024 for a normalized market. We all have been waiting for it for quite some time. So fingers crossed. Appreciate the time.

Jack Atkins:

Okay, great. Good morning guys. Thanks for taking my question. So I guess going back to the weight per shipment and just broader demand comment you were making earlier, Adam, I mean, we saw weight per shipment tick up a bit sequentially in the fourth quarter. I know some of that was probably seasonality. But are you starting to see anything, whether it's conversations with customers that would lead you to be a little bit more optimistic about how underlying demand may be trending as we kind of get into the spring. And I guess kind of within that, are you seeing anything different whether it's consumer versus your industrial customer base. Just would be curious about that.

Jack Atkins:

Okay. That's helpful. Thanks again.

Eric Morgan:

Hey, good morning. Thanks for taking my question. I wanted to ask one on service. You've been kind of been up against the ceiling on claims ratio and on-time performance for some time now. So I guess I'm just wondering what else you can do to improve the customer experience and stay differentiated, particularly as you're looking to maintain your pricing strategy and keep taking share. Not sure if there are opportunities with technology or speed in certain lanes or anything else? Just trying to get a sense for where you're focused outside of those typical metrics we track.

Eric Morgan:

Thank you.

Stephanie Moore:

Hi. Good morning. I wanted to maybe double click a little bit on your commentary on the labor and adding to headcount this year. I just wanted to maybe compare your view on headcount additions for 2024 versus 2023, I think I was under the assumption that in 2023 that you were able to hold on to some labor, kind of protect as many drivers and physicians as possible kind of waiting for the demand to pick up in 2024. So just trying to compare, I think, that commentary from prior quarters to your outlook for this year. Thanks.

Stephanie Moore:

Got it. And just as a quick follow-up, seeing any difficulties meeting some of those hiring or headcount additions thus far this year? Just trying to get a sense of the strength of the labor environment?

Stephanie Moore:

Great. Thank you so much.

Scott Group:

Hey, thanks. Good morning. So just maybe a bigger picture question. Adam, someone asked about pricing earlier, and you answered, well, based on normal seasonality, here's what yields would look like. And I would have thought maybe with this big Yellow event that maybe would be better than normal seasonality on pricing. And same thing, right, where Yellow has gone and tonnage is still down. And so I guess, ultimate question is we all treated Yellow as this really, really big event in the industry. Is it not really a big event? Or is it that – it's a really big deal, but it's all being masked by slow macro and ultimately, whenever the macro gets better, we'll really feel the impact of Yellow and it's all still sort of on the come?

Scott Group:

That's helpful. I know we're past here. If I can just sneak in one more. I'm just looking at this like, 2022, you guys bought back a lot of stock at the lows and your pace of buybacks have really slowed the last couple of quarters, sort of with the stock at the high. So you've had a pretty good feel for your stock. How are you thinking about your buyback this year?

Scott Group:

Thank you, Adam.

Operator:

Thank you. Today's last question comes from James Monigan with Wells Fargo. Please go ahead.

Adam Satterfield:

I'm not sure that I fully understand your question, but like I mentioned before, that we anticipated that, that metric would eventually compress back to longer-term averages. And for us, it's 100 basis points to 150 basis points positive spread, which by the way, reconciles to the average operating ratio improvement, we've been able to generate over time as well. And so we'll continue to do our best to manage our cost and to continue to ask for necessary increases on our customer accounts to offset the cost inflation that we'll have in the business and to support the wage increases that we give to our employees to allow us to retain the employees that we have, but continue to attract new employees to our business as well, which we've been able to do over time to support the consistent growth that we've been able to produce. So it takes a lot to keep growing the company year in and year out. And to be able to keep our cost inflation as we're doing so as well. So try to keep that cost under control and keep asking for that same positive spread over time, that's what our focus is going to be.

Adam Satterfield:

Well, we've probably got line of sight into adding four or five service centers. As Marty mentioned, we've got several that have been under construction. But a lot of that will really depend on the volume environment as well. In the past, we've finished service centers and may complete the construction, we have to start depreciating them and incurring other overhead-type costs with them, but if the volumes don't dictate the opening, then we might sort of keep them in ready reserve, if you will, and wait until volumes are stronger to start incurring the cost because with growth, that's another incremental cost, every new service center that we opened. You've got incremental line-haul cost and other expenses that we're going to incur as a result of that opening. In addition to just the general depreciation and overhead. So that will be something that we'll be mindful of as we go through the year. And hopefully, the volume environment will be such that we're ready to open them and turn them on day one as soon as we're finished.

Operator:

Thank you. This concludes our question-and-answer session. I would now like to turn the call back to Marty Freeman for closing remarks.

Operator:

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

Drew Andersen:

Thank you. Good morning, and welcome to the third quarter 2023 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through November 1, 2023, by dialing 1-877-344-7529, access code 8344351. The replay of the webcast may also be accessed for 30 days at the Company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The Company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. As a final note, before we begin, we welcome your questions today, but we do ask in fairness to all that you please limit yourself to just one question at a time before returning to the queue. Thank you for your cooperation. At this time, for opening remarks, I would like to turn the conference over to the Company's President and Chief Executive Officer, Mr. Marty Freeman. Please go ahead, sir.

Adam Satterfield:

Thank you, Marty, and good morning. Old Dominion's revenue decreased 5.5% in the third quarter of 2023 due to a 6.9% decrease in LTL tons per day that was partially offset by a 3.1% increase in LTL revenue per hundredweight. We also had one less operating day as compared to the third quarter 2022. The combination of this decrease in revenue and slight deterioration in our operating ratio contributed to the 8.0% decrease in earnings per diluted share to $3.09 for the quarter. On a sequential basis, revenue per day for the third quarter increased 8.9% when compared to the second quarter of 2023 with LTL tons per day increasing 3.6% and LTL shipments per day increasing 5.7%. For comparison, the 10-year average sequential change for these metrics includes an increase of 2.9% in revenue per day, an increase of 0.7% in tons per day, and an increase of 1.8% in shipments per day. As Marty just mentioned, a portion of this increase can be attributed to the loss of one large competitor as underlying demand has remained relatively consistent throughout the quarter. We do believe, however, that we are also winning new business from other carriers in the industry due to the quality of our service and overall value provided to our customers. The monthly sequential changes in LTL tons per day during the third quarter were as follows

Allison Poliniak:

Hi. Good morning. Could you talk a little bit about the density improvement that you saw in the network? And any way to quantify that? And then maybe following that, just touch on how much excess capacity you have in the system today to take on some more volumes? Thanks.

Allison Poliniak:

Great. Thanks for the color.

Jack Atkins:

Okay. Great. Good morning, and thanks for taking my question. So I guess, Adam, as you think about the sequential progression into the fourth quarter, I know there are a lot of puts and takes with October and the disruption – the further disruption of the market in October. But could you maybe talk about your expectation for – or maybe how we should be thinking about operating ratio trends sequentially from the third quarter to the fourth quarter, all things considered?

Jack Atkins:

Okay. Makes sense. Thanks for the time.

Ravi Shanker:

Great. Good morning, everyone. So just maybe a 2024 question, if you will. It looks like yourselves and maybe a lot of the big LTLs still have a fair bit of excess capacity in their network even after absorbing the yellow volumes. I'm wondering how you think the kind of – how numbers will play out when the upcycle comes. Do you expect to see the market has suddenly tightened up and there to be like a rising tide of pricing? Or do you just think that you get better incremental margins as the volumes come in? Kind of where do you think the 2024 upcycle looks like in a post Yellow situation at this point?

Ravi Shanker:

Great. Thanks, Adam.

Christian Wetherbee:

Hey, thanks. Good morning, guys. Maybe I could piggyback on that a little bit. As we think about 2024, I know normally you guys talk about costs. You talked about price sort of relative to cost and be able to need to exceed that in any sort of normal year. I guess in post Yellow, as you think about 2024, do we need to see something else to be able to sort of spark a better-than-normal pricing year for you guys in 2024? I think there are expectations that next year naturally would be because of what happened with Yellow. But is a normal cyclical recovery enough to spark something that would be better than average? I just want to get your sort of general take on how sort of spring loaded or not you think the pricing environment is?

Christian Wetherbee:

Okay. Thanks very much. Appreciate it.

Scott Group:

Hey. Thanks. Good morning. I want to ask about your perspective on share gains. So we've pulled forward, I guess, about 10 years of share gains from Yellow into a quarter. I guess do you think post Yellow, the pace of share gain for you guys in future years will be as good as what we've seen from you historically? And I guess I'm curious about this question in the context of this upcoming Yellow auction. I mean ultimately, I guess I want to know like how much – what is your strategy in terms of terminal growth? And how much do you want to add? Obviously, you were involved in the stalking-horse bid. What's the strategy here with this upcoming auction?

Scott Group:

So if I understand, Adam, you don't think that like your long-term volume growth share gain is any different going forward post Yellow?

Scott Group:

I appreciate the thought. Thank you, guys.

Amit Mehrotra:

Thanks, operator. Hi, Marty. Hi, Adam. I had two questions, if that's okay. So first question, you just did like a 70 and change OR in a broad freight environment that's pretty weak, to say the least. Does that – that obviously informs the opportunity in a broadly better freight environment? I know you have the [indiscernible] OR target, but I was wondering if you can update us that because I assume you're quite happy and impressed with the resiliency of the OR and what has been a weak market even including Yellow. And then I want to push back a little bit on the Mastio. Obviously, you guys on a headline basis, have been exceptional. And I know it's really hard to get that number one national carrier position. But the value proposition for OD historically has been, yes, we're more expensive. But on a total cost basis, we're still better because of our claims ratio and our on-time performance. And you guys always were in the middle or below that fair value band in the Mastio survey. Today, you're kind of at the tippy top. And it's hard to improve 99% service, 0.1% claims ratio, but your price is going up, which on the margin reduces the value that you provide to the market, which may explain some of the market share. I'm sure you disagree with this, but help me understand how you think about moving up towards the very top of the fair value band and what that means for your market share opportunity going forward?

Amit Mehrotra:

Got it. Thank you very much. Appreciate it.

Jonathan Chappell:

Thank you. Adam, you're able to handle this surge of 3Q business without really changing the cost structure that much. So as we think about kind of a return to cyclical recovery at some point next year, whether it's first half or back half loaded, did this surge in volume in the third quarter and October absorb a lot of your spare capacity and a lot of the ability to have the incremental margin expansion, so as you can see the volume recovery on a more sticky basis, you can still increase the cost structure on a lesser one-for-one basis and get that historical OR improvement? Or is there going to be a bit of a catch-up where you're going to have to add more labor, more resources if the broader demand tailwind actually accelerates next year?

Jonathan Chappell:

Got it. Thank you, Adam.

Thomas Wadewitz:

Yes. Good morning. Adam, you've talked a bit about – I think you said like inflation can come down somewhat next year. And then you've talked a bit about price as well, and you've seen a pretty constructive view on where price is going to be next year. If we don't see improvement in the freight market activity, do you think you'd be looking at those two factors supporting margin improvement because it seems like you put those two together, you would see the margin improve. But how do you think about, I guess, lower inflation and a favorable price and what that does for margin, even if you don't see freight improve?

Thomas Wadewitz:

So I mean it sounds like you feel pretty good about where you're at in 2024, even if you don't see a lot of improvement in the freight market?

Thomas Wadewitz:

Right. Okay. Great. Thanks for the perspective, Adam.

Jordan Alliger:

Yes. Hi. Spoke quite a bit about price on the call today. I'm just curious on mix and the types of shipments you're getting, obviously, weight per shipment, maybe discussing that, which is basically trended down, sort of thoughts around that and shipment mix? Thank you.

Jordan Alliger:

Thank you.

Eric Morgan:

Hi. Good morning. Thanks for taking the question. I just want to come back to the near-term. I think for September, you said tonnage was about one point below average seasonality on a sequential basis. But you have confidence you're gaining market share and underlying demand on study. So just wondering if you can clarify that and maybe if you're seeing any attrition from the initial wave of share shifts. I guess kind of along the lines of an earlier question, just wondering how any new customers you have from this are responding to your premium service but also premium price offering?

Eric Morgan:

Thank you.

Kenneth Hoexter:

Hey, great. Good morning, Marty and Adam. So the market, obviously, at 30x earnings, taking this a little bit in stride here this morning, maybe it's because the 2%, 2.5% downtick in October, maybe some of the SDs give back expectations. But I guess maybe the expectation was for faster growth and that you'd be able to keep the OR, yet you're talking about more measured growth. So I just want to dig into this. There was a great discussion with Scott earlier into your outlook and your thoughts on sustained growth. But maybe thoughts about the industry and the competitive nature of it, right? So if you've got this bid process on the service centers coming up, which means the capacity just goes elsewhere, it doesn't go away. And maybe everybody thought it was going to go away and that would enable you to continue to take that share. Maybe your thoughts on what does that lack of tightening, right, if more of that capacity spills out to the market on your ability to take that? And I know, Adam, you couldn't give your thoughts on it, but maybe just give the factual stuff, maybe the timing of the service center bids, just so we're all on top of the exact nature of the distribution of those?

Kenneth Hoexter:

Thanks, Adam. Appreciate it.

Bascome Majors:

You talked earlier about starting to invest again in headcount and get ready for some of the growth that may come next year. Can you give us an update about where you are versus your capacity on facilities, people and equipment now? And any thoughts about where those constraints are showing up first, be it regionally or in functionally? Thank you.

Bascome Majors:

Thank you for that, Adam.

Bruce Chan:

Thanks, operator, and good morning, everyone. Adam, maybe just want to follow-up on some of your comments on the commercial side. You've got a couple of competitors out there that are targeting that field accounts business. I want to ask you if you feel like you have the right mix of field national and 3PL at this point or things are kind of changing post Yellow. And then just quickly on the sales force, any additions that have happened there to maybe fill out the newer parts of the network and keep pushing on that share growth? Thank you.

Operator:

The next question is from Stephanie Moore with Jefferies. Please go ahead.

Adam Satterfield:

Sure. It's – when we laid out the goal to have a sub-70 annual operating ratio, we didn't put a timeframe per se on that because we felt like we might go through – and a macro environment that's a little bit weaker, and we didn't want to be beholden to some artificial timeline and do things that were more short-term focused versus long-term. And I think when you look at this year, in particular, to have a capital expenditure plan of $720 million in an environment where at one point, we were – our tonnage was down double digits shows the focus that we try to take on looking out in the long-term and being ready for future growth. And that comes at a cost, and we've seen that increase in the operating ratio this year as a result. And again, the depreciation is probably the biggest drag that we have right now, but that's something that when you look at it on the other hand, when volumes come back, that's where we get leverage. And I've been pleased with the cost performance on the direct cost side. In the third quarter, our direct costs were 51% to 51.5% of overall revenue while our overhead came in at about 19.5% of revenue, and that compares to last year, our overhead was 16.5% to 17%, so deterioration there. But once we get back to the volume environment, we should be able to leverage that completely and get right back to improving our operating ratio, so we're already closed. We've done a couple of quarters with the second and third quarters of last year with 69 something operating ratio. And typically, when we look back through prior years, when we've gone through an environment where volumes have been down, revenue was down, we've lost a little bit on the operating ratio because of that leverage opportunity, we've been able to recover any OR loss in the subsequent year when we've had revenue recovery. And I think that's certainly what we're focused on and believe can happen. So we'll see where that gets us by the time we get to the end of 2024, but we will continue to perform on the direct cost side and continue to look for areas of opportunity as we can drive efficiency within our operations. But trying to get some leverage there on the overhead side, potentially not having to invest as much in 2024, and if we can get some revenue growth going along with that, could potentially produce a beautiful thing when you start looking at that OR.

Operator:

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

Operator:

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

Drew Andersen:

Good morning, and welcome to the Second Quarter 2023 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through August 2, 2023, by dialing 1 877-344-7529, access code 7609314. The replay of the webcast may also be accessed for 30 days at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. As a final note, before we begin, we welcome your questions today, but we do ask in fairness to all that you limit yourself to just 1 question at a time before returning to the queue. Thank you for your cooperation. At this time, for opening remarks, I would like to turn the conference over to the company's President and Chief Executive Officer, Mr. Marty Freeman. Please go ahead, sir.

Adam Satterfield:

Thank you, Marty, and good morning. Old Dominion's revenue results for the second quarter reflect a 14.1% decrease in LTL tons per day and 1.1% decrease in LTL revenue per hundredweight. Our yield metrics were affected by the significant decrease in the price of diesel fuel during the quarter as LTL revenue per hundredweight, excluding fuel surcharges, increased 7.6% reflecting our consistent approach to managing yield. On a sequential basis, revenue per day for the second quarter decreased 2.0% when compared to the first quarter 2023, with LTL tons per day decreasing 1.8% and LTL shipments per day decreasing 0.3%. For comparison, the 10-year average sequential change for these metrics includes an increase of 9.8% in revenue per day, an increase of 6.8% in tons per day and an increase of 7.2% in shipments per day. Our shipments per day on average have been relatively consistent since December of last year. We had previously communicated our expectation for volumes to remain consistent through the second quarter despite the sequential growth that we have historically achieved in this period. Our baseline thinking was for volumes to remain consistent through the third quarter as well, although we have noticed an incremental increase in revenue over the past few workdays. The change in our revenue on a week-by-week basis so far in July has been relatively consistent with historical averages. As a result, it appears that sequential change in both revenue and shipments per day for July will be the first time this year where we're more closely aligned with our 10-year average sequential change. While there are still a few work days remaining in July, our revenue per day has decreased by approximately 15% to 16% when compared to July 2022, although the timing of the July 4 holiday has skewed this number slightly. If the trend that we've seen over the past few workdays hold steady through the end of the month, we expect [Technical Difficulty] price of diesel fuel and our purchase transportation cost improved 60 basis points. These changes more than offset the increase in salaries, wages and benefits as a percent of revenue for our drivers, platform employees and fleet technicians that are included in our direct costs. Old Dominion's cash flow from operations totaled $287.8 million and $703.2 million for the second quarter and first half of 2023, respectively, while capital expenditures were $244.7 million and $479.4 million for those same periods. We utilized $160.5 million and $302.2 million of cash for our share repurchase program during the second quarter and first half of 2023, respectively, while cash dividends totaled $43.8 million and $87.8 million for the same period. We announced this morning that our Board has approved a new share repurchase program that provides us with the authorization to repurchase up to $3 billion of our outstanding stock. This program will begin after the completion of our existing $2 billion repurchase program that was announced in July 2021. While we intend to continue our focus of returning excess capital to our shareholders, our first priority for capital spending will continue to be the strategic investments in capital expenditures that support the long-term profitable growth of our business. Our effective tax rate was 25.4% and 26.0% for the second quarter of 2023 and 2022, respectively. We currently expect our annual effective tax rate to be 25.6% for the third quarter of 2023. This concludes our prepared remarks this morning. Operator, we're happy to open the floor for questions at this time.

Jordan Alliger:

Obviously, there's a lot of noise in the background now with one of the major competitors out there. Can you maybe touch a little bit on what, if anything, you're seeing or expecting either from a diversion -- I guess from a diversion perspective now?

Jordan Alliger:

If I could just ask a follow-up? I think you had mentioned you have about 30% excess capacity in your network now, whether it be demand or competitor problems. I think you also said normally, you like about 25%, but would you push that excess capacity lower? I mean would you be at -- would you run with just 20% or 15% excess capacity or is it a relatively firm line?

Operator:

And our next question comes from Allison Poliniak with Wells Fargo.

Adam Satterfield:

Well, I think the top line is going to be the determining factor here. And when it comes to the top line, obviously, we've shared a little bit about where we are with July, and we'll continue to give our mid-quarter update. So August will be out there as well. But from a baseline standpoint, what I usually was thinking and I may try to address this in a slightly different manner than what we have in the past. Typically, we see about a 50 basis point increase in the operating ratio from the second to the third quarter. And I would expect this third quarter we are going to have some increase in some of our -- from an aggregate dollar standpoint in some of the overhead categories. I feel like our total overhead expenses are going to -- the dollars wise are going to be higher than where we were. Some of that will be depreciation. We expect our miscellanies expenses to be a bit higher in our general supplies and expenses as well. So it will depend on where that top line comes in. I think that we can manage -- continue to manage our direct operating costs, which are more variable in nature consistent as a percent of revenue. And so we would look to try to keep those costs consistent with where we were last year. And that would be a slight improvement, but fairly constant with where we were in the second quarter. And then it just becomes the leverage that we get on the overhead. So if we've got some dollars higher, if the top line, if the volume environment were to stay flatter like what our base case scenario previously was, then obviously, we would lose a little bit more leverage there. But if we get some incremental improvement and further growth from where we are now, I think that's going to be really the slide, if you will, in terms of where the OR might end up that baseline thinking because of the increase in overhead expenses, I was thinking that we would be slightly worse than the normal seasonality, somewhere between 50 to 100 basis points of an increase over what we just did in the second quarter. So a lot is just going to depend on how those overhead costs as a percent of revenue move around really dependent on what the top line is doing.

Jack Atkins:

Okay. Great. I guess I'd like to ask a question on the pricing environment. And I guess, more specifically, if you go back 3 months ago, there was -- it seemed like there was incremental competition around some of the transactional freight in the marketplace. Have you seen anything change there, whether it's over the course of the last few months or in recent weeks that would give you some more confidence about the trajectory of pricing in the marketplace? Just any sort of commentary on that, I think, would be helpful.

Jack Atkins:

But I guess just a quick follow-up on that, Marty, if I could. I mean are you seeing maybe just given all the shifting dynamics in the marketplace, maybe a little bit less of a competitive situation going on with the transactional part of the market? Are you seeing some firming in pricing there, I guess, was what I was trying to get at?

Operator:

And our next question comes from Jonathan Chappell of Evercore ISI.

Adam Satterfield:

Yes, it's more of the core. And I would say, looking through our top 50 customers, the 3PL piece of the business really just performed in line with the company average really in the second quarter. We still had better performance with our core contract business, those that have direct contracts with us. But with revenue down 15%, everyone was pretty much down. A lot of that, obviously, there's a big decrease in fuel surcharge revenue that had an impact on the second quarter with the average price of fuel being down close to 30%. So that was certainly a headwind that we had to contend with. But that's -- we go back to -- we've had consistent conversations with customers really over the last year. And I think we've been pleased with the trends that we've seen. And certainly, we'd rather be talking about growth and see pure growth going on. So it's been tough to kind of go through the last year or so. But I think that we've had good customer relationships. We've got long-term customer relationships, people that have gone through supply chain challenges realize the value of Old Dominion and are continuing to increase their business with us. And the demand environment overall with the state of the domestic economy and that has certainly had an impact on our customers' businesses as well. And so in many accounts that we've kept the contracts have been awarded the same types of customers may just not have the same amount of business that they've had before. And that's kind of what I was alluding to earlier, where I feel like we're getting to the end of that kind of process where it feels like we're seeing stabilization and I go back to just underlying demand for LTL transportation, I felt like things were kind of getting to the point where we were seeing stabilization. We've had stable trends all year. But I felt like we were getting back to the point where we might start to see our market share -- it's been relatively consistent this year. It's been down slightly, but I felt like we were kind of getting to that end to where things are going to start turning back in our favor. And some of that just goes to some of the conversations we've had about others in the industry. We're hearing more service failures, and that's generally when the business starts coming back to us. So I feel good about kind of those underlying trends and getting through the back half of this year and being ready for 2024.

Christian Wetherbee:

Maybe I wanted to come back to pricing for a minute, maybe kind of big picture, if we think about the potential for capacity event in the industry where we see capacity materially tighten. I think we've looked at these in the past, we've seen meaningful pricing opportunities for the carriers in the space. I guess conceptually, how do you think about that? If we were to see some degree of capacity event, given the strength in pricing over this last cycle, is there still material upside as you think about that? I know volume ultimately will come back, but I wanted to get a sense of what you think about the potential future pricing opportunities are as capacity potentially gets tighter in the industry?

Operator:

And the next question comes from Amit Mehrotra of Deutsche Bank.

Adam Satterfield:

Yes. I see if I can try to address those in some sense of order, but to answer your first question from a mix standpoint, not a lot has changed with mix. Our weight per shipments dropped a little bit. We've gotten down to about -- we dropped about 10 pounds. We've gotten down to about 1,525 pound average or so, and it's dropped about 10 pounds or so here recently. But not a lot is changing. I think some of that is, we are -- seems to be picking up some more of the smaller tariff-based customers that generally got a little bit lower weight per shipment. So that's been good to see, if you will, overall. And whether or not that continues remains to be seen. And obviously, this is all just kind of developing. But I don't want to get into if we hold this trend steady, hold that trend steady, I mean, generally, August sequentially is up about 0.5% for our shipments per day are up about 0.5% over July. And we'd expect that some of this recent trend, it's possible that if things continue to hold steady like they have, I talked about the impact of July for that, but obviously, that could carry forward a little bit stronger, but we'll just take it 1 step at a time and keep giving the updates out there as they are. But we were -- last year, in August, we were at about an average of 51,000 shipments per day. So it starts closing the gap, if you will, if we can hold 50,000 steady. But keep in mind and that's what I was alluding to earlier that there's a natural progression that happens from the beginning of the month to the end of the month, and we were already starting to see some trends. So I don't know that you can't just take that gap from where we've been averaging 47,000 shipments a day really since December of last year and just say, okay, there's this immediate incremental change. There's been change that's been developing. And you can't disappoint the one specific player to say, this is the reason why. It's been a developing trend, and it's the way history has played out for us. When we get to the end of the cycle, we start winning business from different carriers. And so with that said, I think that there may be direct freight opportunities, but indirect trade opportunities as well that may come out of if there is an industry event. And I think that's still an if. And we don't know any more than anybody else. But we just are staying engaged with our customers, making sure that they understand the capacity that we have. And I think everyone knows the service that we can offer and no different than I think 2021 is an example where freight was obviously coming to us very quickly that year, and we stepped up in a very big way through the second and third quarters. And a lot of the conversations that we had with shippers being will be similar conversations that we have now. We protect our existing customers capacity for them and that's how we would manage through if we get into another period where the freight opportunity is accelerating significantly.

Thomas Wadewitz:

I wanted to go back to your comment on the capacity in the network. You referred to the 30% being above what your target is. I guess if you kind of juxtapose that with there may be opportunity for terminals related to the discussion we've been having about the big industry participants that's under pressure. So I'm wondering, would you consider being opportunistic and say, "Hey, we've got maybe more capacity than we need in the network, but there is an opportunity to kind of bring in a bunch of additional terminals that maybe fit well?" Or just how do you think about that and the kind of pace of terminal additions if you look at, I don't know, next 2 years, something like that?

Operator:

And the next question comes from Ken Hoexter with Bank of America.

Kevin Freeman:

Yes. Yes, we currently talk to new customers every week. We have over 500 salespeople and part of their job is to bring on new business. So they're out there having discussions about onboarding new customers every week, but -- and as well as existing customers and if the customers have questions about capacity, of course, we answer those. We show them where we have capacity, our terminal network and so forth. So that -- those are just ongoing discussions. But as far as labor, we have the labor covered. We have a driver training school where we have -- we call them combo drivers. If we're not utilizing them during slow periods, they go on the dock and then we can bring them back onto a truck as our tonnage and shipments increase. So we feel like we're pretty covered on labor. And for any increases, it might come our way. So I feel confident we can take on whatever comes our way.

Kevin Freeman:

Yes. We're reading the same thing as you are. So we really don't know what's going on, but we're talking about it within our senior management team every day and how we're going to put forth our plan to handle additional business. But we're not really seeing any major business coming out of that. And just like you, we don't know how that's going to end up. So we don't want to speculate at this time.

Bruce Chan:

Adam and Marty, I'm not sure if this got captured in some of the previous answers, but I wanted to ask it maybe a little bit more directly. If you think about the potential share wins from this, I guess, impending competitor exit, would you expect to see outsized share gains given your capacity expansion or maybe slower share gains given a more disciplined yield approach and what you mentioned was a higher average price than the market?

Operator:

And the next question comes from Eric Morgan with Barclays.

Adam Satterfield:

Yes. This is Adam. But -- we've had a decrease in headcount or we do sequentially through the second quarter and we've seen attrition really going back into last year through our business. But I think that -- like I mentioned, there's 3 elements of capacity, and we certainly -- we've got plenty. We talk mostly about our service center piece. But we've got equipment capacity to respond to the acceleration in business levels and from a people standpoint, we can do the same. We've shown that type of flex in our workforce in the past. I mean we've got people that I think we can call back as well. Marty mentioned, our internal truck driving school, that's created about 1/3 of our drivers and sometimes drivers come out of that school, but continue to work on the platform until demand is such that we put them into a full-time driving job. So there's multiple opportunities. The other lever that we could pull. And we did this going back to looking at those 2021 sequential trends. But as business accelerated really through the second half of 2020 continuing through 2021 as needed, we don't like to do this, but we can use purchase transportation to supplement the capacity of our workforce or our fleet. And so it just kind of depends on the pace at which volume comes on, but we had those big quarter-after-quarter sequential increases during those periods back in the end and that was kind of the final lever to pull. And -- so we certainly can have that. We would rather move our linehaul 100% of our fleet and with our people. But as necessary, we sometimes have to supplement, and that's kind of the source that we could go to on a very short-term basis. It would always be with the idea that we get it back 100% in-sourced as soon as possible if we had to go that route.

Scott Group:

Adam, you mentioned a couple of times just like the intra-month seasonality of shipments that obviously, we just don't know. I wouldn't normally ask it like a short-term question, but it's obviously an unusual time. Maybe if it's possible. Can you just like just share like year-over-year tonnage the last couple of days, like what that's trending? I just -- we just want to get a sense of like run rate very recently. And then -- the -- I think yield is down 3%-or-so in July. Any sense what yield ex-fuel is doing in July?

Scott Group:

So Adam, your point there is that others may get maybe a little bit more of the volume day 1, but to the extent that they struggle with this big surge in volume, you'll then get it on a derivative basis, maybe it's not day 1, but it's weeks or months from now. Is that kind of what you're trying to say?

Operator:

And the next question comes from Ravi Shanker with Morgan Stanley.

Adam Satterfield:

It's really hard to try to bifurcate and put your finger on what's driving any type of acceleration there. As I've mentioned, we would expect to see an increase. We're going into the final full week of the month. We would expect to see a normal type of increase. And it's a little bit above where I'd originally forecast this week to be at least, but when I go back to Friday was a bit heavier and then Monday and Tuesday have been a little bit heavier than what I had originally looked at. And so is that just because we've got more business from an existing customer that's having their own end of month surge? Yes, that's part of it. Is it freight that's coming in, we're -- there's been some freight diversion? Yes, that's a part of it. So you just can't put your finger on everything when we're doing 50,000 shipments a day, why did we get this 1 particular shipment? But that's why I wanted to point out that really, I think this goes back to, for several weeks, I feel like we've seen some pretty nice trends. We closed out the month of June strong. I feel like when we go back, even though our number of shipments per day have been around 47,000, we've had some good end-of-month performance. And the trends, the intra-month trends have been pretty good the last couple of months as well. We dropped off some early in the month, which that's typical too, but maybe dropping off a little bit more so than what a week-by-week average would be. But then we've made up for it as we've progressed through the month. So I've been pleased with our performance so far in July and it looks like at least right now when we project out and carry that trend forward of shipments per day that we're still down in comparison to June. Some of that is July is a 20-workday month and the way the July 4 holiday fell that Monday that we were open was probably half of a normal workday. So if you kind of adjust for that, we had seen better trends. We have been more in the 48,000-or-so shipments per day range kind of through the month before this recent pickup happened. So it's just not -- I can't put your finger on what completely is driving the change other than you go back and this is somewhat typical to what we would see at the end of a slow period like we've been in since April of last year and then it's just been accelerated over the last few work days from there.

Adam Satterfield:

We keep our belts tight every day. So we're always looking at managing our variable cost and controlling discretionary spending where we can and where it makes sense. But that's a philosophy that you can't just sort of take it or leave it. It's a mindset that you have to stay in, in good times and in bad. If you don't have that mindset in the good times, you're not going to be able to switch gears when you really need to. So I think that we certainly have been able to trim out some cost and I was pleased we ended up with a better operating ratio in the second quarter than what we had initially talked about. So that was good to see. And I think that I mentioned earlier, we're going to have some of those overhead cost categories. Overhead costs are about 19.5% to 20% of our revenue in total when he split those out and our direct costs are 2.5% to 53% of revenue. We're going to have some cost increases. We're continuing to have depreciation dollars that will increase from the second to the third quarter. Our general supplies and expenses should be up in the third quarter over the second. And then I would expect that our miscellaneous expenses would be up as well. So those dollar costs will be there. Whether or not we've got some revenue growth to offset them kind of remains to be seen similar to what we were talking about before. So -- but some of those dollars will be increasing from the second to the third.

Jason Seidl:

I wanted to focus again on what's going on with Yellow and look out at pricing. I don't think I heard this, but generally, I wouldn't have expected anybody to try to push the GRI through, excluding what's been happening. But do you think there is a likelihood that this occurs now if there is a bankruptcy in the near future?

Jason Seidl:

Okay. Marty, that makes sense. So you're not expecting it, but you wouldn't be surprised if maybe others tried because you're not exactly at your level. I wanted to, Adam, jump on something you mentioned with sort of slow and steady wins the race and freight coming back with people not being able to handle it. But even if people handle it, won't there be cases of freight not being what people think and it's just needing to find proper homes within a given network?

Operator:

And the next question comes from Stephanie Moore with Jefferies.

Adam Satterfield:

Yes. We saw generally consistent performance in the second quarter with the industrial and our retail-related customers. Industrial is 55% to 60% of our business overall. And historically, we look at ISM and industrial production, which I assume has been below 50 or at or below 50, I think, for 9 months now and that generally reconciles with the industry volumes. And certainly aligns with the second quarter when we were down 14%. But overall, we think that some of the conversations that we've had that we get the sense that inventory levels are normalizing a bit. That's kind of supported my baseline thinking of getting back to some consistency with volumes going into the second half of this year. And that would be back in alignment with what our normal sequential trends are with volumes anyways. Typically, in the third quarter, our shipments are up about 1.5% to 2% over the second quarter. And then we generally have about a 3.5% decrease in the fourth quarter. So we've been -- there's been a pretty wide gap between our sequential -- actual sequential trends relative to the 10-year average for the past few quarters. So I felt like we were -- in a normalized environment, we're going to get back to closer to those 10-year average trends and then hopefully then get back to seeing real growth once we got into 2024. But -- so it seems like some of the tea leaves and some of the conversations that we've had with customers would suggest this normalization and then freight actually picking up and moving again, which was the positive that we were looking at and thinking about and planning for in terms of the second half of this year in 2024. And then obviously, we've had some recent developments that have accelerated things a little further here over the last week-or-so.

Bascome Majors:

Yes. As you look back over the last couple of months and -- but inclusive of the last few days, can you talk a little bit about the drivers of getting back to that normal sequential trend? And by that, I mean specifically, the like-for-like shipments from existing customers versus new customer acquisition versus anything else that you'd like to kind of size up directionally in magnitude as you think about filling that excess capacity over the next several quarters?

Operator:

And the next question comes from Christopher Kuhn with Benchmark.

Kevin Freeman:

Yes. This is Marty. I read the other day that in June, imports from China to the U.S. fell 24%. Taiwan, it fell 23%, Vietnam 11% and South Korea 6%. So we haven't seen a lot of energy coming from those ports. As you know, we have a division on the East Coast ports and those business levels are down there. So I think the whole global economy is still rather yield, but we're prepared to handle that, too, if it picks up, but we're not seeing any of that movement so far this year in an upward manner.

Kevin Freeman:

Yes. I want to thank you all today for your participation, and we appreciate all the questions. And if you have any further questions, please feel free to call us after the call. And I hope you guys have a great day and a good rest of your summer.

Drew Andersen:

Thank you. Good morning, and welcome to the first quarter 2023 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through May 3, 2023, by dialing 1(877) 344-7529, access code 6525435. The replay of the webcast may also be accessed for 30 days at the company's Web site. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call are not statements of historical fact may be deemed forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release and consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. As a final note before we begin, we welcome your questions today, but we do ask in fairness to all that you limit yourselves to one question at a time before returning to the queue. Thank you for your cooperation. At this time, for opening remarks, I would like to turn the conference over to the company's President and Chief Executive Officer, Mr. Greg Gantt. Please go ahead, sir.

Marty Freeman:

Thank you, Greg, and good morning. I want to, first of all, start by thanking Greg for his leadership and significant contributions to OD over his career, while also recognizing each OD employee for their critical role in our success. Together, we have produced remarkable improvement in our financial and operating results over the long term. And I can assure you that OD's team remains focused on continuing our record of strong profitable growth. With respect to our first quarter, we delivered solid financial results, especially when considering the ongoing softness in the domestic economy and decrease in volumes. Although these factors contributed to the first decrease in quarterly revenue and earnings per diluted share since the second quarter of 2020, our market share has remained relatively consistent. As a result, we believe our decrease in volumes was largely due to some shippers simply having fewer shipments than normal due to the economy. Although there have been others that are beginning to emphasize price versus service and choosing lower priced carriers. The operating environment has become more challenging than we anticipated and the expected acceleration in volumes has obviously not occurred. Despite these factors, we have maintained a commitment to our long term strategic plan. We will continue to focus on providing shippers with superior service to support our ability to maintain our price discipline. Our consistent cost based approach to manage yield and account profitability has been critical to our ability to improve our financial position over time, which has helped us support and continued investments in technology and service center capacity. While capacity is not currently an industry issue due to the weakness in industry volumes, we believe this will once again become a critical differentiator for us when the economy improves. We believe our long term consistent investment in service center capacity has been and remains a strategic advantage that supports our long term market share goals. During this period of revenue decline, we will also maintain a disciplined approach to managing our variable cost and discretionary spending to protect our profitability. This starts with a commitment to maximizing the operating efficiency of our fleet and network. Some of our productivity measurements in the first quarter were negatively impacted by the general loss of operating density associated with the decrease in our shipments and weight per shipment. This was evidenced by a 4.9% decrease in our linehaul latent load average and a 1% decrease in our P&D shipments per hour. We improved our platform productivity, however, and generated a 5.8% increase in our platform shipments per hour. We also reduced our reliance on purchase transportation as compared to the first quarter of 2022, which allowed us to improve the overall efficiency of our operations. This contributed to the improvement in our variable cost as a percent of revenue during the first quarter. We will also continue to work on improving the efficiency of our operations as we make our way through the balance of this year, which provides an opportunity to generate additional cost savings. While productivity is always a focus, we cannot and we will not allow it to impact our best-in-class service performance. Our team continued to deliver superior service during the first quarter with an on-time service of 99% and a cargo claims ratio of 0.1%. This service performance remains critical to support our yield management strategies. We have said many times before that to produce long term improvement in our operating ratio will continue to require a balance between operating density and yield management, both of which generally require a favorable macroeconomic environment. As just mentioned, we lost operating density in the quarter in the current environment due to the decline in volumes and the expansion of our network. Our yield has continued to consistently improve, however, and revenue per hundredweight, excluding fuel surcharges, increased 8.6% during the first quarter. We will continue to demonstrate value to our customers by balancing our superior service offering with a consistent cost based approach to our pricing. The resulting value proposition is unmatched in the LTL industry and will continue to support our ability to increase market share over the long term. As we look forward to remaining quarters of this year, we currently anticipate the softer demand environment will continue. The second quarter is generally the period when volumes begin to accelerate, but we have yet to see an inflection towards growth. Nevertheless, I want to emphasize that we are well positioned to respond to any acceleration in volumes that might occur if and when the economy improves. Until that time comes, we will continue to focus on managing our costs and delivering value to our customers through our value proposition of on-time claims free service at a fair price. Delivering value is a central element of our long term strategic plan and we remain committed to execute on this plan regardless of the economic cycle. As a critical part of this plan, we will also continue to execute our capital expenditure program and most importantly, invest in the training, education and development of our OD family of employees. The economy will eventually recover and we are confident that when it does, our team's execution will allow us to achieve further growth and profitability while also increasing our shareholder value. Thanks for joining us today. Adam will now discuss our first quarter financial results in greater detail.

Operator:

[Operator Instructions] The first question comes from Ravi Shanker with Morgan Stanley.

Adam Satterfield:

Certainly, it's been difficult to read the tea leaves this year, and we felt like we've had a lot of good conversations with customers and continue to have them. But certainly, it seemed like the whole banking issue was a bit of cold water on the economy overall. I think that it just continues to be a challenging overall and people question in some cases the direction of the economy and continue to be somewhat conservative as a result. But I think our business, we obviously have been talking about probably since the third quarter of last year, an expectation that we would start seeing an uptick, and it didn't happen. Things have stabilized, we continue to be consistent. We continue to have good conversations though. And I would say within our direct business, having conversations with customers, we're seeing an increase in some of these accounts. When I look through our top 50 accounts, business that's not with the 3PL, we're seeing a good increase. We actually saw an increase in revenue with those accounts during the first quarter. Some of our business with 3PLs is suffering a little more. Like we said in our prepared comments, we're seeing some shippers that are prioritizing price over service right now, but you've got a lot of others. And I think that's why we're seeing the increase in our direct business that continue to think strategically about their supply chain, understand the value that we're delivering and know that this environment will turn again. And we helped many of these customers through challenging times and the pandemic and then the supply chain crisis that followed. So I think it's a mixed bag across the board but we continue to stay engaged, we're continuing to have favorable conversations. And it's just a matter of when the economy eventually recovers and we're certainly prepared for when that happens. It's just day in and day out. Our shipments per day have just been pretty consistent, pretty much all through the first quarter, and that's continuing into April.

Adam Satterfield:

Certainly, the fuel surcharge, this is the quarter we talked about. It actually happened in March. In March, the average price per gallon was down about 18%. Right now with fuel being $4.10 somewhere in that range, fuel prices are down about 25%. So certainly, we'll see a bigger decrease on a year-over-year basis of fuel surcharges. That's end of the April number that we put out. Already, fuel in April is down about 20%. And so that's driving some of that 15% decrease that we're seeing in our April revenues on a year-over-year basis. But I think the impact is evident in our yield metrics. We're continuing to see good yield increases. As we're going through bids and whatnot, we're continuing to talk about our cost plus increases that are necessary. But when we look at April and kind of where things are, the revenue per hundredweight continues to be solid. And we would expect to see sequential increase in the second quarter over the first quarter. That number should naturally start to trend back closer to what our longer term averages have been from just a core yield increase standpoint, but the revenue per hundredweight with the fuel is reflecting that change now in fuel prices and the fuel surcharge. So that is starting to flatten out, if you will, just like the numbers that we talked about for what we've seen month-to-date for April.

Jack Atkins:

So I guess, I'd love to, Adam, get your thoughts on operating ratio progression sequentially. Obviously, this is not a normal second quarter, at least it's not starting off as a normal second quarter in terms of how April is trending. Any way to kind of help us think about the puts and takes in terms of the OR progression first quarter to second quarter relative to normal seasonality?

Operator:

The next question comes from Scott Group with Wolfe Research.

Adam Satterfield:

Well, assuming a little bit just the natural uptick that would happen in the sense of our May volumes should be somewhere -- I mean, where we are today, if they stay at this 47,000 range, it'd be a slight uptick over April just because of April being impacted by that half day that I mentioned for the Good Friday and Easter holidays. But you're correct. Just assuming that we stay in this sort of malaise where we don't see any incremental uptick and frankly, no decline either, but just staying in this flattish on a sequential basis, we certainly hope that there will be an uptick in volumes. We've seen some good trends, good couple of days this week. But I think that we certainly need to be mindful of kind of where we are and the fact that we don't see that positive inflection from an economic standpoint happening. And so I think we do need to talk about kind of where we are today. Obviously, we give our mid-quarter update. So if the inflection happens and we start seeing some growth, we're certainly ready and can handle it. And that's when we can start maybe talking about seeing some incremental improvement, if you will, relative to the first quarter. But right now, it's just things on a day in, day out basis are -- have just been very steady as she goes from a revenue per day and a shipments per day standpoint.

Adam Satterfield:

Yes, I mean it's certainly -- one, I think the comparison is a little bit tougher and that should get better as we progress through this year, even if our numbers were to stay flatter, the numbers should start to show a little bit of improvement. But it's still a really soft environment out there. And I think that we've demonstrated a lot of value and that's what we continue to talk about with our customers. And our costs continue to go up and we need increases. We've invested a lot in our network over the years, over the last 10 years, about $4.5 billion of capital expenditures to grow our service center network, to be and have capacity where our customers need us and to have the right fleet and the right team to be able to continue to deliver value to our customers. So we've invested a lot and we intend to continue to invest. So I think that, that doesn't change the conversations that we're having with shippers. But in some cases due to the economy and due to internal pressures, there are some shippers that got to look for cheaper price carriers. And we're a premium carrier, premium service and our price is generally a little bit higher than others. And so oftentimes we'll hear feedback though from shippers that are making that short term decision that they're doing it to meet internal thresholds and intend to give the volume back to us. Like I mentioned, we're seeing a little bit more transactional volume loss within our 3PL book of business right now, that's about a third of our overall revenue in the first quarter. 3PLs were down a little worse than the company average revenue change. So that's something that would continue to be mindful of. And that too often flips and kind of ebbs and flows with the economy. But I think for us, it's just got have a plan, and we have one and stay disciplined to it and just keep our focus on delivering service. That comes at a cost. There becomes a fixed element of running our linehaul network and our P&D system to be able to continue to deliver service. And usually, this is when service breakdown occurs in the industry. When you become very focused on mitigating cost and I think we're in a much stronger position than every other carrier. But when you start focusing on trying to mitigate cost in this type of environment when the other carriers have seen worse volume loss than us on average, that's when trailers start getting hailed longer to try to fill them up and on-time service starts declining, claims start increasing, other bad things happen, that really, I think, or at least what we've seen in the past, we see a widening of the gap from a service performance on us versus the industry. So we expect that will play out again. And when the economy starts recovering, it's obviously tough to manage through it on a day-by-day basis. But I think we get right back to our market share gains. I don't think anything has changed in the sense of what we think our long term market share potential can be, what our long term operating ratio goals are. None of that really changes. It just kind of news when the start point begins when we get back into market share growth mode again.

Jon Chappell:

Marty, you mentioned in your prepared remarks, and Adam, you've kind of addressed it in a couple of your answers as well. But customers choosing price over service, have you seen any kind of significant cracks in the pricing dynamic, given just the complete weakness in the volume side? And how would you compare kind of the pricing environment today versus other periods of recessionary volume backdrop?

Operator:

The next question comes from Tom Wadewitz with UBS.

Greg Gantt:

I don't mind addressing that at all. I appreciate the question. But fortunately, Tom, we've got a tremendously strong team here at OD. The folks replacing me have merely as many years in some cases in the industry as I do. They are all 20 plus year veterans, they've been through everything since we started executing this plan many years ago. They've been through the thick and thin and the good times, the bad times, and they know who we are and they know what's made us successful. They understand our plan going forward. And I think we're in a great position to continue to execute on that plan. So Tom, there's always risk. Anytime you lose good people, certainly, there's risk. But I feel extremely good about where we are. We'll make the replacement and continue to move forward. Again, thankfully, we had a plan, a plan to execute on my exit, if you will, and promoted the folks that certainly are capable of continuing to drive our results forward. So again, I feel good about it. I'm not concerned about that far at all. These guys know what to do and, hey, I feel extremely good about it. We got a great team. You can see that in the results. It's not me, it's not just the folks here. But I think everybody truly understands what we're trying to do and how we're supposed to execute and handle customers' business on a daily basis, and that's not going to change just because I'm out the door or any other one person left. Those fundamental things that we know how to do much better than our competitors, that's not going to change any time soon. So I think the basics of blocking and tackling those kind of things without any doubt, we're far superior to all of our competitors, again, that's not going to change. So I think we're in a good spot. And hey, I look forward to a whole lot of success down the road for OD.

Allison Poliniak:

Just let me go back to the comment on the top of the accounts. You did say there were actually some that were improving here. I guess any color that we can maybe read through in vertical or such that that's driving some of that improvement? And I guess, along with that, that stabilization when you kind of think of those larger customers, do you at least -- I know we don't have a view on the inflection, but at least the stabilization may hold? Just any color there.

Operator:

The next question comes from Amit Mehrotra with Deutsche Bank.

Adam Satterfield:

From a second quarter to first quarter standpoint, other than the second quarter of '20 when the world shutdown, we've not really seen a decrease in shipments. And that too kind of played into our general thinking, even years like 2009, 2016, 2019, weaker years, we still had some marginal improvement in shipments in the second quarter versus the first. And so right now, that's kind of trending flattish. We'll see how things shake out for the remainder of the period. And like I said, maybe we'll get some growth. And certainly, it will be out there as we put our mid quarter update, we'll put the final April update in our 10-Q. And if we see some continued acceleration this week that will be in the number, but we just don't see a big inflection point happening like we did in, say, 2017 that spurred that growth of '17 through '18 and what we saw in the back part of 2020 that continue to accelerate through '21 like it happened. And so we're still waiting for that point but we don't see it kind of on the near term. And so we just managed to kind of where we are. But yes, that's kind of the challenge in what we're seeing. It's partly why I mentioned earlier that our revenues in the second quarter are typically up 9%, 10% and that's why we always get so much margin improvement in the second quarter as well. And so that becomes the challenge as we manage through this particular period. But with respect to your other question on the customer base, I don't know that we're seeing significant loss other than that's some of what's going on underneath, I think, with some of the 3PL business, that they can leverage their carrier relationships and move some freight, and some of this is transactional as well. But they can take advantage of relationships and see who has capacity and who's got a cheaper price and move some business away. But that's some of the feedback where we've heard customers coming to us and saying, look, I need to do this to meet my own call center objectives, if there's an internal mandate to save X dollars that they've got to try to meet in some way. But generally speaking, that freight comes back to us. If we ever lose freight, it's on price, but we generally always gain it back for service quality and capacity down the road. So we're confident that -- but that trend will continue to play out again and that we'll see any of this freight loss eventually come back to us. It's just a matter of -- it seems like that's being pushed further down the road than the inflection point that we thought would happen beginning with this spring.

Adam Satterfield:

Yes, weight per shipment. I guess you've embedded three questions in one, but -- and my memory was short. Yes, our weight per shipment, it's down a little bit further. I think we're getting to the stabilization point. Right now in April, it's about 1,525 pounds. Historically, we would get down in lower periods to about 1,550 pounds or so. But if you recall, we made some strategic decisions in '21 and exited from some of the spot heavier type shipments, these 8,000, 10,000 pound type loads and that had an effect of really lowering our overall weight per shipment. So despite the weakness, we're not going back and trying to bring in freight that we didn't think fit our network for the long term. So just going along with the economy, we've seen a little further deceleration and that weight per shipment being down to 1,525 pounds. So that's a little bit worse. April is always usually down 0.5% or 1% off of March. Some of that is March builds up at the end of the quarter, but we're down a little bit more. But I feel like that's stabilizing that probably our low watermark in a softer economy will be 1,525, 1,530 pounds maybe. But yes, we think that's getting to a stabilization point or so it seems.

Chris Wetherbee:

Adam, just kind of curious how you think about headcount going forward here? Obviously, a lack of seasonality might influence this, but you've been bringing it down sequentially the last few quarters. Just want to get a sense maybe how much more room you have in terms of rightsizing that labor force? And maybe is there a line where you feel like you don't necessarily want to go beyond?

Operator:

The next question comes from Bascome Majors with Susquehanna.

Adam Satterfield:

Yes, I think it's hard for us to say. We don't always know the reasons behind. I mean the feedback we get is that someone's cheaper. We don't know necessarily that variance or that reason why. I think that we're obviously one of the first carriers to report and just continue to watch what the others are doing, what their numbers are looking like and hear what the others have to say, I think. Others have said that they've got price discipline but we've seen one carrier's yield flatten out. So I think all we can do is just continue to sort of watch and and see what others are doing, but that doesn't impact what we do. We've got a plan, we stay committed to it, and we know what value we deliver and we just got to stay disciplined, and that's what we'll do. So it's never good to kind of live through it in a moment and we've done this time and time again. But like I said, it's not totally unexpected to see some of that business just given the softness in the economic environment and cost challenges that people are facing in general to be looking at ways they might be able to save on price in the current term. But what we always say is price doesn't equal cost. We deliver value to our customers. And when you consider total cost of transportation, when you deliver 99% on time and have a claims ratio of 0.1% and you save money by shipping with Old Dominion and that's what our position continues to be, demonstrate value. We’ve got to continue to maintain our service metrics, and we will, that is certainly a focus for us, and we'll manage through this. But like we said before and I think it's played out when you look at our numbers and the long term improvement that we've made with respect to our margins and the cash from operations that we generate and are able to reinvest back in our business on behalf of our customers, we've got to maintain our disciplined approach. And I think that it's proven itself out in the long run and is a key difference why our numbers look a lot different from some of the others.

Adam Satterfield:

No I wouldn't say it…

Operator:

The next question comes from Ken Hoexter with Bank of America.

Greg Gantt:

I'm not sure that with me being on this board and that one…

Greg Gantt:

This is not abnormal in this type of environment, economic environment. You have -- some of our competitors, they think offering a more competitive or lower price will keep the customer there. Many times, it does not because the customer will always come back to having their cargo delivered on time and claim free. We've learned that over the years. So it's not abnormal. We choose to tighten our belt and manage our labor. And when the slow times pass, we're in a great position to keep our OR going downwards though. But it's not abnormal to see low prices in any environment with any company. So we've seen it before and it will pass like it always does. And Adam, I'll let you handle the…

Operator:

The last question today will come from Bruce Chan with Stifel.

Adam Satterfield:

I would say that we should make a lot of progress this year. We've got a fair amount of equipment right now that we've got identified that we want to be able to move out of the system, but that takes a fair amount of time to happen. It's not just an overnight thing where you're selling a used car and you posted on a Web site. So it's going to take us a little bit of time to kind of work through that, but we've got a plan. We've met several times recently talking about kind of the needs there and we'll continue to work through it. So I think that we'll make considerable progress this year as we're still bringing on -- we reduced our CapEx for equipment. But we're still going to be bringing on a fair number of new units and more of the progress will be hanging -- or getting rid of some of these older units that we've been hanging on to. And I'll say we're not out of the woods yet when it comes to parts availability and so forth. We're still finding that there are continuing to be supply chain issues out there. And when we've got equipment that has been down for maintenance, equipment has stayed down for longer periods of time. So we're continuing to kind of manage through those challenges while we're also trying to manage cost. But I think we'll end up by the end of this year making pretty steady progress on working that number much lower than where it was at the end of last year, kind of working both ends of the spectrum, if you will.

Greg Gantt:

It's kind of hard to say, Bruce. We get reports from our national account folks on a regular basis. And we have wins on business from those folks as well as others. So I don't know that you can really point to contract negotiations or whatever the case as any reason that we're getting business. We haven't really seen that.

Greg Gantt:

Well, thanks, everybody, for your participation today. We appreciate your questions. Feel free to give us a call if you have anything further. I hope you have a great day. Thank you.

Drew Andersen:

Thank you. Good morning, and welcome to the Fourth Quarter and Full-Year 2022 Conference Call for Old Dominion Freight Line. Today's call is being recorded, and will be available for replay beginning today and through February 8, 2023, by dialing 1-877-344-7529, access code 2673176. The replay of the webcast may also be accessed for 30 days at the company's Web site. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. As a final note, before we begin today, we welcome your questions, but we ask, in fairness to all, that you limit yourselves to just one question at a time before returning to the queue. Thank you for your cooperation. At this time, for opening remarks, I would like to turn the conference over to the company's President and Chief Executive Officer, Mr. Greg Gantt. Please go ahead, sir.

Marty Freeman:

Thank you, Greg, and good morning. I would like to start today by thanking Greg and our Board of Directors for providing me the opportunity to lead this great company. It will be an honor to lead our team. And I can assure you that we will work tirelessly to keep producing strong profitable growth. Along those lines, I was pleased with Old Dominion's revenue growth of 5.8%, and the improvement in our operating ratio to 71.2% during the fourth quarter. The combination of these items contributed to the 21.2% increase in earnings per diluted share. These financial results reflect the ongoing strength and demand for our services as we continue to deliver value to our customers by providing superior service at a fair price. While our long-term strategic plan is centered on our ability to provide this value proposition, the real key to our success is our strong family culture and our people. We will continue to invest in our OD Family of employees as our employees are the foundation for building strong customer relationships. We are in a relationship business, and each employee plays a critical role to help deliver our industry-leading service. I am proud to report that our service metrics remained strong during the fourth quarter as we provided 99% on-time service, with a cargo claims ratio of 0.1%. We believe executing our same long-term formula for success will allow us to win market share in the future. And as a result, we will -- also will allow us to constantly advance to new capacity ahead of anticipated growth. Our capital expenditures for 2023 are anticipated to be $800 million, which will improve the average age of our fleet and further expand the capacity of our real estate network. We have invested approximately $2 billion in real estate expansion over the last 10 years, and increased our door capacity by approximately 50% as a result. These investments supported our ability to double our market share over this time. The ever-increasing cost of both real estate and equipment, however, will require us to maintain our pricing discipline. Our long-term pricing philosophy is designed to evaluate the profitability of each customer account, and then obtain the necessary increases to offset our cost inflation, while also supporting our ongoing investment in capacity and technology. As we have executed on this consistent strategy over the years, the resulting improvement in our cash flow has generally supported our ability to invest between 10% and 15% of our revenue into capital expenditures each year. Continuing with each of these priorities demonstrates our team's intention to remain focused on executing the same business strategies that we have created our unique position in this industry. We will continue to focus on our people, servicing our customers, and investing for the future. This commitment to the core principles have differentiated us in the marketplace, gives us confidence in our ability to further produce profitable growth, while also increasing shareholder value. With that, I'll now turn things over to Adam who will discuss our fourth quarter financial results in greater detail.

Operator:

Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Jordan Alliger with Goldman Sachs. Please go ahead.

Adam Satterfield:

Sure. The overall dollars, obviously, we've been making adjustments as we've gone through the year. And I would say through the back-half of the year, in particular, we've been letting attrition take place, and just consistently adjusting our headcount and the hours worked by our people in relation to what the volume environment dictates to continue to give service by continuing to operate efficiently. And so, I think, overall, that helped drive the decrease in that quarter-over-quarter, those expenses, if you will. So, we continue to be focused, obviously, on managing those costs. That's our biggest cost element of our business is in the salaries, wages, and benefits. And so, it's certainly the biggest area of focus as we try to continue to run our network as efficiently as possible without giving any sacrifice to service. So, I do think that given the environment in the fourth quarter, I think we had, given the circumstance, is pretty strong revenue performance. So, I was pleased with the way our revenue and volumes trended. And that was probably one of the favorable line items, if you will, in comparison to the guidance that we had originally provided with respect to the operation ratio, was how the salary, wages, and benefits ended up coming in for us.

Adam Satterfield:

Well, I think we're in a good spot right now with where our headcount is. And typically, we start seeing increases in volume. And certainly, we're not in a normal environment by any stretch. But our January volumes were slightly positive versus December, pretty flattish overall, really when you look at it from a shipment perspective. But we continue to anticipate that we will see volumes return to us in the spring. And I think we want to make sure that we've got all elements of capacity in place to deal with that environment whenever it inevitably comes. We're certainly very confident about what our future market share opportunities will be. And so, we want to make sure that we're in a position with our people, our equipment, and certainly our service and our network to be able to effectively respond when that does happen. Typically, the February volumes are a little bit higher than January. And it's March when we start seeing the increase coming. And so, I think that what we're trying to do is just, again, measure and manage all elements of capacity to ensure that we're in a good spot when that happens. So, again, I think that certainly a lot in the first quarter and probably the first-half of the year really depends on what the volume environment gives us. But we continue to believe that we are going to see some increase. We've certainly seen it in the past, even in down economic environments, whether you look at something as bad as the environment was in 2009. I think 2016 is another good example, where our second quarter volumes were higher than the first. And so, it'll be a little different situation, I think, playing out this year in comparison to 2022, when, beginning with April, our volumes were either decreasing or flattish on a month-over-month basis as we worked our way through the year. Certainly, we'd like to see volumes flowing into us as we transition and make our way through 2023. And hopefully start getting a little help from the macroeconomic environment as well.

Operator:

Our next question comes from Jack Atkins with Stephens. Please go ahead.

Marty Freeman:

Thank you, Jack. He taught me well.

Jack Atkins:

Absolutely.

Jack Atkins:

Absolutely has been. So, I guess maybe if we could -- Adam, if you could maybe expand a bit on the January trends a bit more. You talked about January being up a bit or maybe even flattish versus December. Anything you feel comfortable sharing there in terms of January revenue trends and tonnage or shipments trends, that'd be helpful? And then, I guess, as you think about the operation ratio, first quarter versus fourth quarter, anything you can maybe share relative to normal seasonality would be helpful there? So, I'll turn it over to you, Adam.

Jack Atkins:

Okay, very helpful. Thanks again.

Operator:

Our next question comes from Bascome Majors with Susquehanna. Please go ahead.

Greg Gantt:

Thanks, Basc. And this is Greg. But I will take that and try to give you as much color only as possible. But obviously we made some adjustments where we felt like we needed to in headcount. And as Adam mentioned earlier, we talked about attrition. And we have kind of let attrition control some of these adjustments. But we have made some in other places where we needed to. Certainly, we haven't replaced openings likely typically would in a normal cycle where we are growing and what not. But -- and that will continue to be our efforts still thanks to our return of the other ways. So, we will see typically -- we will see a little uptick late February. Going into March, things really start to pickup. So, is that going to be the trend this year? We hope so, but just not absolutely certain. But I think we are in a good spot because as I mentioned in my comments earlier, we've got an awful lot of qualified drivers that we have got work on the platform and what not. They are not driving full time. So, I think we will certainly be ready when the increase does happen, you know, hope it's sooner than later, but definitely we will continue to make adjustments as needed. We talked about this on some of our prior calls. We have been able to make these adjustments in downturns in the past. I think we pretty began we can make adjustments when we need to. We have done it again. We feel good about where we are. We just have to continue to stay on top of it and react as the business dictates. I hope that helps.

Greg Gantt:

Not that I know of, Basc, and don't think so. I think it should be fairly normal from that standpoint. We certainly had some good experiences in the recent past with our benefit cost and those kinds of things. So, you just hope that those things continue to be consistent and don't turn the other way for some or no reason.

Greg Gantt:

Sure thing.

Tom Wadewitz:

Yes, good morning, and congratulations also to both of you Greg and Marty. And Greg, yes, just a remarkable run. So, congratulations on the great performance over time. Let's see -- I think -- I guess just in terms of the view on tonnage. I know you have a large customer base. So, maybe it's tough to pars it out. But what would you say about I guess dynamic in terms of volume from retail customers and volume from industrial customers? It seems like probably there has been a lot of weakness and focus on inventory reduction with retail customers. Maybe little less clear what's happened with industrial? So, just trying to think about is there potentially some weakness yet to come with industrial? Have you seen pretty big difference in the volumes from those two groups? And so, kind of any thoughts on that topic would be helpful. Thank you.

Tom Wadewitz:

Yes, but it sounds like you haven't seen a big difference, maybe over the past, in 4Q or even 3Q, in performance from industrial and retail, and I guess looking forward, you think maybe both of them kind of bottom and improve at the same time.

Tom Wadewitz:

Right, okay, great. Thanks for the time.

Operator:

Our next question comes from Chris Wetherbee with Citigroup. Please go ahead.

Greg Gantt:

Yes, I think that, Chris, that some of the conversation earlier about headcount, probably on paper, we may be a little bit heavy now, if you just look at things statistically, if you will. But that's kind of the point of the, what we've said is, I think that we're in a good spot, with our headcount with our fleet, and certainly with the service center network to be able to let volume start flowing again. And when we talk about increases, just keep in mind that we're talking about sequential increases, and certainly with the year-over-year comps, particularly in the first-half of the year, we've got some tougher year-over-year comparisons there before we get back to, does being able to show year-over-year growth. But I think that'll be the important thing for us to continue to watch is, are we seeing those types of sequential increases? And certainly we've got a lot of flexibility within our workforce. And I think that, given the team that we have, and the current levels, we should be able to respond to growth when it starts coming at us and get some good leverage, as it does. But certainly we're looking at right now in the first quarter. Like I mentioned, with the January tonnage levels, we've got probably the volumes that are going to be the toughest comp, and certainly, overall, the fourth quarter we were down 9.1%. Our yield performance is still looking good. And we certainly expect to continue to push for core yield increases this year to offset our cost inflation, as well. But there could become some converging factors, if you will, that drive the top line, depending on what the overall fuel environment looks like, and so forth. But we're certainly going to continue to look and execute on the same pricing philosophy that we have in the past and look for cost plus increases to offset the cost inflation that we see in the business and to keep supporting these expensive investments that we're making in our real estate network and technologies that can both improve customer service, but also drive further operating efficiencies for us. So, a lot of things to kind of manage through it particularly the first-half of this year, but I think we're in a good spot to be able to handle the volumes if they do backflow our way.

Greg Gantt:

Well, I think that again, the revenue environment will have a lot to say about that, more broadly speaking, we've talked and kind of pointed everyone to our performance in 2016 and 2019, when we've been in a flatter revenue environment, certainly, given the planned investment of about $800 million in capital expenditures this year. And with some pressures that we'll see on depreciation, starting earlier in the year than normal, we will have some pressures, if you will, on those overhead costs. And we saw a little bit of that in the fourth quarter already where overhead costs as a percent of revenue were flat in 4Q '22 versus 4Q '21. But like we did in '16 and in '19, the focus when we're in a flat to a down revenue environment will be managing our variable costs flat, and we'd love to see improvement, but trying to hold all those costs flat. And then, any deterioration if there is anything would be in those overhead costs in particular, on the depreciation side. And so, I think that in '16, we certainly saw a little bit of a decrease in the operating ratio or an increase, rather depending on how you look at it. But I think our operating ratio deteriorated 60 basis points that year. And that was something that was right in line with the change in the depreciation line item. And then, '19 was the same thing, where we had 30 basis points deterioration there. So, we'll take it quarter-by-quarter, certainly, and we'll talk as we get to the end of next quarter's call about what we think we may be able to do in 2Q, but certainly feel like we're probably going to have a little bit more pressure on the overhead side this year if we are in fact a flat to slightly down revenue environment, but there's still a lot up in the air when it comes to the top line for this year.

Operator:

Our next question comes from Scott Group with Wolfe Research. Please go ahead.

Adam Satterfield:

Yes, net of fuel in January was about 8.5%. So, fairly consistent with what we just did in the fourth quarter overall. And we are starting to see a decrease in fuel. And we'll see how that continues to trend this year. And so, perhaps the yield with and without the fuel, those two numbers will maybe be a little bit more consistent. I think that fuel hold steady with where we are right now, it certainly becomes a headwind as we get into the later quarters of the year, but nonetheless, I think that certainly there's always mix changes that can drive that number, higher or lower. But I think it's pretty consistent with what our long-term philosophy has been. We certainly dealt with higher cost inflation on a per shipment basis in 2022 than then what at least I initially expected I thought we would see some cost moderation as we got into the back-half of the year, which obviously did not happen. So, we just continue to execute on that same consistent philosophy that we always have. And I think that's why we saw that the yield performance that we did, but I believe that call should be a little bit more favorable versus the last couple of years. And 2023 are certainly that's our hope. And we'll continue to build our cost model around what that cost inflation expectation is and then continue to try to achieve 100 to 150 basis points of positive spread above that inflation to again support the investments that we're going to make. So, I think overall, if you did sort of roll out typically the first quarter our yield metrics are up about 0.5% over the fourth quarter. We'd expect to continue to see if mix is constant. Those numbers increase sequentially quarter-after-quarter, but certainly that some of that, that growth if you will may start to moderate a bit but again you're going to see that same type of moderation or should, what the costs. But nonetheless, the overall philosophy stays the same, and we'll continue to look for cost plus pricing.

Greg Gantt:

Well, again, it's just it's one of the drivers on the top line, that is a change that we will deal with. And I think overall, it would be a positive for the economy and something that would be good to see. But I don't know anybody that would like showing up at the pump and seeing that bigger number. And certainly, that's been a big cost driver for what we've seen. I think it's better to for just cost inflation and other line items. I think the increased cost of fuel is driving inflation and about anything, whether it's a product or service that we're buying. And so, I think a decrease there certainly helps. But as we look back 2015-2016 were the timeframes that we last went through a bigger decrease in average fuel prices. And I think we continue to try to manage, just like we did in those periods, and continuing to manage the different components that go into building out our rates with customers, whether it's base rates, fuel surcharge, or as is oils managing all the revenue inputs with the cost inputs and trying to account for whether or not fuel goes up or down. So, it's just something that our pricing and costing teams and our sales teams have got to work through is we're working through renewals with our customers every day, and just looking at and seeing where we are and what we feel like we need to keep driving improvement in our customer specific pricing and profitability.

Greg Gantt:

Thanks, Scott.

Allison Poliniak:

Hi, good morning. I just want to ask about potential customer attrition, just given some of the freight challenges out there and certainly your customer focus on costs. Are you seeing any sort of attrition as customers try to tray down obviously, quality but prices low or the dynamics may be a little different this cycle, just any thoughts there?

Allison Poliniak:

Perfect, thank you.

Jon Chappell:

Thank you. Good morning. Marty, since we have you, as you're entering, you're already there. But you're entering the head seat and the best mousetrap in the industry probably on the precipice of breaking the 70 OR basis. You've already laid out your CapEx for this year. But as you think strategically over the next few years, anything you're thinking about differently as it relates to growth, as it relates to the labor et cetera or is it just kind of ride the cycles of what you've had and continue to get incremental productivity out of that mousetrap?

Jon Chappell:

Thanks, Marty.

Ravi Shanker:

Thanks. Good morning everyone. Congrats Greg and Marty and Marty, yes, please don't change the thing, just do -- in that seat and anything. A couple of follow-ups here, do you feel like you have a better ability to capture that spring inflection in growth if it comes versus peers given how much free capacity you have? And do you have a sense of your ability to grow into that volume relative to peers?

Ravi Shanker:

Got it, sounds good. And maybe as a follow-up kind of on the fuel topic, I mean, there's been a lot of speculation in the investment community about like fuel and kind of how much is driven earnings. And I think a lot of you -- I mean, you and your lot of your peers have been saying that, hey, there's a new algorithm when it comes to fuel pricing and it's stickier than you think, et cetera, et cetera. So, how do we think about how fuel becomes a headwind in the back-half of the year kind of there's any way to quantify that? And also kind of how much of that fuel can be sticky and kind of convert the base rate over time, do you think?

Ravi Shanker:

Understood, thanks, guys.

Ken Hoexter:

Great, good morning, and again congrats, Greg, on your tenure, and Marty, on the new role. Just a quick clarification, I guess, on that spring pickup you've talked a bit about. Is that just comp based? Or is there a commentary you're hearing from customer comments or just I guess on showing up inventories? I just want to understand why the -- I guess, the confidence in that given the market and then my question is on depreciation. You know the depreciation is going to be higher. Last year, you targeted, I think it was $485 million on equipment at the beginning of this year -- at the beginning of the year. This year, you're doing $400 million on equipment. Is that because the delivery schedule was slower? Is -- what's your view on getting that equipment? And does that still allow you to stay at that 20%, 25% excess capacity that you typically target? Thanks.

Ken Hoexter:

Great, thanks, Greg. Appreciate the time.

Amit Mehrotra:

Thanks, Operator. Hi, everyone, Greg, hearty congratulations on the retirement; and Marty, looking forward to working with you as well. I guess I wanted to ask about pricing. I know pricing discipline is good, so it's not really about that, but I guess we've seen a lot of LTL companies in recent months announced general rate increases. I guess what's surprising to me is some of the ones that have even a little bit weaker service that may be more tempted to lean into price have also announced big price increases. And I wanted to understand like the reaction from the customers because, in the typical cycle, a customer would maybe trade down to regional lanes with high-quality carriers. Maybe you lose 20%, 30% of your lanes or two or three lanes or whatever it is, that doesn't seem to be occurring right now where shippers are not moving to other high-quality, but regional lanes. And I want to understand, one, why you think that might be like what's the psychology of your customers in terms of how they think this cycle is going to play out? And then second, how does that impact your ability to bounce back? Because I would assume as there's a big seasonal pull in March and April, May. You don't have to win back lanes, you don't have to win back customers so you can kind of see it first in terms of that upswing. So, sorry for the long-winded question, but hopefully that was clear.

Amit Mehrotra:

Right. Okay, very good. Thank you.

Ari Rosa:

Great. Thanks. Good morning, everyone. And, congrats Greg, it's certainly been an impressive run that you have, and congrats also to Marty on some big shoes to fill here. So, I wanted to ask about you guys have talked about for some time the ability to get the OR into the 60s. I understand obviously there are different puts and takes on kind of economic uncertainty, maybe some cost inflammation, but also talking about this inflection that's expected for second quarter, it seems like there is some optimism there around the ability to perhaps improve OR year-over-year which would certainly suggest that you are kind of bumping up against that ability to get the OR to the 60s. I just want to get your updated thoughts kind of given the progression of OR improvement that we have seen over the last couple of years, do you think that OR in the 60s is achievable whether it's 2023 or into 2024?

Ari Rosa:

Got it, understood. And then I wanted to ask also, as I think about the conditions that you've kind of been describing for 2022, where volumes have been a little bit softer than what you would have hoped for. Obviously, we've seen the headcount come down. And yet, your earnings growth was obviously strong this year, at 35%-plus. To what extent, when you're going out and talking to customers who maybe were a little bit squeezed on capacity during COVID conditions, as supply chains normalize, does that put a little bit of a headwind on your ability to go to customers and ask for rate increases? Or conversely, do they push back and say, "Look, we gave you rate increases when capacity was really tight," but now the supply chain's kind of normalized a little bit, are they pushing back any more on some of the rate increases relative to what they were over the past 12 to 18 months?

Marty Freeman:

I wanted to thank our sales team who does a fantastic job of sharing our costing with our customers, especially our large customers. We're an open book; we actually show them what we're paying for equipment, how much it costs not to put -- freight, pick it up, sort and flag it, whatever the cost may be. And once you explain to them what our costs are, it's a lot easier to swallow a general rate increase. So, I think most of our customers understand what our costs are. And we try to explain that to the best of our ability.

Marty Freeman:

Thanks.

Operator:

The next question comes from Jeff Kauffman with Vertical Research Partners. Please go ahead.

Adam Satterfield:

Yes, the short answer is that the math is really not that simple. Going back to prior comments, fuel is just one of many elements that get negotiated as part of a customer's rate each year. So, it could be that we get more fuel surcharge in one particular more, more base rate in another. And so, trying to look out and measure what the surcharge revenue piece is versus what the potential expense might be is not really a one-for-one comparison in that regard. The surcharge, if a customer has decided to take on more variable exposure to that fluctuation in fuel is covering many more cost elements than just the cost of fuel and other petroleum-based products. Certainly that's what it's designed to cover, but that's not everything that is covered by that variable component of pricing. So, again, I think the -- if you want to look back into a declining fuel environment, I would point people to look at 2015, and 2016. In '15, the average price of fuel was down 30% that year. Of course, we had volume growth, it was a little different macro environment, and so as a result we were able to improve the operating ratio that year. In '16, the average price of fuel decreased further. It decreased about 15% that year, and that was one of the years, as I mentioned earlier, that we had a 60 basis point increase in the operating ratio. That the overall macro was a little softer, volumes were certainly flattish that year. And so, a little bit different top line makeup, if you will. But so, that's probably a little bit more relative comparison, is looking back at how some of those revenue changes quarter-to-quarter, and cost changes progressed in that year. But we're certainly managing through it. And we're looking at -- we've got contracts that turn over every day, and they progress through the year. So, if fuel stays where it is today, then we're looking at a contract with a base rate of a fuel at $4.58 a gallon versus, last year, we were looking at it and it would have been $5-something per gallon. So, you just always got to look at what the current environment looks like, and then try to risk-adjust for do you think fuel prices may go up? If they do, again, how does the top line for each individual customer account change, and what do the cost inputs change? If fuel goes down, you do the same thing, and you try to make sure that those fuel scales, as they work on each customer account, that we're still effectively getting paid for the service that we're providing and, like Greg said, the value that we are offering. And so that's what we stay focused on. And it's less important for us to look at the profitability of each customer account.

Adam Satterfield:

Well, it -- certainly there is uncertainty with respect to what fuel may end up averaging. We had -- we have seen it declining a little bit more, and then it kind of reverted back and had a little bit of an increase over the last couple weeks as well. But certainly, if it holds steady from here, then maybe we see fuel prices that are down 10% or so this year. But I think it's better for the U.S. economy if we get back to a lower fuel environment. And certainly, we will deal with that from a company standpoint, it's not going to change our long-term objectives, and we're not changing our operating ratio, goals, just because fuel may ultimately decline. Those are certainly built into what our longer-term forecasts are. We think that it should decline overall, and hopefully we get back to a lower fuel environment.

Greg Gantt:

We thank you all for your participation today. We appreciate your questions. And please feel free to give us a call if you have anything further. Thanks, and have a great day.

Drew Andersen:

Thank you. Good morning, and welcome to the third quarter 2022 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through November 2, 2022, by dialing 1-877-344-7529, access code 3324067. The replay of the webcast may also be accessed for 30 days at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. As a final note, before we begin, we welcome your questions today, but we ask in fairness to all that you limit yourselves to just a couple of questions at a time before returning to the queue. Thank you for your cooperation. At this time, for opening remarks, I would like to turn the conference over to the company's President and Chief Executive Officer, Mr. Greg Gantt. Please go ahead, sir.

Adam Satterfield:

Thank you, Greg, and good morning. Old Dominion's revenue grew 14.5% in the third quarter to $1.6 billion, and our operating ratio improved to 69.1%. The combination of these changes helped produce a 36% increase in earnings per diluted share for the quarter. Our revenue growth was due primarily to the 17.4% increase in LTL revenue per hundredweight, which more than offset the 2.6% decrease in our LTL tons. We believe this decrease in LTL tons reflects the overall softness in the domestic economy that has generally caused a decrease in demand for our customers' products. Demand for our service has remained strong, however, as customers are continuing to take advantage of our value proposition. On a sequential basis, revenue per day for the third quarter decreased 3.8% when compared to the second quarter of 2022, with LTL tons per day decreasing 4.3% and LTL shipments per day decreasing 3.6%. For comparison, the 10-year average sequential change for these metrics includes an increase of 3.6% in revenue per day, an increase of 1.2% in tons per day and an increase of 2.4% in shipments per day. At this point, in October, our revenue per day has increased by approximately 8% when compared to October 2021. This month-to-date revenue performance includes a decrease of approximately 7% in our LTL tons per day. As usual, we will provide actual revenue related details for October in our third quarter Form 10-Q. Our third quarter operating ratio improved to 69.1% with improvements in both our direct operating cost and overhead cost as a percent of revenue. Many of our cost categories improved as a percent of revenue during the quarter, although our operating supplies and expenses increased 300 basis points due primarily to the rising cost of diesel fuel and other petroleum-based products as well as the increased cost for parts and repairs to maintain our fleet. We more than offset the impact of this increase with the improvement in our salaries, wages and benefits and purchase transportation. The improvement in these expenses as a percent of revenue reflects our best efforts to effectively match all of our variable costs with current revenue and volume trends. Old Dominion's cash flow from operations totaled $514.2 million and $1.3 billion for the third quarter and first 9 months of 2022, respectively, while capital expenditures were $181.7 million and $504.8 million for the same periods. We noted in our release this morning that our capital expenditures are now estimated to be $720 million for this year. The decrease from our prior estimate is primarily due to the timing of equipment deliveries that we expect to be pushed into next year. We will provide further details about our 2023 capital expenditure plan with our fourth quarter earnings release. We utilized $345.4 million and $1.1 billion of cash for our share repurchase program during the third quarter and first 9 months of 2022, respectively, while cash dividends totaled $33.4 million and $101.4 million for the same periods. Our effective tax rate for the third quarter 2022 was 23.9% as compared to 25.2% in the third quarter 2021. We currently anticipate our effective tax rate to be 25.6% for the fourth quarter. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.

Jack Atkins:

Okay, great. So I guess, first, Adam, I'd be curious if you could maybe give us the full stats for September in terms of tonnage per day on a year-over-year basis. And was there anything sort of unique kind of going on in September with regard to the end of the quarter with the hurricane? And I guess just kind of wrapping up that September, October commentary, I guess, do you feel like that the sequential trends are the underperformance versus seasonality is maybe accelerating somewhat. And if you can maybe provide some color on sort of what's driving that. So anyway, I know a lot there, but just sort of curious on current trends and if you could provide some additional color there.

Jack Atkins:

Okay. That's very helpful color, Adam. And you got all my all those different questions in there. I guess maybe for my one quick follow-up. Would just be curious to kind of get your sense for sequential, how we should be thinking about the sequential change in operating ratio 3Q to 4Q? I know to your point, typically, tonnage is a bit softer sequentially. And there's -- I'm sure a lot of puts and takes out there. Historically, it's about 200 basis point degradation 3Q to 4Q. Is that the right way to think about it this year? Or just some additional color would be helpful.

Operator:

The next question comes from Allison Poliniak with Wells Fargo.

Adam Satterfield:

Yes, nothing major that we have not already been seeing certainly that our weight per shipment has been trending higher, as I mentioned, at least through the third quarter. And then our length of haul has been a bit lower as well. That's down almost 1%. So both of those metrics putting a little downward pressure on that reported revenue per hundredweight metric. And which I think we've talked a little bit about that on the last earnings call. Overall, excluding the fuel surcharge, the revenue per hundredweight was up 7%. So we're still seeing good yield performance overall. And then those yields are mix metrics, if you will, somewhat reconcile how we got from the growth rate that we are seeing for the second quarter to the third quarter. But overall, as contracts are renewing, we're continuing to look for increases and design with our long-term philosophy is we always are looking to try to increase yields to offset our cost inflation. I would say, core inflation is probably a bit higher than what some of these increases we're getting right now just dealing with this inflationary environment. But we're always looking at things on a long-term basis. And so we're continuing to make progress on those renewals, try to get our cost-plus type pricing to ultimately support the investments that we're making back in the system. We've invested a lot in real estate capital expenditures. When you look over the last 10 years, it's been almost $4 billion of investment in total with about $2 billion going into our real estate network. So I think we've certainly done a good job of making sure we're investing ahead of growth, and we don't want the network to be a limiting factor to our ability to grow. And so it's been important to build in that capacity into the service center network, and it certainly makes years like 2021 and the growth that we've seen in revenue this year possible.

Adam Satterfield:

Well, I think the thing that we typically see in the past, and you can look at sort of 2016, 2019, as an example, is when we get into an environment where revenue is flat to down overall, that's something where we are going to continue to invest, like Greg mentioned in his comments earlier, we're going to continue to invest for the long term. And so that often creates a little headwind, if you will, on the depreciation cost as a percent of revenue. But the OR change that we saw in '16 and '19, the slight deterioration in those periods was pretty much limited to that change in depreciation cost as a percent of revenue. We certainly are looking to manage all of our variable costs to match what those revenue volume trends are. We'll be looking for productivity. And we'll be looking closely at every dollar that we spend. We certainly want to spend dollars when there's an appropriate return that's there and don't want to do anything that it might limit our long-term performance. But you just got to be careful when it comes to discretionary spending. So we've generally been able to manage all those other costs flat. Our cost structure is highly variable, more than 2/3, almost 3/4 of our cost over now. So we just continue to work those costs as best we can. Look for productivity in any way that we can save money to offset any kind of pressure we may be seeing on the top line.

Jordan Alliger:

Just a follow-up maybe on the cost front, looking ahead beyond even the current quarter, you talked about inflation. Is there any relief on the inflation front, whether it be on the wage side. I assume on the purchased transport side, but just sort of your thoughts on sort of the cost inflation environment as we move beyond this? What you're seeing today?

Operator:

The next question comes from Scott Group with Wolfe Research.

Adam Satterfield:

Well, just mainly talking about what we've seen in terms of cost on a per shipment basis. And sometimes those per shipment costs increase a little bit more when you're in a little bit softer environment overall. I mean we've still got a positive spread in terms of when you look at revenue per shipment performance versus its cost per shipment. And we certainly think that can continue overall. And that's -- the focus is always to try to achieve 100 to 150 basis points of positive spread overall and what we can get on a revenue per shipment basis with the fuel versus what the cost per shipment with the fuel can be as well. But just looking at things on a pure cost per shipment basis is certainly trending a lot higher than what I had thought. I thought we would see moderation in the back half of this year, as we started comping against some of the increased inflationary items that we experienced in the second half of '21, but certainly, that moderation hasn't happened. So we're still seeing some pretty big increases, and I think a lot of it is driven by these increased fuel prices that have just remained high throughout the year. We thought we were going to start seeing some relief a few weeks ago on that as it started trending down a little bit the last 2, 3 weeks. I think it's back up about $0.50 over where we had dropped to a bit prior. But no, no change in terms of of what we're going to be looking for from an increased standpoint and what we think we can achieve because again, we've got to have cost plus pricing in our business that offset that inflation, but more importantly, to keep supporting the reinvestment back in our business.

Adam Satterfield:

No, not at all. And if I said that, I misspoke for sure. Now we're really pleased, I think when you look at in terms of the yield trends that we've had all year. They certainly have been very positive, and that's continuing into October. And we didn't -- I gave the number in terms of what we're seeing from a -- at least as of right now, what the tonnage is doing. But certainly, that implies that, that revenue per hundredweight, excluding the fuel is pretty consistent with where we were, maybe a touch higher for the third quarter overall. And so we would certainly expect that as we continue to go through renewals, generally, mix has held comps in that number increases sequentially from quarter-to-quarter. And certainly, that will be the objective as we have increases coming due, and we'll be coming up fairly soon on the general rate increase as well. They will apply to about 25% of our business. But all of those factors, we've not really seen any change in the pricing environment. It's remained steady throughout this year. And certainly, this quarter the increases we've been able to get.

Christian Wetherbee:

Adam, I just wanted to make sure I understood the sequential cadence in operating ratio from 3Q to 4Q. I think you said it was maybe 400 basis points plus or minus relative to the 69.1%. I just want to make sure that, that is right. And then as you think about sort of the potential variables that maybe you could add to that. I guess that would kind of get you closer to OR -- flattish OR on a year-over-year basis, I think you're still below it based on the guidance. But I wanted to get a sense of conceptually as we start to string out over the next few quarters, what are some of the dynamics that could then start to potentially push a deterioration in the operating ratio?

Christian Wetherbee:

Yes. Okay. That makes sense. And then you guys have done historically a good job of outperforming on a tonnage basis relative to peers, both I think in up cycles as well as down cycles. I guess as you think about this one, maybe with -- maybe more of your competitors leaning in from a growth perspective. I don't know if you would agree with that comment first off. But how do you sort of see that relative performance opportunity for you as you go through what could be a softer period over the course of the next year or so?

Operator:

The next question comes from Amit Mehrotra with Deutsche Bank.

Adam Satterfield:

Sure. Yes. One, thank you for recognizing the service performance. And certainly, as we said, service supports yield. You can't go into an account at a renewal. You've had service failures and so forth and have had rolling embargoes and missed pickups, late deliveries, damage shipments, those types of things and to be able to get the consistent increases like we've been able to achieve really going back for many years now. But that is a differentiated quality from us versus the group as well as I think that we look for consistency with our program is not necessarily whose favor is the market today versus tomorrow. We just want to build in a fair approach that tries to create win-win scenarios for us and for our customers. They know what the -- how to forecast and plan for from an expense standpoint. But more importantly, they can recognize the value, and there's a difference between price and cost. And I think we're increasingly seeing customers recognize that value that we're able to deliver for them. But -- so we certainly will continue with our initiatives, and I can't comment on what the other carriers will be doing and what their strategies will be going forward. But I think that, like I mentioned, the last 3 quarters, the other carriers at least, have been negative from a volume standpoint and have continued to push pricing. So it's hard to imagine that, that changes. It certainly seems like that's been favorable to their financial results. There's been general improvement and industry dynamics appears. But yes, our yield philosophy has been different from the group for many years, and certainly it's been rewarding for us and has allowed us to do a lot of things in terms of the investment cycle and the dollars that we've been able to put into our system, to keep growing and to have the baseline. We've probably got 25% excess capacity in the system today. And so we know we're building up from that next big way if the growth comes to us, and we're confident in what our long-term market share capabilities should be and feel like that we can get through the challenges of the short term and softer economic environment. But it's what you do in those upcycles that really make a difference. And so you have a lot of encouraging trends, if you will, for us and just we want to make sure that we stay ahead of the game and have got the capacity, we've got the people and we've got the fleet to be able to take advantage of the next up cycle whenever it starts.

Adam Satterfield:

Yes, sure. From a tonnage standpoint, and again, keep in mind, we typically don't even talk about the details. We just give sort of an average change in the revenue. But just knowing the sensitivity around at this point. But the number will change a little bit as we finish out these final few days of the month. But right now, what we're seeing from a month-to-date standpoint. It looks like that we're going to be pretty much right in line with the normal sequential change for October. Typically, October decreases about 3.5% sequentially versus September. And we're right in that ballpark. And certainly, it can move around a little bit as we finish out the month. But that's really the first time since February of this year, but the numbers have pretty much been in alignment. So we'll look and see. There's not necessarily a positive catalyst coming, if you will. But if we can kind of keep touch and keep pace with normal sequential trends, the positive catalyst meaning in the economy right now. But if we can kind of keep pace with these normal sequentials as we go through 4Q and 1Q, then we have an idea of what type of buildup we might see sequentially as we start getting into the spring of next year.

Todd Fowler:

So Adam, I think you've touched on this in a couple of different ways on the call here, but I just wanted to kind of square up the comments on the weight per shipment. It was up in the third quarter. It sounds like it's still trending positive. But your comments about customers seeing less demand, I would think that, that would have some impact where there just be less freight on each pallet. So can you just talk a little bit about the mix and what's been going on with weight per shipment? It seems like it's in the kind of a normalized level, but just want to make sure that that's the right way to think about it right now.

Todd Fowler:

Okay. No, that sounds -- I mean, tonnage being down a little bit the weight per shipment holding in, it seems like a decent combination all things considered. Just for a follow-up, I'm curious if you have any comments on headcount, it was down sequentially I guess is that's probably letting a little bit of attrition kind of run its course, and I don't think the fourth quarter is a big hiring period. But how should we think about the cadence of headcount either sequentially or year-over-year, just given the demand trends?

Todd Fowler:

Got it. So you've got a little bit of a glide path for the next couple of quarters just on the attrition front.

Operator:

The next question comes from Ravi Shanker with Morgan Stanley.

Adam Satterfield:

Well, I mean, the biggest thing is just the conversations that we've had with customers. Like I said earlier, I think that there's just so much uncertainty in the market today. And that just gets in the psyche of business owners in terms of the risk that they're going to take for capital. I think there's still a labor issue and supply chain issue that is impacting many customers today. And we've heard first hand that just given the uncertainty out there with the economy that some customers have made the decision to not be as aggressive to feel open positions from a labor standpoint for fear of what may come on the demand side for their business. But I think that we certainly -- when you think about there's 3 big layers of uncertainty that people are facing right now, the upcoming midterm elections. And then after that, you've got clarity at least for the next couple of years. But then comes to the energy issue that it's got to be dealt with. We've got to see some type of improvement overall in terms of where fuel prices are and the impact that has on overall inflation for the domestic economy. And I think that if that riddle get solved, then you get some clarity in terms of the interest rate environment. And so I think we've got to start knocking some of those down to get back into a growth type of mode. But even when we look back at prior periods, be it even looking as bad as 2009 was, we started getting growth and the sequential growth that is in the spring of that year. So we had a really bad 4Q '08 and 1Q from a sequential standpoint, like many businesses did. But looking at 2016, another slower environment, same kind of thing where the fourth quarter of '15, things are slowing down. We kind of went through the winter. We started getting build up back in the spring. At some point, people have got to get some inventory back in the system and now there's been a lot of conversation about inventories. But frankly, we continue to face issues in terms of getting parts. Many of our customers give us the same feedback that they don't have the right levels of the inventories in the right places. So that creates freight demand. And we still look at an inventory to sales ratio that's lower than pre-pandemic levels. So I think there's certainly a lot of factors that have got to be dealt with, but just having those conversations with customers and our sales team is doing that on a day in and day out basis. We're trying to figure out what their plans are going into next year, and we take those from each of our sales account representatives, each of our service center imagers at our 255 locations and tried to build that into somewhat a baseline forecast plan to build around from an equipment planning standpoint, headcount planning, service center capacity plan. But that's the best feedback. You can read all the economic reports in the world, but the best is feedback we get from the ground up to help us plan for our business.

Adam Satterfield:

Not really. And the reason for that is where that may come into play and has in the past, say, back in a 2018 time frame would be on some of those spot quote-type shipments. Before the strategic actions that we took last year spot quote shipments are like 8,000 to 10,000 pound type loads. And historically, 10,000 pounds somewhat defined the LTL industry. But those heavier shipments, you might have a truckload carrier come in and try to build multiple stops or just be willing to take 1 mode, if you will, and not with that spillover type of freight. But the actions that we took last year were designed to try to get some of that freight that wouldn't be as sticky proactively out of our system. And so as a result, those spot quote shipments that used to average maybe 5% of our total, so a small number overall. It's probably more like 1% to 2% at this point. So we were fortunate that we proactively tried to flush some of that out of the network, really designed us to make sure that we were protecting our consistent LTL shippers and the capacity means that they had, in particular last year and what we thought was going to transpire this year as well. But I don't think looking at some of our competitors wait for shipments that I think some other companies took a similar approach. I don't think that's as big of a kind of a challenge to work through the past. There's -- that freight would swing back into truckload. It creates somewhat a vacuum effect that other carriers would look to feel. I don't think that risk is out there as much as it has been in prior cycles.

Bascome Majors:

Following up on Todd's headcount question. If I look at your shipments per employee, they're still, call it, 8% below where they were this quarter in 2019. Can you talk a little bit about maybe a more bottoms-up look at productivity and your own metrics? How does productivity compare to history on the dock right now? How does the driver productivity compare? And just -- is there an opportunity in some of these tops-down metrics that we can calculate to get back to historic levels in a weaker demand environment? Or does it make sense to stay a little long head count in a structurally tighter labor market?

Operator:

The next question comes from Bruce Chan with Stifel.

Greg Gantt:

Well, certainly, I think in this type of environment, there's certainly capacity out there much more so than it was last year back in the mid-2021 and prior. But I think we were the only one that maybe wasn't really suffering from a capacity standpoint. Certainly, we were in better shape than most. And as Adam had mentioned before, we spend an awful lot of money to ramp up from capacity. And I think we've done an extremely good job of that. We continue to stay focused on building capacity. And like I mentioned before, we'll come out of this thing hopefully sooner than later, and we'll be in good shape. But I think there is some capacity obviously out there now. We don't see the same things going on this year that we did last year when carriers were in trouble, they set in bargains and various things to limit pickups and whatnot. And certainly, we're not seeing or hearing about those kind of things now. So yes, there's capacity obviously. But I think the question is, what's everybody doing to try to ramp up the need arises on the other side. And you know what we're doing. We've got a large number of capacity increasing projects underway now, and we'll keep working on those. And again, like I said, be in better shape when volumes do change and when we start to pick back up. So we feel good about where we are. And honestly, what the others do, they do. And we can't -- certainly, can't control that.

Adam Satterfield:

No. We've probably seen a little bit better performance with our industrial-related accounts once again in the most recent quarter. It probably grew a couple of hundred basis points faster than the overall company average revenue growth rate. And on the retail side, it was probably a couple of hundred basis points below but overall still seeing growth in all segments, if you will, but there's probably a little bit better performance on the industrial side. And most of our regions, you got some growing a little bit more than others when we look at it. But most are saying fairly balanced, which is a good thing. It's helped us be able to effectively reduce our purchase transportation, which was a positive for the third quarter were effectively back to prepandemic levels in the sense that we're essentially fully insourced again, and that's where we wanted to be because we know that improves our service value overall. And so that's been a positive trend, if you will. But if you don't have somewhat consistent growth in all those regions, you can get a little bit out of balance, and we might not have been able to achieve that objective. So that's been a positive development, at least to help from a service and a cost standpoint.

Operator:

The next question comes from Todd Wadewitz with UBS.

Adam Satterfield:

Yes, pretty stable. Tom, I didn't give a specific number, so to speak, but I just mentioned that it's right in line, maybe a little bit better than what we saw the average for the third quarter. We were up 7.2%, the revenue per hundredweight in the third quarter, excluding fuel surcharge and right about that same level in October.

Adam Satterfield:

No, I think that when you look at our long-term revenue per shipment performance, so a little bit different than the per 100. But long-term revenue per shipment, we've been able to average between 4.5% to 5%. And that's -- I think whether you look at it in certain years, including fuel or excluding fuel, that's kind of been the goal because long term, our cost per shipment performance has been kind of in that 3% to 3.5% range mainly the increase is that we give to our employees each year from the wage improvement. But we certainly -- we've face the increased cost of equipment and insurance premiums and fortunately have been able to offset some of those other inflationary items through improved productivity and efficiencies within our operations. But we're certainly -- we'll have the same objectives as we go through the rest of this fourth quarter and as we transition into next year as well. Looking at the per hundred, certainly, we had bigger increases in 2021. Some of that started particularly in the back half of the year when inflation was picking up, and this year has been solid increases as well. But the key is just this contracts renewed and they renewed throughout the year for us is to continue to make improvement. So it's -- we work a continuous improvement cycle, whether it's with our yield management, the efficiency of their operations. Every department is looking at continuous improvement. And certainly, we've got to continue with our best efforts there on the yield side. But I think that we'll see core inflation. We certainly hope that, that moderates as we transition into next year. So we shouldn't need as big of an increase perhaps as what we've seen the last two. But certainly, we want to see sequential increases from quarter-to-quarter.

Jonathan Chappell:

Adam, just two quick follow-ups for you. First, on the PT brought it up and then answer a couple of questions ago, 2.1% as far as I can tell, is about as low as it's ever been in your network. So as you contemplate keeping maybe more resources from a headcount perspective just because of the challenges in hiring. Is there any more room to flex PT? Or are you kind of at the absolute minimum there? And we think about it holistically, salaries, wages and benefits plus PT probably stays a little bit elevated for the foreseeable future.

Jonathan Chappell:

Okay. That helps. And then also to tie a couple of things together. I mean, it sounded like you're pretty optimistic. I mean maybe optimistic is a strong word, but not as pessimistic regarding some of your customer commentary. But in your prepared remarks, I wrote down you said directly, demand just isn't there for some of your customers' freight. So do we foresee maybe a late peak season where it's not there today. But going into a time that might seasonally be slower, you start to see a reversion or a catch-up? Or do we kind of just write off the rest of this year as it's going to be weak and maybe things are rightsized by '23 and start to see a pickup then?

Operator:

The next question comes from Jason Seidl with Cowen.

Adam Satterfield:

Yes. Well, we've certainly -- like I mentioned, we've -- the carrier group on average to exclude us has seen negative volumes on a year-over-year basis through the last 3 quarters. And -- but has continued to increase their yields. And so we wouldn't anticipate a lot of change from that. With respect to whether capacity is really being added or not remains to be seen. We've not seen really any material addition. Some people are talking about it. There have been 1 other carrier, I guess, that certainly has increased their service in account. But when you look at the industry, at least the public carriers on average over the last 10 years, there has been a decrease in industry capacity. So don't really foresee a lot of change in that regard as we move forward. But certainly, we'll continue to watch it. But yes, we believe the industry will stay disciplined, but we know what our plan is, what we can control, and we'll continue to control the elements that we can and what the other carriers do will just continue to sort of watch and see. But I think we've got a long-term track record in terms of what we've been able to do over the last 10 years. We've averaged growing our revenue 11% a year, and we certainly have made improvements to the operating ratio along the way. And again, it's been through a combination of consistent improvements in yield and then the density through that -- the volume throughput in the system that's allowed us to produce this consistent operating ratio improvement and different carriers have had different strategies along the way. And certainly recent periods, other carriers have been increasing rates faster than us, but we don't control what they do, but we'll continue to certainly watch. But our conversations with customers are what's going on within Old Dominion, what our cost inflation looks like, the investments that we want to make to help support our customers and the growth in their business. And ultimately, what's the value that we can add to our customer supply chains. And those are the conversations we have versus trying to compare our price versus someone else's price. It's all about value, and that's service value is what has won the day for us and what will continue to drive our ability to win market share in the long term.

Operator:

The next question comes from Ken Hoexter with Bank of America.

Adam Satterfield:

Well, I think we talked a little bit about this earlier, certainly in periods where revenue has been flat or been down. We've had a little bit of OR degradation and generally limited to the depreciation cost as a percent of revenue. And the reason for that is we want to continue to invest for the long-term market share opportunities, we believe we have. And certainly, when you look at the second quarter of 2020, we had a big decrease in revenue that year. But we were a lot more aggressive in terms of managing costs and actually improve the operating ratio of 10 basis points. But I think that looking more a 2016, 2019 for the general performance and doing some of the things that really protect our long-term opportunities, keeping a little bit of inflated headcount, like Greg mentioned earlier, continue with our investment cycle. Those are the types of long-term decisions that we want to make that improve our opportunities for out years to get prepared for maybe what a 2024, 2025 looks like versus just trying to focus too closely on the short term and what the first half of next year might otherwise look like. So certainly, a lot of it depends on the overall revenue environment and what we will see. There's a lot of uncertainty out there, but 2016 and 2019 are probably better examples to look at in terms of how we try to manage the business, manage all over variable cost flat as best we can or prevent any type of increase in deterioration there and those cost elements. And then just might see that those depreciation costs increasing as a percent of revenue because of the investment driving increased depreciation dollars and then you're denominated being potentially flat to down from a revenue standpoint.

Adam Satterfield:

Well, I mean we've got good long-term relationships with many 3PLs. They're about 1/3 of our business overall. A lot of times, what you'll see in a slower macro environment. We're seeing this a little bit now is some of those levels that's 3PL driven that kind of flattened out a little bit. And so we'll continue to watch that, but certainly feel like that a lot of the big 3PL customers that we have, in some ways, can help us a sense of demonstrating the value independently to the shippers that they're potentially helping manage transportation services for and talking through what the different elements of value in terms of our superior service on time, pickups, on-time deliveries, load damages all those sorts of things that they're talking to someone that has just been solely focused on price in the past, they can help us talk more about value. So in some ways, that could be beneficial to us in a slower macro environment.

Adam Satterfield:

No, it's remaining about 1/3. It's just -- the growth is flattening out a little bit with -- in terms of looking at the overall revenue with our 3PLs right now.

Adam Satterfield:

Well, no. There's always a conversation about total all-in price, if you will, because that's ultimately the bill that the customer is paying. But for us, certainly, there was a slight decrease in the average price of fuel in the third quarter versus the second. So that's something we'll probably talk a little bit about or on the last call. But like I mentioned earlier, we hope that we see that continue to decrease. And I would just say looking at the impact, there's been a lot of questions about that. If we were to see a decrease in the impact of fuel surcharge and our philosophy is we want the fuel surcharge is just one element of pricing and whether fuel goes up or down, we hope that's neutral to the bottom line for us. And probably the best periods to go back and look if we are to get some type of material improvement in fuel prices 2015, the average price of diesel fuel was down about 30% that year. We were fortunate that we still had some volume growth going that year to help us have good revenue trends overall, and we were able to improve the operating ratio. The fuel dropped another 15% in 2016. That year was a little bit different in terms of the overall top line environment and a little bit more pressure from a volume standpoint. But we certainly would like to see overall the fuel price continue to drop. And certainly, that would decrease the all-in price that is being paid today.

Greg Gantt:

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

Drew Anderson:

Thank you. Good morning and welcome to the second quarter 2022 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through August 3rd, 2022 by dialing 1-877-344-7529, access code 7163281. The replay of the webcast may also be accessed for 30 days at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements among others regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact, may be deemed to be forward-looking statements. Without limiting the foregoing the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors among others set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information future events or otherwise. As a final note, before we begin, we welcome your questions today, but we do ask in fairness to all that you limit yourself to just a few questions at a time before returning to the queue. Thank you for your cooperation. At this time for opening remarks, I would like to turn the conference over to the company's President and Chief Executive Officer Mr. Greg Gantt. Please go ahead sir.

Adam Satterfield:

Thank you, Greg and good morning. Old Dominion's revenue growth of 26.4% in the second quarter was driven by the 22.6% increase in LTL revenue per hundredweight and 2.8% increase in LTL tons per day. Demand for our superior service remained strong during the quarter, which helped support the steady trend with our volumes and consistent yield improvements. On a sequential basis, revenue per day for the second quarter increased 11.4%, when compared to the first quarter of 2022, with LTL tons per day increasing 0.7% and LTL shipments per day increasing 1.7%. For comparison, the 10-year average sequential change for these metrics includes an increase of 9.6% in revenue per day, an increase of 7.4% in tons per day and an increase of 7.8% in shipments per day. At this point in July, our revenue per day has increased by approximately 18%, when compared to July 2021, which continues to exceed our long-term average growth rate. As usual, we will provide the actual revenue-related details for July in our second quarter Form 10-Q. Our second quarter operating ratio improved to 69.5%, with improvements in both our direct operating cost and overhead cost as a percent of revenue. Within our direct operating costs, improvement in salaries, wages and benefits, as well as purchase transportation cost as a percent of revenue, effectively offset the increase in our operating supplies and expenses. The increase in operating supplies and expenses as a percent of revenue was primarily due to the increase in the cost of diesel fuel and other petroleum-based products. We improved our overhead cost as a percent of revenue during the second quarter, primarily by leveraging our quality revenue growth and controlling discretionary spending. As we move into the second half of 2022, we have areas of opportunity to drive further improvement in our financial results. We will continue to focus on obtaining the yield increases, necessary to improve the profitability of each customer account. We will also maintain disciplined control over costs to keep our cost inflation on a per shipment basis to a minimum. Our team is now appropriately sized and most of our service centers to support our anticipated shipment trends. And as a result, we believe we should start seeing improved productivity throughout our operations. The stability of our workforce has also allowed us to reduce our utilization of third-party purchase transportation and moved closer to the fully in-sourced linehaul operation that we prefer. We believe this is one of many key factors, creating the service advantage we have in our industry, all of which comes back to helping us win long-term market share. Old Dominion's cash flow from operations totaled $427.3 million and $816.1 million for the second quarter and first half of 2022 respectively, while capital expenditures were $229.4 million and $323.1 million for those same periods. We utilized $293.5 million and $731.9 million of cash for our share repurchase program during the second quarter and first half of 2022 respectively, while cash dividends totaled $33.8 million and $68 million for the same periods. Our effective tax rate was 26.0% for the second quarter of 2022 and 2021. We currently expect our annual effective tax rate to be 26.0% for the third quarter of 2022. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.

Jordan Alliger:

Yeah. Hi. Good morning. I was wondering, if you could talk a little bit about the price environment. Obviously, there are some concerns out there about – more than some concerns about moderation in demand and volumes and you've some of your rates of growth have probably slowed as well on that front. Can you maybe talk about ex-fuel sort of the core price thoughts as you move through the balance of this year? And have you had discussions with shippers, or if they come to you and started to talk about things as they approach their next contracts? Thanks.

Jordan Alliger:

And then just a follow-up on fuel and fuel surcharges, I know the mechanisms are supposed to work as a pass through. Obviously, fuel surcharges have generally ramped up for the industry pretty quickly maybe even faster than the cost of diesel. Can you talk about the impact on P&L from the rising fuel environment? Thanks.

Jordan Alliger:

Thank you.

Jon Chappell:

Thank you. Good morning. Greg, there's been this thought that as trucking capacity truckload capacity starts to loosen, and especially as we've seen some major retail pre-announcements that LTL has been this massive beneficiary with the only capacity in town, can you kind of detail your book of business a little bit? And how much you would consider that's on your network today being non-traditional LTL freight? And have you seen any shift in your market share either up or down let's call it since mid-May when this whole retail fear started to really emerge?

Adam Satterfield:

Yes, Jon, just to give a little bit of detail, certainly, as those announcements came out last quarter from certain retailers, we've been addressing that question, but we've got many customers that ship and receive that are beyond those two big box retailers. But nevertheless, our book of business is still 55% to 60% industrial. And I think the industrial-related customers and when you look at certain macroeconomic factors in that industrial economy is they're continuing to expand and we probably got a little bit more growth out of our industrial-related customers in this most recent quarter than on the retail side. But our retail, which is 25% to 30% continues to perform strongly as well. It's just a little bit below the company average, but we're still seeing nice growth there. So it's something that we'll continue to work through though, and we believe we've got opportunities with each of those pieces of our business overall. We don't have a lot of truckload spillover-type business in our network. We worked incredibly hard last year, to make sure, when capacity was at a premium that we were allocating capacity more so to traditional LTL shipments and customers that were tendering those to us for the sense that whenever the truckload environment freed up a little bit that we wouldn't have this swing of freight going back into that market. And traditionally you see more of those shipments would be in our spot quote network. That used to be about 5% of our overall revenue. It's probably about 1.5% at this point. And those are shipments generally that existing customers have and that they're asking for something different from us so to speak. But we feel good about demand. We've talked about that. We've had a lot of customer engagement in recent months and we're hearing good things from our customers. They continue to demand service quality. We've worked really hard for multiple years on improving and strengthening our value proposition. And I think we're seeing that come through with the strength in customer relationships that we have right now. And so as a result we're not losing business. The volumes are a little bit flatter but I think you can just look and some of that may be demand for existing customers' products. So we feel good about everything our customers are telling us and just continuing to work and manage through to where the volumes are currently trending as we try to manage all elements of capacity within our business.

Greg Gantt:

Yeah, absolutely. It's the latter Jon for sure. Sometimes our opportunities are a little better when it slows down. And sometimes you just have better opportunities when it's like it is today. So we can't stop. I've talked about it before how difficult it is to expand your network, how long it takes, how lengthy the process is in certain locations, some certainly way worse than others. So we can't quit. We want to continue to grow that share and we know we've got to continue our efforts on a consistent basis to have that tight capacity when things get tight like they have been in the last 1.5 years two years.

Operator:

The next question comes from Jack Atkins with Stephens. Please go ahead.

Adam Satterfield:

Sure. On June, our tons per day were flat basically with where we were last year. And so on a sequential basis, it was pretty flat as well. And with respect to shipments, we -- actually the shipments per day for June were -- on a year-over-year basis were down 0.7%. On a sequential basis we were up 0.6% versus May. And as it relates to July, we are trending up. Our revenue overall was up about 18%. And looking at the yield component of that, we don't like to give the full details. We used to. And if things move 10 basis points off what we had said that the story could take a different turn one way or the other. But our yield trends right now if you look at revenue per hundredweight in July it's up about 7.5% so you can kind of get into what the volume trends will look like. And to point out before anything is written about yield that's a little bit below where we were for the second quarter. But we're going to see some changes in the mix of our freight as we compare to the third quarter of last year that was the lowest point for our weight per shipment. We were seeing sequential decreases there and in the third quarter, the overall average was 1538 pounds there. So we're still trending at about 1,560 or so pounds in July. It was right at 1,570 in the second quarter. So as we start to see more of an increase in that weight per shipment. Certainly that's usually lower revenue per hundredweight. So they'll have a little bit of an effect there.