Q4 2019 Earnings Call
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Yes. Good question. It is now my pleasure to turn the conference over to Mr. Richard scripts.
Hey, Thanks, Fred Good morning, welcome to our fourth quarter Conference call. Joining me on the call. This morning are David Parker and Joey Hogan.
This conference call will contain forward looking statement.
Private Securities Litigation Reform Act 1990.
Forward looking statements are subject to risks and uncertainties that could cause actual results could differ materially.
It was contemplated by the forward looking statements. Please review, our disclosures and probably for the FCC.
Putting without limitation risk factor section in our most recent Form 10-K , and our current year Form 10-Q .
We undertake no obligation to update or revise any forward looking statements to reflect subsequent events or circumstances.
As a reminder, a copy of our prepared comments and additional financial information is available on our website I kinda transport dot com under the investors tab or.
Our prepared comments will be brief and then we'll open up the call for questions.
In summary, the key highlights for the quarter were.
Truckload segments revenue, excluding fuel decreased 13.4% to $152.8 million due primarily to a 10.4% decrease in average freight revenue per truck, along with 805 or 3.4% average truck decreased and the 2019 period as compared to 28 in Q.
[noise] versus year ago period average freight revenue per total mile was down 24.2 sets or 11.3%.
Average miles per tractor was up 1.1%.
A portion of the reduction in freight revenue per total mile as planned as we have steadily increased percentage of our assets allocated to dedicate a truck load or other your around service offerings.
Even a smaller percentage to participate in the more volatile peak season, which secures significantly higher rates for a few weeks.
The other primary factors impacting the decreased average freight revenue per total mile continued capacity and demand imbalance and a reduction in certain of our customers peak season team capacity needs. This year.
The main factor impacting the increased utilization was it improved average seated truck percentage has only 1.5% up our operational truck fleet like drivers compared with 3% during the prior year quarter.
The truckload segment operating cost per mile net of surcharge revenue was down approximately 3.3 cents compared to the year ago period. This was mainly attributable loss attributable to lower employee wages and group health claims costs, partially offset by higher net fuel excess workers' comp claims cost and outside professional advisory fees.
Our managed freight segments revenue, excluding fuel decreased 15.5% versus a year ago quarter to $57 million from $67.5 million.
The primary factor to this reduced revenue was a reduction in certain of our brokerage customers peak season capacity needs. This year [noise].
[noise] due primarily to the bankruptcy of one of transport enterprise leasing that we call till pills customers. Our consolidated net income included a 400000 dollar pass through loss or two cents. Good <unk> per diluted share for minority equity investment until compared to the inclusion.
$1.7 million pass through gain were nonsense pretty <unk> per diluted share in the fourth quarter of 2018.
The average age of our tractor fleet continues to be a two years as of the end of 2019 down from 2.2 years as at the end of 28.
During the fourth quarter, we took delivery of 47, new tractors and disposed of 256 use tractors and at December 31st had approximately 625 tractors the excess tractors removed from our operating fleet that are either in the process of being prepared or have already been prepared and are held for sale.
We expect to dispose that most of the excess tractor units in the first half of 2020.
Between December 31st 2018 at December 31st 2019.
Total lease adjusted indebtedness net of cash increased by approximately $50 million to $304.6 million.
At December 31st 2019, our stockholders equity was $350.1 million for ratio net lease adjusted indebtedness to total cat a 46.5% <unk>.
Compared to a 42.6% ratio as of December 30, Onest 2018.
In addition, our leverage ratio has increased to 2.4 times from 1.5 times a year ago.
The main positives in the fourth quarter were one consistent profitability from Orlando dedicated truckload and manage break businesses in a difficult freight economy.
To decrease truckload operating cost per mile basis.
And three a $24.2 million quarterly decrease <unk> net leased adjusted indebtedness.
The main negatives in the quarter were won the pass through loss from our investment until.
To the 10.4% year over year decrease in average freight revenue per truck for our truckload segment.
Three the operating margin declines of our expedited and solo refrigerated service offerings on a year over year basis and for the large amount of excess non operating equipment at year end that results in higher indebtedness and related expense until sales proceeds are realized.
Our operational fleet size experienced an increase to 3021 by the end of December a small 13 truck increased somebody afforded fleet size, a 3008 trustee into September .
From a financial perspective.
Expect operating cash flows and our leverage ratio to improve for fiscal 2020 compared with fiscal 2019.
We expect financial improvements to be weighted towards the second half a year as year over year comparisons and consolidated average freight revenue per total mile and margin performance in certain irregular route truckload operations are expected to be negative for at least the next several months.
Our expectations for improving performance throughout 2020 are based on assumptions of declining truckload industry capacity due to among other factors a continuation of falling new truck production.
Editors exiting the industry and tighter federal drug testing regulations.
To continued U.S. economic expansion three the successful disposal of excess real estate and revenue equipment and for the reallocation of assets to more profitable operations.
Timing and magnitude as these factors will impact our results.
For 2020, we're intensely focused on accelerating our plans to become embedded in our customer supply chains reduce the cyclicality and seasonality of our financial results through growth in our higher margin, yeah, less volatile services and to enhance sustainable long term earnings power and return on invested capital for our shareholders through disciplined strategic.
Planning and execution.
Our operational focus areas are as follows.
In our truckload operations, we are seeking to tighten our one way irregular route truckload freight network to reallocate capacity from solo driven refrigerated to more profitable dedicated and driving an opportunity to decrease real estate and revenue equipment capital cost per mile introduce other and other controllable call.
Regarding the dedicated truckload service offering we have recently been awarded significant new long term business that is scheduled to be operational beginning within the second quarter of 2020.
And our managed freight operations, where the time excellent customer retention rates in our more profitable warehousing transportation management and factoring service offerings. We expect continued growth with these customers as well as with new customer opportunities.
On a strong sales pipeline and these offerings to which we have targeted growth and have already secured some long term awards for our warehousing services that are scheduled to begin late in the first quarter or during the second quarter was 2020.
From a balance sheet perspective, so net capex scheduled well below normal replacement cycle, along with positive operating cash flows we expect to reduce net lease adjusted indebtedness over the course of fiscal 2020.
Thank you and for your time, and we will now open the call for any questions.
Thank you at this time, we'll open the floor for questions. If you would like to ask a question. Please press the star key followed by the one key on your touched on some now.
At any time, you would like to remove yourself from the question in queue Press Star too and again to ask a question. Please press star one.
We'll take our first question from Scott Group of Wolfe Research.
Hey, Thanks. Good morning, guys can you talk about can you talk about what you're seeing so far in January from a demand and capacity standpoint, and then also.
Utilization was up a little bit in the fourth quarters or what your expectations are for utilization here in the first quarter.
Hey, Scott is David.
I definitely feel like that.
23 days of January that allow are a big piece of our business is is up over the same time 12 months ago ER and so that's very encouraging I keep in mind is that as you think about utilization you know where we're growing the dedicated side you know cuts.
Either grow with pretty fast so you've got.
Some of those are tails as you know our hundred 85 miles, let the holiday they don't run a whole lot of miles. So you know just to look and I was thrilled with the 1% increase the utilization in particular with a lot of the shorter length of haul dedicated business, though you know that that's probably not going to be a good measurement.
If there is a measurement, but it's not going to give us a fair.
Measurement of what's going on with our business as we continue to grow the dedicated side. So as I just look at the in particular the.
Expedited side on the highway services, the expedited Dod I'm very pleased with Alaska with Alaska. The beginning of this year for the three weeks I'm definitely seeing the uptick in that business and up so that's good to Selmo refrigerated side, the southwest region of the country was pretty solid.
But other than that I'm not happy as one of the reasons why we're devoting started to vote a lot of that some of that equipment up.
Dedicated as well as to the dry van operations.
We're going to we're going to figure out on the re for stock what is solid to worsen that's where the Rupert is going to go and other than that we're going to convert somebody that to drive them. So the expedited side, which is the gain on the highway services is right now, but you know, 60% or so what that that business.
For the month, but January in terms of getting better I'm pleased with.
Yeah and.
Scott I'll add I think first quarter were kind of looking that.
Being up a little more than what we were up a Q4 on a year over year basis, so kind of in that 2% to 3% year over year range has increased and utilization from first quarter of last year.
That would still be down 2% to 3% from Q4.
Okay helpful. And then maybe what are you seeing right now from a pricing standpoint, what work how are the early 2020 bids coming in and then think rates were down 11% year over year fourth quarter, how you're thinking about first quarter.
The best way to look at is that that I do believe in the last couple of quarters that you know that right sales have bottomed from is again on the highway services side of the business because the dedicated is pretty solid and you know and it's not the customers look at that is a different is a different like so that.
That's out of the business really does not concerned me that but just the highway services is probably the main thing that concerns me a part of the questions you're asking there and I think it's bottomed out, but I can't tell you that their rates that started going up because one of the phase that we're doing it keeping the business.
We've got.
And at the present time, not asking for rate increases on that business until the market allows us to.
And then on the new business, where it is going after new business and if that means that might raise or two cents about cheaper than that what I Wonder Hall at board, then it's going to be too since about cheaper.
So new business coming own is not where you know, it's not where out exactly won't do that but the existing businesses out there. It's flat I think that we still got because there's no doubt about not the capacity is leaving the market.
That we've all seen over the last whatever six eight but that that is leaving it I think if they were going to leave a little bit faster. So we're not yet we're not being bombarded by our customers for decrease this overall and so that that's the best side.
12 months ago start.
10 months ago, we were being bombarded the whole industry was about pressure on the right standpoint that is that is not there anymore. So that part is good so up so that's what I think about Scott and that in the third quarter rates were down about 5% to 5.5% and they were probably.
Down 5.5% to 6% on a core basis non peak customer basis in Q4, and so I think as you look at kind of first quarter like David said, there hadn't been a whole lot of change.
From customer contracts and so it'll it should still be down year over year, but not at that 11, 12% I use that we saw in the fourth quarter that was really due to the peak customer freight.
The dedicated side that's truckload. We've we've also been able to get a handful of increases on some customers that were underperforming that we really needed to have at least something on a to make that worthwhile to continue doing.
And so there's a little bit offset to the to the underwhelming pricing on the on the.
We're outside.
Okay and then just last question, maybe Richard if you can help with some guidance I'm guessing first quarter is unlikely to be profitable, but any thoughts there and then when you think about full year do you think we can see full year margin expansion do you think we have contraction and then.
Maybe same question on earnings do you think you do you have any line of sight to growing full year earnings where do you think it's likely that earnings or for the full year down.
Well, there's oh, there's little walk a lot of wild cards, the economy and presidential race and those type things.
Thank you.
I think we aren't expecting to be able to be.
Profitable in the first quarter, a possible is not not probably likely.
For the full year, because we had a good first half last year comparatively.
It is gonna be.
It has to be caught up enough in the second half of your in order to get back to equal to what we performed this year or better and depending on how tight the market gets you know that's still that's still possible in our eyes that we could beat this year results, but it's there's lot of lot of wild cards.
Understood. Okay. Thank you for the time, yes.
Thanks.
Our next question comes from Jack Atkins with Stephens, Inc.
Good morning, guys. Thanks for taking my questions.
Yeah.
David If I could just go back to your your comments on the market and I just kind of want to if you could maybe expand a little bit on it just in terms of how you think that maybe the next.
Three to six months' play out because it does seem like.
The capacity attrition that we've all been kind of talking about the last couple of quarters is starting to build.
And the market definitely seems more balance today than it did you know call three months ago.
And you know you're talking about a shift in sort of your customers' expectations around price on the margin.
Could you just kind of comment around as we kind of get into March April may I mean, how how quickly could this market turn.
Oh Jack.
Thing before we go that's called that Tony.
Management group up here or is that I, just got back last night from three days in Chicago.
All 11 customers among all of our segments expedited and add and Oh brokerage as well as dedicated and for three days and.
Yeah.
If we asked if we had a month or so of what I had for three three days.
This thing would be back pretty strong up I mean, I would be thrilled and so those are the best three days that I've had and 14 months I mean I've been in depression for 12 months now since January last year and I was very excited for the last three days every.
Eating that I went to.
It was great opportunities that I am.
New opportunities that I am 90% show or that we're going to hit them home runs on these basic count sad that just you know you kinda, it's kind of what those things that you got to crawl before you're walking you got that you guys see some sign of lie.
Before it starts coming back and that you know that David Parker personally, but that's not our sales team. That's the first Ah that I have experienced.
This year was the last three days and I was excited about what I fail the last three days.
Okay, that's encouraging that's encouraging to hear.
Thank you for a minute and you know I guess is questions for any of you guys would just be curious if you could expand a bit on.
On the managed services pipeline and the recent wins there and.
I guess did you guys you're thinking about the opportunity set the revenue potential for that business in 2020.
Could you maybe kind of help us put some brackets around that and if there any sort of startup costs associated with those new contracts.
[noise] hijackers Joey.
The way that I would go to try to simply answer that and this includes dedicated because we we look at dedicated with our managed scrape together. So it's a kind of our logistics.
So we've got five startups in the next four months that are pretty significant and.
That I mean that the management teams done a great job so.
Building startup plans for those but we've never done that.
That's a significant challenge for us that I'm very proud of how the whole enterprise is working together.
Shared services same support.
Startups, so its significant almost say 40 to 40 60, I'm getting adjusted here almost say 50 to 60 million of annualized opportunity.
Yes for those.
Page or that you Chad, so, but we got a brand across ago.
Similarly, we've got to have a 90 day, we got to be Greg first 90 days at first keep your after each of those critical so.
Are those fives.
Dedicated to dedicated one man its right to warehouse is the is the pieces of us and so that's neat because it's kind of spread out across that kinda logistics.
All right.
It's a disk I would say, it's kinda piggyback on what David said on the on the highway or one Weiss.
Oh, yeah, what's a pretty detailed this morning or add does.
Yeah. It's exciting there also are now you got to get them across go line is that because of all capacity that David alluded to start late marketplace something you start we started saying that just some data that we tried last summer but.
Yeah, there's a lot of things going on that's affecting capacity you know I think.
I think a key some will be well when to spot market.
Stabilize and I think it stabilizing now it's just not paying.
Yeah could it be up and down you know a day or weak at a time, but yes.
Yeah, that's sad capacity and then obviously when it started to talk this one spot moves and then contractor moves with that but I agree with David I was so a few customers earlier we.
Theres still what I'll call some soft task.
Some soft ask going on out there, but generally speaking or these are some large shippers assessments. Yeah. I think I think everybody started to see it but I'm excited on the highway set to some of the things worsening.
They are also.
Okay. That's that's great and then kind of shifting gears back to sort of the bigger picture on 2020 for a moment you.
When we think about.
2020, a lot of the discussions have been on the capacity fraud and the potential for somebody come out of the market but.
I guess one of the interesting thing to me is the demand comps are pretty easy in 2020 versus 2019.
An extra day in the first quarter with leap year, you've got a more favorable holiday calendar and timing.
Fourth quarter.
You know when you kind of think about the opportunity.
2020 versus 2019, I know the first half comps are tough just from an earnings perspective, but.
Just what do you think about how the calendar shakes out.
Does that kind of.
Maybe up something in the positive category for you guys did you think about this year.
I I mean I agree it does I think I think the key well achy. It was brought up earlier is that.
You know all the pricing moves throughout 2000, not saying you know first had comps Burke for price or will they agree difficult and so you know to you get past.
That has four year affect those so are.
You know that headwind, that's a pretty heavy headwind as we do it would cost versus year ago.
And I think that's just something that.
Yeah, there's several things that Richard mentioned the equipment, that's been huge both for CBT or the operating company as well as tail and there's just a significant amount of equipment capital or we're very confident that we've got good plants all moving those that's a bit it's made a huge.
Earnings right.
Got pushed that assist that take that would take a while oh, it's going to take over the first half to get a large chunk of that Oh. This system. They get paid for so oh or getting revenue generating somebody tell side. So.
Those are two kind of big headwinds.
When do what I would call cost to your go that's just market they'll have to push through it get through this a bid season.
Okay.
That's helpful guys I'll hand, it over thanks, thanks, very much from the time.
Fixture.
Thank you. Our next question comes from Jason Idle with Cowen.
Hi, Jay Hey, Hey, guys. Good morning are you.
Hey, Jason.
A couple of quick things one Richard just want to make sure I heard what you said earlier about conference held for sale. You said there was some 20 I being held for sale and <unk>.
Well I don't use that term because that's an official accounting term, but there are 625 that are either being prepped for sale or held for sale that are excess at the end of December that number was over 800 at the end of third quarter.
And we should run those 600 through the system and get them out and by the end of June .
Yeah.
Generally, though we sat with them, we trading again, probably about the only about 60% of those are sold back to the O. He and then about 40% of those will be sold out right.
To the market.
Okay perfect.
But we feel good about the book value, while those et cetera. So okay.
You think about <unk> growth from here, you said you know each quarter.
First you won 30 21.
It's just kind of basically remains how does move throughout the year <unk> growing money being a second half as things improve.
Exactly yes.
We are.
At the ended the quarter was yeah. It was 3021 I think what we will have is a little bit a decrease over the first half of the year.
As we do a few things as we move trucks, a as we get new customers on the on the solo dry van side as we move to dedicated from the from the solar refrigerated side. So there is partly that and then.
In addition, some of those dedicated account start you know second quarter, and we'll start to get that pick back up but there's also some dedicated accounts that if we can't get them to the profitability levels that we bought then they may be called out and so there's a piece of that that could happen where the truck count.
Good day decrease for that in the first half of the years were really evaluating the profitability of each of those accounts. So between those things I think it probably goes down a little bit maybe down 50 by the ended the first half and then starts picking back up.
By the end of the year.
Okay.
That's a that's great color also the charge.
Tell for the seat you out of bankruptcy is not all done are we going to see more drinking one Q.
So there will be some pull over into the first quarter and a little bit in the second quarter as a several of those several that equipment that we've already taken back has not yet been redeployed.
Or sold so there's a piece of that where we will continue to have depreciation and interest expense or not we were till they will have additional depreciation and interest expense and no revenues to offset that so I believe that they will be profitable in the first quarter, but only slight.
Lastly, I'm not up to the kinda numbers. They were they were producing and the first three quarters of 2019, and then in the second quarter that improves closer to that old Mark and then in the back half the year I expect them to go back to running very close to what they did in the first three quarters of this year, that's a 19 year.
Okay perfect.
Last question on the current turnover or somebody else you talked about obviously, the five startups to dedicated to warehouse one much freight.
Let's see 16 annualized rather than like.
Joel you said, how should we think about that.
Flows through or your income statement is this 50 to 60, you're confident you'll have that in 2021 and this will just build has moved throughout this year OS.
Yes, it'll build throughout this year are those are Annualizing again, Richard said it also.
Ah, yes, there could be some offsets to that.
Dependent on.
Customer receptivity Oh.
On especially on the dedicated side and the Hotwire frankly, you know to pricing.
Existing business, so there could be Sunday ducs, but if you just focus on startups it'll build throughout the year and.
It will take most of that is coming on in the second quarter early to late second quarter. So third quarter will be a good proxy to see.
The full kinda annualized effective at third quarter.
Okay fair enough gentlemen, thank you some time zones.
Thank you.
Thank you and again, ladies and gentlemen to asking question. Please press star one well take our next question from David Ross of Stifel.
Yes, good morning, gentlemen, just today.
Just a follow up on the five startups in the next four months or should that be a near term headwinds S. Q1 in Twoq you as you incurred cost before the revenue start coming in and is it significant more in one or the other quarter.
Yes, the first quarter will it will have more of that on the warehousing side. There's some technology startup costs and then on the on the dedicated side as we kind of moved trucks around to the new locations. So there'll be a little bit of a headwind there in the first quarter, maybe seven Oh.
Early second quarter, but for the most part that will be done by June .
And then Richard maybe I missed it because you're talking really about net capex being well below normal replacement cycle, but I didn't see a range.
60 million a good range or how are you thinking about that.
I think it'll be lower than that didn't put it in the release, but I think it probably a $20 million to $30 million net capex number for next year is is likely especially given that we've got two pieces of real estate that we're selling that are up for sale and we have some.
Good prospects for selling those and hopefully we'll be able to get those does not by March or if not by March but into the second quarter.
And.
David Do you you mentioned that you were very pleased with expedited business year to date.
Right.
How would you against characterized the drivers of that.
Demand would that be on the e-commerce side on the LTL side or something else going on and expedited.
Making you happy there.
Yeah. No is it is I I can't say that the LTL. So we brought on a couple of more course, we do so much with a lot of LTL as you already know up but we have brought on a couple of new ones. We got one in particular, that's really on existing business, it's really been.
Growing in the last three or four months, but and we brought on a couple more but it's really across the it's across the board of new opportunities that are out there that that our existing for us and some of the air freight side that you know they're doing their best to put as much as it.
And on the on the road that we've been able to bring on a couple of those but the expedited side. It's just.
Been encouraged about it and so.
The best way to explain it's really across the board I mean, I I see retail good opportunities their existing now against them a air consolidation customers that existing now a a good medical piece of business that.
That is coming on board with us up.
So yes really across.
And then last question Richard about around the operating tractor count.
The fleet is expected to be.
You know flat or down a couple of percent.
I didn't by the end of this year.
How would you break that out between what the dedicated fleet should look like and what the rest of the fleet should look like it wouldn't be dedicated up 3%. The rest of fleet down three to five or how do you think about that.
Well I'm kind of as a percentage.
Looking at it averages for 19 versus 20.
I think that the average at the dedicated an average of our total truck count is going to move up.
Probably by the end of year closer to something like work, let's just say for the average of 20, it'll be closer to 59% to 60% from 54% this year.
And then on the expedited side I think that'll stay about the same.
Which will make it a little higher percentage of our truck count decreases and then.
The solo Reefer side that average closer to 400 or so trucks.
This past year 19, I believe that will be down to probably 200.
By the end of the year and will be replaced with some of that goes the dedicated and some of that goes to one way irregular route dry van a solo so.
That's kind of how it how it should break down.
There are a lot of thank you very much.
They there's there's a lot of moving parts within that Dave up.
You know what are the things that we purchased the land there acquisitions and all the dedicated it's coming under John Tweed up you know what we wanted to things that we've been working diligently own for the last eight months is individual pinedale statements about every dedicated because we've grown it dramatically in the last year and a half and.
We are about.
Got 99% through that is that a good good number.
95% on they were at the tail end up having crystal clear numbers by account instead of just averaging does the dedicated and what I made by that if we got some that's got insurance at 15 cents amount them at Ti and instead of having other 12 across we're going to know exactly that its 15 and 12 and we can deal with that.
And.
So we're about 95% through that and I know will be there in the first quarter that we will know exactly now what is my gut their 1700 trucks. There my gut says, there's probably 150 might be 200 trucks that one of two things will happen either we will exit or we will go to the customer first and we will get price increases.
To offset to make those things to acceptable.
I think that 50% of those will that customers will give us what we need a and that is what my gut tells me. We also we've got about 200 trucks in the highway services that Richard was talking about there that you know our go our go whether its today are six months from now is to put it into the dedicated side.
The business so depending upon how many trucks, we got to replace because the customers will not give us the what we need on that dedicated is 150 or 200 I can draw. It picture that there's there could be 300 trucks and the network that we want to get into dedicated now I'm very happy with your heart.
A little bit the pipeline, it's pretty good I'm proud and it's growing I'm pretty excited about the pipeline that we have got it I'm here to tell we got a couple of three that we're working to own bad if we have one or two of them I mean, there because they're a big operations that could take care of my problem pretty pretty quickly.
So.
That they give you a flavor hopefully that gives you a flavor up you know the trucks are moving around and I think in the next few but they will get to where you know going forward, we'll have them a again.
We have with the financial picture on the dedicated side of the business being something that we're all well be happy with.
Okay.
Thank you and we'll take our next question from Nick Farewell of Arbor Group.
David Good morning, <unk>, just a quick update.
Update if you wouldn't mind profiling the improvement in expedited.
Just generally by regions and lanes and comment a little bit about.
The stability of that business in January and doesn't have anything to do do you think with especially relative to rail traffic that maybe you're gaining share versus rail again for some reason.
Yeah.
You know, there's no doubt that a little bit up though what intermodal.
I've done you know on their precision tracking and doing what they're doing there is definitely taken some freight.
Up of rail in the last year and a half and it's gone. Some OTI are so depending upon where the origin is that depends opponents that is made available. So even though I don't have anything concrete that said I know I took that off intermodal I know there are some that have done that especially on day LTL side of the world.
That you know what is happening that's been happening there. Another thing that is happening is that you know for a lot of the cuts carriers out. There you know that are competing with same day delivery quote Amazon at the Lady that but all the other retailers are following suit so they're all doing it on the right.
Tell side is that a lot of that is becoming as you as you are reading about it it's true that yes, six and seven day delivery from five day delivery and the other way that could happen is through.
It's through a lot of that being the expedited side. So we're same thing you heard me mentioned a little bit ago that in particular existing customer that we got that we've really grown within the last five or six months, it's because they've taken their network and they're going to seven day delivery to make sure that they're competing and so we're seeing.
I'll close the in some of that on the expedited you know what are the things that we that we've been talking about say for the last couple of years and one of the reasons why we started going on the dedicated side of the world as well as the purchase of land there almost be two years in July but you know what are the things that we all know about there.
The Dod inside the expedited love it it's our heritage as what I started the company where those are all pause is what the negative on the expedited and is that it can be volatile and we know that we've seen that ever since we've been public or ever since I've been in bed that is that that motto absolutely goes from.
He bought the 95, and Oh ours and whether that's in the first quarter, whether that's no on the ground. It I got to people in the higher cost at their truck can't run like a third chip manufacturing like that dedicate I mean that expedited needs to.
That hinders that now the posit that is that when things are going well price, good and and the whether it's good and that's on it that thing is that thing its pump and in the low eightys and so that's what the moderately at so we decided that started two years ago.
There's you know there's no tab that value at that expedited is tremendous no doubt 900 teams.
That run in that expedited division, it's something that the market absolutely needs.
But how do you how do you deal with the volatility in our question at this stuff it our answer to that questions. They continue to get deeper in the supply chain and go into more of the dedicated side of the business as well as managed services, they're in a and warehousing and that's what you're seeing us perform so you're saying.
And as I look at our and a lot of our dedicated last year, even with a year that we had nothing that any level of star plays with the dedicated side operated excluding excluding some that we didnt have the p. an l. down.
But the dedicated side you know we operated very strongly in a lot I would say about half of the fleet Oh dedicated operated very strongly there warehousing was absolutely the good the Tms was absolutely good.
And the brokerage performed the way that we wanted the brokerage to perform.
So we're going to continue to grow that expedited will find its place. So we're supposed to be maybe it's 1100 trucks right. Now 13 are worth saying a couple of hundred take out there on that on the highway services and let's say that it runs 1100 trucks and that it's just pump and it's just pump and but it's also.
It's going to have that whether we can get it down to our go internally as they get that to from 83 to 93 cents that 85 to 95 get an 83 93 Awards and then and then it. It's the one started your bed that thing you're growing that the other one that's got consistent earnings so that it's what we've been working on for the.
Last two years and I really believe that that we get passed the first couple of quarters. This year because up the first two quarters last year being up year over year, you know perform it better before the world started coming down the second half I think that second half this year, they're working.
To start seeing that come into fruition force.
All right or wrong answer and I don't know by answered your question, but I guarantee I answered a lot of people [laughter] are there any there's been comments about the diminishing in capacity have you seen that in the long haul expedited team business also or is that largely been elsewhere.
Oh, Yeah, you seen some of that but you know as you know Nick I do you get past.
Three or four carriers big carriers that theorist phase them Warner U.S. Express I mean, when you get past three or four major carriers. It becomes paper right at 5800 trucks now that they had this 11000 trucking companies that we know went out of did not renew operating authority in 2019 over 28 pain.
Some of those were those 50 truck operations that were running some teams and so we we have found some of that also is one the reasons why I guess, we start out the first three weeks of debt January fell a little bit better.
Hi, I'm just curious if you were to look conceptually at where are your mix is today and you commented how it'll shift between now in June .
But I'm really I'd be curious to know how do you see it shifting over the next two to three years in other words, just roughly expedited I'm using trucks as a surrogate end it may not be perfect maybe by revenues at slightly higher but if expedite is 30 your business and reefers going from 10 to five roughly.
The balance being Simplistically dedicated how do you see that shifting over the next three years just.
Expedited become even smaller.
Well it whale, yes, I mean, I think did it stays in that lets say right now start to 800 on on what we call the highway services.
But they are but I think that it gets into that 1100 trucks operation and our goal. It up you know run that thing 83, 93, Oh ours is our goal and just print cash when you can print the cast there in that model and grow around it and it will continue to be a smaller pieces.
That is our plan not that it's not important its credit because everyone. Here when you put up 83, none of our other divisions are pumping Daddy three so when it's running like that it can really do extremely well, but we want to grow. These are the ones that got the solid earnings up consistency.
Nick the revenues are poor about 40% for that irregular route.
Most of our business a total.
Across all not just trucking.
And we think that over a three year period that'll be down to about a third as we kind of grow around that with the dedicated and managed transportation and warehousing pieces of our business.
Okay, and if that is that reefer, something like then down to 5% in your model that you're talking about [noise].
Yeah, that's that's pretty close yeah, okay. So literally you're gonna be fixed roughly 60% dedicated which really in many respects changes. The model. Obviously, you know better than I do changes the model of the business. It moderates the downside, but you still captured the upside and improve rates with volume in the high.
Away business I mean, that's sort of conceptually the way I think you're heading yeah financial model standpoint, that's the strategy to reduce the financial volatility that we experienced a definitely still experienced greatly this year as we've talked a lot of work to do on a you know you and we really felt like folks if I remember you know Richard that we're really.
Felt like we haven't got into that that should not take or this showed some of it even but we really felt like a year 12 month 14 15 months ago. We felt like that we had reached a lot of that we really dad and up and then the recession, he yet and we realized that some of the dedicated trucks that we were operating in.
We're not performing as well as we have we came out of 18, the best year. The our history of our company and expedited was growing is doing extremely well and we brought on a lot of dedicate it and I wish there those 900 trucks that we brought on I think about $400 would be one that none of this room or on this phone would be.
Plays the way I, Don that started their off some are operating it allows it but they'd be operating in the high managed to low one hundreds and those are the ones that now we've identified and I really think or close to identify and I think is 150 to 200 trucks that we got a deal way up.
But once we get that solid is I think about first quarter last year. You know is still our third bass corridor. The history of our company if I remember correctly, Richard third that first quarter. Okay. Yeah, that's what I mean, sorry third best first quarter last year.
And tell the recession started hitting and once that stabilizes AD business can pack better I think the work that we've been doing for two years and the acquisition of land. There I think it starts showing itself that yes.
David just some very simplistically, what I think I hear you, saying is the repositioning of the company.
[laughter] and the focus on the balance sheet suggests that you reduced overtime. If it's a successful strategy you reduce volatility enhanced cash flow reduce leverage and ultimately end up in threed up maybe it's four or five years with really a much a slight no.
Actually a much different business model than you had here.
Yes, yes.
That's why I, 100% agree with that and I think instead of three or four I think it's there I think it's a couple.
Right.
Let's take work as crop cost for getting there [laughter].
I appreciate it. Thank you with the implications to valuation are pretty obvious when one looks at the way.
And old Dominion for example, which is not in your business I'm not understanding or a night get valued.
And then how different models of revenue models are rewarded in the marketplace that that's the concept I'm trying to understand better. Thank you for your answer.
Thanks there.
Thank you. Our next question comes from Barry Haimes with Sage asset management.
Oh, Thanks, guys just had a quick question Richard I think you mentioned that the fleet age at the entity here was about two years with the reduced Capex that you alluded to in 20 to 20.
Only what with the fleet age pencil out to at the at the end of the year <unk> and then 2020. Thank you.
Yes into 2020, I expect that to be closer to 2.2 to 2.3 years.
It's still very young.
Yeah, It sounds great. Thanks very much.
Thank you Barry Thank you and our next question comes from Jack Atkins Stephens, Inc.
Thanks, guys. Just one quick follow up question Richard the tax rate in 2019, a was around 20% on a consolidated basis adjusted could you kind of talking about some of the puts and takes 420 20 would you expect actuary to kind of bump back up to something more normalized like 20, 627% or should we.
Expect something lower than that.
Yeah, I think I think on an effective tax rate basis. The they annual ended up being about 29% for that included the reversal of the a federal income tax credits that we had taken so we pulled that out from the adjusted.
Earnings for Q3 and for the full year.
And looking forwards this year part part of what was reduced in the fourth quarter on a tax rate basis was when we remeasured, our our state effective rate.
It would reduce by about two percentage points a lot of that has do with a portion of where we run well revenues come from and we have had more of a revenues and income in the states that have lower income tax rate. So we as we've grown with with the land there side of it and they are contract side, we've been able to grow that you know outside.
At the West Coast, and northeast and other states, where there's higher tax rate. So I expect the tax rate this year to be anywhere between 25, and a half and and 27 I'm kinda percent. So I. Appreciate the question okay, great. Thanks very much.
Debt.
Thank you and we have no further questions in the queue at this time.
All right well. Thank you everyone for Scotland, and we'll talk to your next quarter.
Ladies and gentlemen. This concludes today's conference you may now disconnect.