Q1 2020 Earnings Call
Please standby.
Good morning, and welcome to the first quarter 2020 conference call for old Dominion freight line.
Today's call is being recorded and will be available for replay beginning today in three of my first 2020 by dialing Stepan 194, or five 708 Choosy route. The replay passcode is 150 297 side.
A replay of the webcast may also be access 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, maybe 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 statement.
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 that we ask in fairness to all that you limit yourselves to just a couple of questions at a time before returning to the key thank you for your cooperation.
At this time for opening remarks, I would like to turn the call over to the company's President and Chief Executive Officer Mr. Greg.
Please go ahead Sir.
Good morning, and welcome to our first quarter Conference call with me I would call today is that I'm satterfield our CFO.
After some brief remarks, we'll be glad to take your questions.
First course things like a distant memory at this point, but we were pleased with our financial results for the core.
Improved our operating ratio to a new first core company record.
Diluted earnings per share also increased.
These were notable achievements given how challenging the first quarter was as both revenue and tonnage were down.
We are cautiously optimistic at the beginning of 2020 as we believe the operating environment would turn positive.
Our volumes were trending in line with normal seasonality for the fourth quarter of 20 not team in January and February 2020 results were in line with our initial expectations.
Things changed in the Middle of March However, and we began to realize the profound impact because not gene pandemic would have all the country and the general business environment.
Well no one could have fully anticipated the effects of this pandemic situational awareness guiding our responsible developed from the crisis management planning exercise is that our team periodically performs.
One of the most critical things we focused on during training in this important sometime in communication with our employees customers and vendors.
As a result, we were well prepared to communicate early and often with these stakeholder groups as we had drastic rapidly changing environment.
Well most plan will be perfect in these type situation.
As possible coordinated quick and affected once again, praising the flexibility of our people and our business.
I believe our response is also demonstrated the true importance of what we have repeatedly characterized as the foundation of our success our culture.
We have long believed that our culture has differentiated us from our competition and the depressed becomes most evident during challenging times.
With that in mind, the safety and well being of R&D family of employees was and continues to be our first priority as we address the impact of the code it not team pandemic.
We have fallen guidelines issued by the U.S. centers for disease control and prevention and the World Health organization related to employee health and safety.
I'll also adhering to any national state and local mandates within the area as we service.
Among our many initial initiatives we have distributes ice coverings turn employees increased the plantings apart facility.
And it did not employee visitors established social dispensing practices.
Got it resources for our employees to clean and disinfect or trucks and workplace.
We also provided not exactly employees with a special bonus payment as a way of thanking them for their extraordinary effort in serving our customers through this pandemic.
The trucking industry is crucial to help ensure the availability of groceries medical supplies and other essential products around the country. We are proud off the response for OTI family of employees as we continued to deliver best in class service.
In terms of how we have responded to the rapid decrease in business levels.
So shady with to stay at home and similar orders around the country.
We have continued to focus on our value proposition of providing superior service at a fair price.
In fact, we produced a record quarterly claims ratio.
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0.16% in the first quarter.
Our service performance has supported our ongoing.
Price discipline, which is critical to our long term success.
Without our long term improvement in yields what do we would have not been able to support investments in capacity nor improve on our superior service standards over the years.
The importance of high quality and dependable service seems to have also.
Recently increase for many of our customers, which further supports our existing business model.
We are fortunate to have so many large national account customers that remain open for business.
Although these customers continue to ship good often knowledge and accelerated basis. Many of our customers are currently closed.
As a result, our volumes dropped off pretty significantly at the beginning of April but they have remained fairly study ever said.
This is allowed us to quickly adjust to our new daily shipment counts.
The unfortunate reality of the sudden and significant reduction in revenue, however has been a necessary adjustments to our workforce.
In this case and with the belief that business levels will be restored wants the economy reopens, we implemented that employee furloughed program.
The duration of this program will provide health benefits because these employees at no cost.
They will also retained their son Yardi with the company.
Other measures to reduce cost having played in parking certain equipment to minimize maintenance expense, while also improving the efficiency of our sleep.
We discussed on our fourth quarter call, but our fleet was already a little heavy as we enter 2020, which was flat our capital expenditures for equipment was lower than normal this year.
We will stealing from monthly depreciation costs all of our units, but this strategy allows us to maintain adequate.
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We are currently experiencing an environmental unlock anything we have ever say.
We continue to be confident that our business model works up and down the economic cycle.
The majority of our cost of bearable, and we're doing an excellent job managing our cost in relation to the drop in revenue.
Rapid decrease in business and ongoing uncertainty about the macroeconomic environment.
Difficulty drive decision making process.
We have quickly adjusted while also Tom simultaneously preferred.
How we will manage increase business levels when volumes return.
We're also encouraged by recent news that certain states are in the process of allowing various businesses to reopen.
I believe our country return as strong as ever and fully realized that responding to rapid growth can be difficult.
You know this experience as we have seen many periods when 20 plus percent revenue growth.
I'm confident that our past experience existing capacity and dedication of the only 18 puts us in a better positioned than any other carrier to respond to increase customer needs whatever that talk jobs.
I'm incredibly proud of our employees for both outperformance in the first quarter and their response to this pandemic.
Our employees are all the frontline talking in every day. So they can continue helping the well keep problems.
Thank you for joining us this morning, and now Adam will discuss at first quarter financial results in greater detail.
Thank you, Greg and good morning older minions revenue for the first quarter 2020, $987 million, which was <unk>, 0.3% decrease from the prior year.
First quarter of 2020 included one extra workday. So the decrease per day was 1.9%.
Our operating ratio improved 60 basis points into earnings per diluted share increased to $1.11.
The results include $10.1 million of expense related to the special bonus paid to employees in March.
Our revenue results for the first quarter reflect the 3.9% reduction in LTL phones that was partially offset by the 2.6% increase in LTL revenue revenue per hundred weight.
Excluding fuel surcharges LTL revenue per hundredweight increased 3.3%.
Well this growth rate was lower than recent periods, our yields were negatively affected by the 1.3% increase in weight per shipment.
Our yield numbers for the most of more were flattish as compared to.
2019, due primarily to a 6.3% increase in weight per shipment.
It is important to understand that revenue per hundred weight is the yield measurement that is not always equivalent to actual pricing.
Multiple factors can have a significant impact on revenue per hundred weight, most notably being average length of haul and weight per shipment.
As an example, our average weight per shipment increased 113 pounds from February to March this year and this contributed to a 56 in sequential decrease in revenue per hundred weight, excluding fuel surcharges.
Last time or average weight per shipment changed quickly was the 60 pounds decrease from June July of 2018, which led to a 54 cents sequential increase in revenue per hundred weight, excluding fuel surcharges.
Changes in revenue per hundred weight or also not linear with respect to changes in mix.
We continue to negotiate rate increases as we work through bids in accordance with our long for pricing philosophy. We also believe the pricing environment remains relatively rational considering the significant drop in demand due to the kogut paying them.
Our first quarter operating ratio improved 60 basis points. The 81.4 due primarily to the quality of our revenue increased operating efficiencies. These efficiencies allowed us to effectively improve our direct operating cost as a percent of revenue in the first quarter or average headcount also decreased 5.2.
Yes, as compared to the 5.1% decrease in average shipments per day.
In regards to our April topline trends.
Any per day is down close to 20%.
Our average weight per shipment has increased close to 10% while shipments are trending slightly worse than revenue.
Decrease in revenue also reflects reduced fuel surcharges as the average price of diesel fuel is 20% lower than it was in April 2019.
Our actual results have been slightly better than we initially expected going to stay at home and similar orders were implemented throughout the country. We take no solace in that fact, however, and eagerly await the reopening the markets around the country.
Usual, we will provide actual revenue related details for April in our 10-Q.
Due to the unprecedented decrease in revenue we experienced in April we implemented the furloughed program and it tends to bounce the number of employees actively working with current break trends.
As a result, our current number of active employees has decreased approximately 15% as compared to April 2019.
The loss of revenue will have a de leveraging effect on our fixed cost.
Proximately, two thirds or more of our calls for variable or semi variable.
We'll continue to make our best efforts to match these cost with revenue while also controlling discretionary spending.
We will not over cut expenses, though we believe we are the best positioned LTL carrier to capitalize on an improving economy.
Therefore, we want to ensure that we have the people equipment indoor capacity in place to support our customers when the economy and business levels returned to normal.
We're fortunate to have the balance sheet strength can provide us with this flexibility old dominion's cash at the end of the first quarter totaled 357 million.
Outstanding debt totaled only only 45 million.
We have approximately $200 million the borrowing capacity on a revolving line of credit and we also communicated our traditional lenders to discuss additional sources of liquidity if needed.
In addition, we continued to generate strong cash flow from our business our cash flow from operations total 204 million for the first quarter. What capital expenditures were 52.2 million. We returned 196.6 million of capital to our shareholders during the first quarter, including 178.3 million their share.
Purchases and 18.3 million cash dividends.
Our effective tax rate for the first quarter of 2020 was 26.3% as compared to 26.1% in the first quarter 2019.
Currently expect our effective tax rate to be 26.3% for 2020.
This concludes our prepared remarks. This morning, operator, we'll be happy to open the floor for questions at this time.
Thank you if he would like to ask a question. Please note by pressing star followed by the one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off the longer signal to reach our equipment. Once again, not a star one to ask a question.
And we'll go first to Jack Atkins Stephens.
Greg Adam Good morning, and thanks for taking my questions.
Morning.
So I guess to start off and you know Adam. Thank you very watch for that that color. There in terms of what you're seeing so far it in April.
And it's encouraging to hear that you know that the competitive environment remains relatively yeah rational right now.
Could you maybe talk for a moment about your are you seeing or.
Are you seeing issues with what's your loss in certain markets anything like that going on or do you feel like market share in general it's fairly stable and our customers at all trying to kind of push back on on the on rates and maybe trying to take advantage of sort of what's happening out there just given this drop in tonnage over the last call three four weeks.
Jack This is Adam I think customers are certain customers are always pushing back on price regardless of the environment.
With that said right now I think about every customer is getting some form of a rate reduction just by the sense that fuel surcharges are down so much and.
The significance.
The surcharge that it can be on on each customer's freight deals so.
Yeah that is happening due to the 20% reduction in the cost of diesel fuel right now.
And the impact yeah for each customer's freight bill in that regard, but you know otherwise for US just like we said.
Yeah, the pricing philosophy, and the discipline that we've had over the years.
And critically important to supporting the investments that we've made in our service centers and their service and so.
We have no intention of wavering on that and in your regarding and at this point, we haven't seen a really any competitive behavior that it's really any different than what we saw.
Basically in the last half of last year, So think things have been.
Pretty disciplined in this regard thus far in.
In the past recession.
So a lot of companies that financed a rate reductions through a cutting employee wages and doing some other things like that and we haven't necessarily seen.
Those types of actions.
At this point either in fact, we just saw one other LTL company or at least I saw it yesterday that that will also be announcing I think.
Similar company bonus program like we had said that would suggest that the other companies hopefully will be just as disciplined with respect to their yield management process that we are.
Okay. That's a that's that's great to hear and then I guess for my follow up question you guys are coming into this crisis with such a strong balance sheet lots of liquidity.
How are you guys thinking about the opportunity for industry consolidation as we emerged from this over the next couple of years and even though you're reducing capex. This morning, the sort of what's going on make you consider perhaps leaning into to this to some degree and try to take advantage of what's probably going to be a you know a a more.
Consolidated LTL market on the other side of this.
Well, it's that Jack this is Greg that's possible I suppose but.
I think to things that we've done over the last several years and trying to expand our capacity.
Trying to build out our terminal network.
Give us capacity and all those different markets that we service.
Basically the big Metro markets that are that are so crucial.
To our future.
I think that's been correct strategy as we go through this and where it comes out on the other side, we'll just have to wait and see but again I think we've done the right things to prepare for whatever that might be if we lose a competitor or not.
Again, I think we've done the right things I think weve.
Okay.
Capital expenditure investments will help us all lifestyle whatever it is.
Oh I feel good about it.
No I don't really won't speculate on those kind of thing.
Okay. That's understandable that thanks again for the time.
Well go next to Chris Wetherbee with Citi.
Hey, good morning, guys appreciate the time.
Just a point of clarification I think it was helpful to get sort of the shipment color relative to where April revenue per day was trending a little bit a little bit weaker than revenues is that fair to say that sort of tonnage at the same relationship I would imagine the answer is yes, but it shouldn't make sure I understood maybe some puts and takes it could be going on just given the mix shifts that we're seeing.
Yeah, you know.
The mix and the businesses that we're seeing that are still open your weight per shipment has been much heavier than what it normally isn't I think some of that theres, probably multiple factors driving it but.
Some of that is just respect to which customers remain open and the fact that there's probably more demand.
For those customers products.
But nevertheless.
The comments, which are Raul did rounded.
The give a sense a direction for you guys, but you know were down on the revenue per day basis close to 20% the shipments per day are trending worse than that but our weight per shipment is up almost 10%. So.
Tonnage, then obviously is going to be trending better, but that big increase and the wafer shipments also having the the negative effect on on reported yields.
Like what we had already seen in March so I'm, just changing dynamics and whenever things start to reopen.
Obviously, we at some point things will stabilize and we'll get back to more of your normal book of business and so forth, but right now we are seeing much heavier weight per shipment across the board with afraid that we're handling.
Okay. Okay.
That's helpful.
I guess that's for leads into the second question, which would just be about discussions you've had with the customers I know, it's really difficult to sort of make predictions about what's happening from a volume perspective, but do you feel like sort of non essential pieces of the business or customers are shut down and so we sort of have seen this level of activity here in late April.
It's kind of what it feels like the bottom of year or close to the bottom will be and then maybe we could see some potential.
Opening as we move forward through the rest of the quarter or is it too difficult to tell or is there. Another further like down there I know it's difficult, but any color you can get would be great.
Yes, sure certainly difficult to tail at this point and we're trying to reach out to as many customers as we can yeah, we'd like to think that the worst is behind us.
Kind of gone through this initial.
Period were trying to figure out which customers are open which of our customers customers are also opened so that we're not picking up right that can't be delivered and all of those present operational challenges and communication challenges, but many of our customers, they're not sure what to expect either as they begin to reopen so.
Yeah, I think there's uncertainty or across the board, but if we can continue to see states start reopening process and then I think we've got to get the the mental process for for every American to figure out how they will react once businesses are open.
And when we get back to normal and what the new normal means.
Yeah. It may take some time for us to get there, but certainly we are ready and in place.
We've got all forms of capacity that are ready to support our customers when they're shipping needs a increase in somewhat get back to normal.
Okay. That's helpful. I appreciate the time thanks guys.
Well go next to Allison Landry with credit Suisse.
Good morning. Thank you just given that this looks to be the first we'll see a sequential decline in revenues at least going back 20 years and pretty meaningful on it that would you still expect to see sequential alarms movement, maybe you could if he can speak to that.
Yes, I think that.
You know typically the second quarter is where we get the o. or improvement, but you're typically seeing revenue accelerate typically our second quarter revenue is about 10% higher than the first quarter in.
Yeah, I think what happens from a revenue basis, obviously will drive what happens with the operating ratio if a if things stay.
Lower than we like we mentioned, we have adjusted or many of our variable cost at this point already did this lower environment, but.
I think that it does it remains to be seeing what revenue levels in the second quarter.
Be higher than the first our consistent or lower that's just deal the ongoing uncertainty, but what we can say is that we have made cost adjustments I feel good about how our direct operating costs are trending already.
Despite how quickly revenue did drop off.
And we're looking to keep those.
Best we can consistent or maybe even try to generate improvements versus the first quarter and then it just becomes a function of the overhead cost, which you overhead cost, we say typically run a 20% to 25% of our revenue.
Closer to the 20% they've averaged probably 22% over the last few years, but closer to that lower into the spectrum when revenue trends are solid.
And then it's been hired that are hiring and.
Last was back in the recessionary environment of 2009 so.
That will be the flex, but within those overhead costs there are.
Some variable cost there as well that will continue to try to manage but.
Yeah, not all of our direct operating cost are completely variable as well and it takes tremendous cost to keep the network running we've got 238 service centers today, we've got to continue to run or line haul schedules and keep our service metrics high we're really pleased to see that are on time service remains above.
99% and we did produce to a new claims ratio in the first quarter. So all of that takes tremendous effort, especially when there's significant freight reduction and challenges in terms of how one service centers operating.
Today versus out was a month and a half ago. So its take taken a coordinated effort between or sales and operations teams really proud of slow the results that we produced and in the adjustments on the cost side, we've been able to see so far in April.
Okay. That's that's really helpful. And then just in terms of Capex and know that that's been scaled back.
But is there a way to think about yeah, maybe an absolute floor just to the extent that condition or worse for longer.
How should we think about maybe maybe it's just that you started maintenance capex level, but you could provide some color not that would be helpful. Thank you.
Oh, yeah, our normal maintenance Capex, we kind of say on any annual year would be maybe $200 million to $250 million, but we're already into.
This year's Capex plan, which only included $20 million of related to a quick.
We're already into to that part of the program those will not be canceled and some that equipment has already been delivered as well, but on the real estate side.
Yeah were the investments that we're making today really aren't supporting the growth that we would expect to see next year. There. There in many cases supporting growth that we may see over the next five years.
It's important for us to in some cases keep those projects going so that the capacity is available and particularly places where we had been tighter.
The west coast in the northeast.
Some parts of the Midwest or some of the metro areas, it's really tough to get permits and do things and said we want to keep the process going.
To make sure when volumes come back, particularly with the chance they could come back and very rapid way.
That we've gotten not only the capacity to deal with freight flows.
Later, this year, but but for the next several years, but.
That said our normal annual planning process, we look at at each of our service centers, what we think anticipated volumes maybe over the next few years and we focus our efforts on.
Where places are tight.
In a slow period and much like we did in the late in the nine we'll also look for opportunities while but the gross number today reflected some projects that we felt good about being able to differ.
If an opportunity becomes available in an area that we know we need capacity at some point in the future than we would certainly look at existing service centers and how they might be able to work into our long term plan.
Okay. Thank you so much I was great contact.
Well go next to Scott Grdf with Wolfe research.
Hey, Thanks morning, guys. So.
Maybe you can offer some help so we've never seen weight per shipment up so much I don't think wherever ever seen Rev per hundredweight down so much as it's going to be down.
Help us think about what that actually means for the PNM was as good or bad for earnings.
Good or bad for does that help decrementals hurt Decrementals and then and then maybe just like any good sort of rule of thumb of how to translate this you know how does higher weight per shipment impact.
Core pricing you know any good rules on there.
Yeah, I don't know that there is a rule of thumb and some of that detail I gave.
For your comments, it's just simply not linear.
In terms of when you look at it changes and the weight per shipment per se and how that would might reconcile to.
Revenue per hundred weight, but.
Frankly is.
We're in a period, where we've not seen this type of a change in weight per shipment before normally would be in an environment, where the economy was was really strong you know the weight per shipment. We saw an increase kind of in the middle and end of March.
I think initially a lot of that was it seem like the truckload world was tightening in some places there was concern about our anecdotal evidence. We had was concerned for some carriers to drive into a particular market not be able to get payload out.
So you had customers that were just trying to use capacity in any way they could and so maybe some heavier loads came away.
Some of the stay at home orders.
Were put in place then I think that we saw some are small mom and pop accounts that that might be closed and so yes, probably more of the business that we're handling being larger national accounts. They typically have a higher weight per shipment as well and then like I mentioned earlier just this year fact that if they are essential goods. There was probably an increase demand for.
Those and so.
So there's just more widgets on every shipment that we were picking up in that regard, but you know that will settle down and in some regard in terms of how it affects the overall profitability again. It just every customer must stand on its own that's the basis of whatever pricing philosophy is in.
You know if each customer we know the revenue stream.
The base rates and how we stress test the fuel surcharge variable component.
The revenue and then we know the cost inputs been.
That's what we try to look at in terms of managing account by account profitability.
With that said I mentioned that we.
We've done a good job I think in managing our direct operating cost and keeping those somewhat consistent as a percent of revenue. Despite the significant disruption that we face so.
You know all of those cost inputs should be covered it just becomes a matt matter of on the big picture level what revenue.
Total might look like in elements of the overhead.
Like our depreciation in particular.
What type of increases we might see there.
So overall, it's it's not a bad thing to see the increase weight per shipment usually on just the per shipment basis, it's a better thing you'd get a little bit more revenue per ship it when the cost to.
The handle would be the saying, but right now it's just obviously very fluid with what we're actually picking up and continuing to work through the system in the network as we speak.
Yeah, I mean, I guess I'm still not sure the answer right.
Here, we per shipment typically is good yeltsin, maybe there's more national account business, which I, sometimes think is bad for a war. So you know again any.
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Any any additional thoughts or or color.
How does.
Yeah, we should think about this translating to the or.
Would be helpful.
And then I'll just add to that you know how should we think about fuel historically.
Lower fuel can be can be a headwind for LTL.
Earnings is that still the case or do not need to think about that anymore.
I think that for the most part we tried to adjust our fuel tables to be able the.
I have the same level or similar level of profitability by account is the fuel prices are higher or lower.
Obviously, we're getting lower fuel surcharges right now, but the cost are down as well.
And in regards to just the operating ratio. The only thing again say is that you know what what we've already said, we're trying to from a big picture standpoint.
I wouldn't say, we don't manage our national accounts any different from our smaller again each should stand on their own from an operating ratio standpoint, so haven't more one business.
Not necessarily a bad thing if we've got that balanced out right.
From a pricing standpoint, but right now if we can holder on with with managing our direct operating cost was which typically around 58.
60% of revenue if we can keep those flattish is then just trying to minimize.
Any increase in the overhead type of cost.
Any inflation that we might see in those cost items as a percent of revenue given the overall.
Pitcher revenue weakness that we're seeing in April.
Okay. Thank you guys.
Well go next to Todd Fowler with Keybanc capital markets.
Great Thanks, and good morning.
Got them I wanted to ask about the headcount first I wanted to make sure. The 15% reduction that you talked about use that from first quarter levels or is that year over year and then what's the right way to think about a portion of the the expense that you are still keeping is the health and wealth is that just the health care costs still about.
Third.
The total expense or is it something different than that.
The that a year over the 15% as a year over year. So that's compared to April of last year.
Really didnt have any kind of material action in the first quarter. The 5% decrease really was just a function of kind of the ending headcount that we finished in December of last year head count at drifted down a little bit, but we had talked on the last quarter's call about the fact that.
We felt like we could handle a growth and we were just letting some natural attrition continue to take place. So we did drifted down a little bit but.
But the April number as what reflects the furloughs that that were put in place. So that's down not quite as much obviously as the number of shipments, but certainly we want to make sure. We've got people capacity in place in the event that things turned back on and we continue to see volumes come in the network. So.
I feel good about kind of where we are in that regard and Oh continued to move forward and just evaluate.
On a day by day, a week by week basis kind of where we are with volumes and revenue and how we're managing our people capacity.
In regards to the yes. Thank you.
Yeah. The benefits Yeah, we had kind of said I think coming this year that about 34%. So about a third as you said.
As a percent of salaries and wages.
The target, we did a little bit better than that in the first quarter that number in the first quarter was about 32.5% I'm, so somewhere around the third 32% to 34%, it's probably likely maybe a little bit higher since we are covering the health care cost of furloughed employees to that Mike.
Pick up.
Or be at the higher into that scale and kind of what our target was coming into this year.
Okay that helps and then just for my follow up you know as you look out if we don't see kind of a significant snapped back you know in volumes are tonnage going forward.
There are other levers that you can pull you know within the network to kind of adjust some of the costs and then kind of along the same line. She would your expectation be that you might have to pay some additional retention bonuses similar to what you did in one Q4.
That your employees are doing thanks.
Well, we are already making cost adjustments you know in areas like a general supplies and expenses and some of our miscellaneous expense items as well.
So we're we're making every effort to eliminate cost, where we can and where it makes it and you.
In terms of of just overall kind of revenue levels and I think Greg mentioned this in his prepared remarks is the good news is you know things that have kind of settled in and our revenue levels have been very consistent that certainly helps us from a planning standpoint.
You know and makes it.
It's not easy, but it makes it a little bit easier.
Versus if the revenue on each day of the week was very inconsistent in choppy.
We've been pleased to sort of see that stability with the revenue and then we'll continue to see where we go from here, but against our earlier comments up I feel like that are getting to the point where.
We're well into this pandemic and now that it seems like some of its coming under control in some markets are beginning to talk about reopening a you'd like to think that the worst is behind us and that we've hit a floor, but but that's something that we look at each and every day and we'll continue to stay on top of and we're going to.
Manage our costs to whatever the revenue level trends are.
And can you share any thoughts on additional bonuses and if you don't want to I understand.
We haven't talked about that at this point, Tom So, we'll see where that goes but we have not discuss that.
See where there's areas.
Keep in mind to allow for expenses are down just because of the way we've changed and things that we do on a day to day week to week basis like travel entertainment.
Some of our marketing expenses are down so we have come to an awful lot of.
Spence is that we normally incur you know as we're in business as usual, but there's a lot of things that are turned off that certainly will help our bottom line when it's all said.
Your son mine, both Craig Okay. Thanks, Thanks for the time guys.
Thanks.
And then we'll go next to Ari Rosa with Bank of America.
Great Good morning, guys.
So for my first question I, just wanted to get a little more clarity there and I know Scott was kind of hitting on this but just maybe if you could talk a little more about the mix of business, that's driving up the weight per shipment.
Is that more tilted towards kind of retail and essential goods I presume. It is and then you know is there an ability or even a desire on your guys part to increase exposure to those end markets. If you put on a more sustainable basis.
Yeah its.
Yeah, I would just say the long term trend has certainly been that we've seen more growth in retail related business.
Not any kind of necessary change or any difference in that regard for what we saw the the first quarter.
Most of those are trending somewhat in line and what we've seen in April as you can imagine I mean, we've got a exposure to agricultural and food and food distributors and things like that that had been good in any type of manufacturing that would go into those types of things are.
Other medical related and chemical related type of products as well so.
Thats kind of been the areas that have performed in have continued to give us business. If you will.
In April while some other things that.
So you can just sort of think about the basics into places that are continuing to be opened for business in terms of what products might be move and are not so but not any kind of wholesale change, but long term as we've said multiple times, we think there will continue to be.
More of a change with respect to retail supply chains and move towards having some type of E. Commerce type of presence and how that are the ripple effects of that through.
The nation supply chain and we'll be in place where.
Much of the focus on the retailers that are making those types of changes.
Then on on carriers that offer higher service levels and so that's been a a tailwind for our business in recent years.
The fact that our service level so.
Any of our customers voice lines in charge backs and things like that that many retailers are putting in place.
Great. That's that's great color and then just.
For my follow up.
Maybe you could talk about how you think this compares to kind of the 2008 2009 period.
And then.
He said that you're seeing kind of rationality still in pricing among the LTL carriers, but maybe you could talk about the extent, which you you think.
There's kind of elasticity of on pricing offer LTL as an industry if pricing is collapsing on the truckload side.
It seems like typically when you see higher weight per shipment that some truckload movements flowing into the LTL cybill trite pricing down on the truckload side.
You know how how elastic is the pricing for LTL carriers as a whole.
Or you.
In terms of how we entered the recession and you know late in the nine that was we sorted eased into it the.
Fourth quarter of a late was down about five or 6% and then what kind of went down to somewhere between 15%, 15% to 20% drop in revenue in the first quarter about nine and then you know what kind of got to its worse than the second quarter.
And now obviously, we just space the sudden drop off.
In April and and really at the end of March we didnt necessarily see a drop off in freight levels at the end of March it was lower than what we expected, but really it was we didn't get the ended the quarter build up that we typically see that they've been a little bit soft, but I think that many customers still had kinda orders in the chain, if you will and and we.
Continued to make some of those delivery so.
We held somewhat steady if you will fund the middle of March toward the end and just missed.
The normal kind of into the quarter build up but.
But now and kind of as we anticipated.
We saw the rapid drop off in April and it's.
Obviously much harder to respond to.
To that type of change and to be able to keep the network of 238 service centers are remaining fluid and or service metrics high. So I've been really impressed with the operations team and how they've made these adjustments.
I didn't know cost minimize an empty miles or dock productivity is up a PND productivity is looking good as well and and when you think about that and they are miles between stops those types of things become more challenging when you've got some customers that are closed on it just makes that job function.
That much more difficult and lack of efficiency, but it all goes back to the fact that you know over the years and experienced and her team has we've got a lot of experience and we've got a lot of technology in place to kind of help us plan, but it's not artificial intelligence its human ingenuity, that's been able to keep our system.
Running and.
Very efficient manner, we're really pleased with how quickly the team has adapted.
So these abrupt changes of just revenue falling off a cliff like that.
And could you could you guys touched maybe on the ability of our LTL the LTL industry as a whole to protect pricing I if its collapsing on the truckload side.
I think that.
As we've seen in recent years.
Even going back to when we were slower in 2016, we believe that LTL would continue to be disciplined.
Just this year in fact that it so consolidated with 80% of the revenue being in the other top 10 carriers and then when you look at it many of the carriers margins.
There's not really in position to really go out and try to trade price for volume in fact, it's probably better to go out and try to implement more of an increase to try to shore up.
There's a profit levels. So we felt like the LTL pricing would stay more consistent and it's held fairly steady.
Yeah, we faced some spotty issues last year and dealt with those and we'll always continue to see spotty issues and that happens even in good times. So.
We believe that pricing.
Is critically important it's obviously been very supportive to us over the years to make sure that we're getting price increases the offset or cost inflation and to support the investments that frankly customers are demanding of us to continue to support a technology investments and and support capacity infrastructures.
Well.
So we believe that we'll continue to see relative disciplined out of the group and ER and Theres still a benefit of moving freight by LTL, where we were like a ride sharing before ride sharing was cool and you sharing every customers sharing the cost right.
And ER and it's cheaper to move shipments that are less than 10000 pounds.
By writing on the truck with some other customer versus the truckload world and even when they try to get down to do a multi stopped their network.
Not really conducive to doing that their equipment is not.
The drivers are paid to make multiple stops like ours are so I think the of the industry remains strong and we will continue to be disciplined with respect to price relatively speaking.
That's great. Thanks for the color.
Well go next to Ravi Shanker with Morgan Stanley.
Thanks, Good morning, right now that.
You guys reference this a little bit in your commentary, but are you able to quantify what percentage of your customer base as SMB worse as large customers, then maybe essentially versus not essential.
Well we've got.
You know about 60% of our customers are contract type customers and those are just going to be larger.
In nature.
And you know in terms of the essential versus non essential mean, certain degree, but everyone's essential and but certainly we've got some smaller mom and pop accounts that are close.
For business right now, but you.
Overall, we're seeing a for down about 20%.
I'd say probably 80%.
It is essential if you will because that's for the most part about all that's moving right now.
Got you just got for years and 80% off your customers wouldn't be essential obviously not from your perspective, but from a government perspective.
So 80% of customers actually moving stuff right now.
That's that's roughly the case you know we cannot accurately measure everything we hall, whether it's essential or not.
We've we've got a lot different measures that we've gotten place soften that we're actively working on trying to determine just exactly what groups. They all fall into but.
We don't we don't know exactly if everything that we halls essential or not.
Got it just lastly, again, referring back to some of the commentary about no share shifts in comparison to lead and such.
Oh this is a big focus for Twentytwenty coming into the are pretty cool abated was the supply side catalyst somebody else I know, but maybe some spillover effect on the LTL side are you hearing any accelerated bankruptcies with mom and pop carriers or just.
Given some of those supply side restrictions on the.
Whether it's driving clearing houses so the insurance costs, you, obviously have an impact into deals as well.
It's made worse by the way any moment.
Well, we know of a truck lot of truckload carriers that bankrupted or or just closed whatever.
Not exactly sure how many that is I've read some article this week.
A couple of thousand that closed, but as you know.
Most on the truckload side, there's thousands and thousands that are like less than 10 drivers.
We know some of those closed and go away but.
I haven't seen that on the LTL side.
Okay. Thank you.
And we'll go next to David Ross with Stifel.
Yes, good morning, guys.
Hi, Greg.
I guess when you guys mentioned you didn't see a drop off in March and he got into April and things just fell off a cliff.
Adam you talked about not being a normal downturn, where you see it down 5%. They may be it gets a little bit worse over the weeks and months, but when you see it go from flat or down a few percent to down 20% in the span of 24 hours or a couple of days.
Hey, how do you react to that I mean, Greg what do you.
Seeing in the network with the volumes and then what do you do in terms of shifting things around and such a short period of time.
Well good good question day, we we could see it to some degree than it was common because as Adam mentioned before we did not get the normal handle them off into the quarter like we would typically get.
It was all.
I'm not sure maybe.
<unk>, 20% versus no a normal into them off in linked quarters that we saw in common we want completely in the dark and obviously as you cant peering about all these shelter in place orders that were issued.
I think at that time it covered about a 37 38 states like that certainly all a major markets in the country had gone into that so.
We had some information then and trust me, we were prepared to deal with it.
Well ahead of time, so obviously, we couldn't make all the adjustments that we wanted to with the snap a finger, but we were well prepared to do it at the first of them off and law. The adjustments that we may were at first of them off we've made some sense.
And we'll continue to do so if need be but.
Oh, Yeah, we've got a lot and information out there that we look at manager in.
As of the customers closing and all that kind of thing there was a lot information flow in and out that helped us make decisions.
What are the one or two.
I guess one of the one or two things you you look at first when you wake up in the morning, Greg. It here what do you focus on in terms of managing through this and the volume variability.
We obviously have all the different shipment measures revenue levels.
Lets tonnage.
All those things, we look at it Oh company level and.
Region, Anna region level as well, but.
Well as.
As you are all those things see where we are obviously, you've got to try to somehow compare them.
Workforce to that business levels.
We we've done it before so it's not a.
It's not focused but it's not anything new we man, we manage through it and I weighed on that.
And and similar downturn smaller downturns through the years.
Yeah.
It's a little different but.
<unk>.
You know obviously got to do is.
Not phone I can tell you that.
Yeah, well unlike the other ride sharing companies you guys at least make money through the ups and downs. So congratulations.
But I think again is that Adam I mentioned earlier, it's a tribute to the team.
I would tell you we worked extremely close.
Over the last month, or so, particularly and.
Everybody's onboard with what we're doing we've had.
Numerous numerous conference calls.
Numerous meetings within the walls and the building.
A lot going on.
Well go next to Amit Mehrotra with Deutsche Bank.
Thanks, Operator high everybody. Thanks for taking my question I got I.
I got disconnected made calls so just let me know up my questions already been asked and I'll just go back to the transcript, but Adam I was hoping that you could kind of provide the typical sequential shipment trends from April to May may to June I know this year, it's completely crazy, but it would just be held helpful to understand.
Kind of the normal sequential seasonality in the shipments as you see it historically.
Sure the the April on shipments per day basis.
April shipments are typically 0.9% higher than than March and May is 3.2% higher than in April and June is 1.8% higher than may.
And then that down 20% year over year, sorry that wasn't shipments but.
What did [laughter] what is that normal seasonality sequentially in April that you that you've seen so far versus that that number.
Yep.
Oh, Yeah, obviously, if things are are down about a.
20% hadn't really.
Calculated necessarily for how it looks into sequential but that would put is down about somewhere in the neighborhood of 15% or so.
Versus.
Shipment levels for March.
Okay. That's helpful and then.
The other little nuance point I went out on the headcount. The furlough program is there any impact to the comping wages per per per employee I'm not sure that program impacts the population mix.
They may be in fleets wages for employees or something we should be thinking about from the second quarter.
I don't the wage side, we did talk about the fact that they will we are covering the cost of the benefits. Those so the fringe benefit will likely be a little bit higher or at the higher end of our normal range.
Well as a percent of salaries and wages.
Okay, and then obviously you guys have a great reputation of running or an incredibly efficient network.
And and that's you know, but that's a great track record and one thing I Wonder sand is as I measure kind of the line haul efficiency.
You know.
Is there anyway, you can help us think about how the trucks are on any given period are typical period I'm just trying to understand like the change the potential change in load factors as you move from one Q2, Q given kind of I assume those numbers are pretty high and importantly.
Reflects the efficiency of the network, but any help around kind of load factors and I would think about that.
Obviously load factor or something that we manage and watch on a daily basis. Unfortunately.
So far month to date or load factors have actually improves you got to keep in mind that we have multiple schedules and all of our our lines and in a lot of cases, you just end up.
Decent those schedules and.
Cases, where we're we're down but oh, we do measure that manage that very closely and again, Unfortunately month to date or load factors have shown some improvement.
And is that it. Thanks, Greg is that the bats is that a is that an effective proxy for margins or are there just so many other moving parts that load factor one piece of it but I'm just trying to change that affected proxy for like the overall margin trends.
I think you have to look at all different aspects of while our miles empty miles and those kinds of things but.
Load factors the biggest thing and we can manage bye.
We.
Certainly look you factor in that kind of thing as well, but.
So far it looks it looks okay.
Okay and then the last question I have very quickly is Adam there's a lot of questions around weight per shipment and you know how should we think about it in the context of margins and fixed cost absorption and.
I just want to isolate for weight per shipment is really the question. So you know obviously you guys.
Manage expenses on the shipment basis and that obviously makes sense.
But if we were to keep everything equal specifically pricing equal do changes in weight per shipment. You know, obviously will translate to revenue per shipment higher weight per shipment will translate to revenue per shipment higher all else equal, but does that higher revenue come with disproportionate margin.
It's because you're managing expenses on shipments and so I'm just trying to really conceptually isolate we appreciate how to think about the drop through from the revenue associated with that.
Yeah, I talked around that earlier in the call. So I'll point you back to the transcript greater we can follow up later.
Okay, Alright, very good thanks for taking my questions.
Well go next to Ben Hartford with Baird.
Hi, guys. Thanks.
Adam just real quick you mentioned, two thirds costs being variable or semi variable.
What would that figure of roughly looked like say five and 10 years ago has that number.
Proportion risen over time and if so why is it density is that.
Internal initiatives to Variabilize costs can you provide a little bit of perspective just overtime.
Just trying to.
Well you know overtime, our the operating ratio level that we've improved most of the improvement has come.
In those direct operating costs with most of which are variable so we've gotten improvement.
Over the years and our overhead cost ive stayed relatively consistent.
<unk> percent of revenue, but yeah, we've always in our history tried to the work on operating efficiencies and we have a continuous improvement process that focuses on quality and we've always a made efforts through technology improvements and just general process improvement to try to optimize a mainly labor.
Cost as a percent of revenue and so that's just that's been a focus that we'll continue to be a focusing a and we feel like you know that's an area where you've got the ongoing opportunity for operating ratio improvement, but you know it takes the.
Ingredients for long term operating ratio improvement or density, which obviously, we don't have right now and then a yield improvement process that tries to cover our cost inflation and so over time, we've we've been able to leverage the the additional density through the network.
That to drives operating efficiencies and or improvement and then just having that yield contribution. There you know both of those require the macro economic support the but the but that it's it's definitely a improves our direct operating cost have been the biggest area of improvement over the longer.
That's fair to say the that.
As density is built over the past decade into that proportion has risen though.
A variable cost.
Yeah.
You know I I don't know that its risen it's.
Certainly an area, where we've been able to to get improvement, though in those those cost as a percent of revenue.
The customer set the threepl.
Customers that you do business with has that proportion change meaningfully over the course of the past.
Month, or two have you seen three deals more active as a percent of your total business or less.
It's probably a little early to tail, we haven't even completed one off of this.
Probably a little too soon to tail if.
Had a significant change your law.
Sure Okay understood. Thanks for the time, yes.
And we'll go next to Scott Group with Wolfe Research.
Okay. Thanks to the a quick follow up so.
Greg.
Comment earlier about something the effective if we lose a competitor and.
I guess I'm I'm curious just if you think that youre, gaining any share from from that competitor right now or any sort of outsize share given potential concerns there and then maybe if you just share any sort of thoughts are on contingency plans you guys haven't place or anything like that.
No.
Sure I want to say any more than I said prior in relation to that but certainly we can't tell if we're gaining any share from anybody at this point.
Again, we've been through sub three weeks of this a pandemic so far obviously our businesses Dallas I suspect most of our competitors business is down similar to ours, but.
And couldn't begin to say if we've gained share from anybody at this point Oh, we just don't know again.
I always say from a.
Standpoint, being prepared to gain share to gain additional business should something happen I think we have done the right right things over the last several years I think you all are well aware capital expenditures that we made in our real estate.
Over the last several years in particular, we're continuing to make.
Best much this year.
In our real estate says I think we're doing the right things to be as prepared as we could possibly be a were more concerned about our business hopefully come a backs and losing a competitors.
Yeah, we'll see what happens with that but.
Yeah, we.
Oh really don't want to speculate on that.
All right appreciate the follow up thank you guys.
And there are no further questions in queue I like to turn it back over to Mr., Dan for any additional or closing remarks.
Thank you.
Oh for your participation today, we appreciate your questions. Please feel free to give us a call. If you have anything further thanks I hope you all have a great day.
And that concludes today's conference. Thank you for your participation.