Q1 2021 Covenant Logistics Group Inc Earnings Call
Excuse me everyone. We now have all speakers in conference. Please be aware that each of your lines are in a listen only mode. At the conclusion of today's presentation. We will open the floor for questions at that time instructions will be given as to the procedure to follow if you would like to ask a question.
And at this time I would now let's turn the conference ever and is Jerry Hug and please go ahead Sir.
Thank you.
Welcome to Covenant logistical Screwups first quarter conference call as a reminder for everyone. On this call will contain forward looking statements within the meaning of the private Securities Litigation Reform Act 1995.
Forward looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward looking statements. Please review, our disclosures and filings with the FCC, including without limitation risk factor section and our most recent form 10-K, and our current year form 10, Qs we undertake no.
Obligation to publicly update or revise any forward looking statements to reflect subsequent events or circumstances.
As a reminder, a copy of our prepared comments and additional information is available on our website.
Covenant transport Dot Com slash investors I'm joined this morning by our chairman and CEO David Parker.
Chief operating officer, Paul Bond, and our Chief Accounting Officer trip Grant.
We're going to start with the excitement around our first quarter results from an adjusted EPS perspective, we reported the best first quarter and our history and the team was able to exceed our previous best first quarter result for 87 per cent for 26 cents per share, which we did in 2015.
And the resolve and hard work of our team over the last year transforming our company into a multi service logistics company is starting to bear fruit and we're honored to serve and lead and exceptional team.
In summary, the highlights for the quarter, our operating revenue grew 6% to $201 million compared to the 2020 quarter, while our tractor fleet was 467 trucks smaller than the same period year ago.
37, 35 per cent of our consolidated revenue was and are more volatile expedited division versus 41 per cent and the first quarter of 2020.
Our managed freight and warehouse segments combined grew 56 per cent compared to the first quarter of 2020.
Despite rising casualty insurance premium costs through reduced accidents, as our third best quarter and history.
And minimal prior period claims costs were able to reduce our insurance cost significantly compared to recent quarters.
Our tail leasing company and investment has fully recovered from the soft equipment market and a large customer issue to increase earnings per share by approximately <unk> 16 cents a share.
We received and indemnification call from Triumph Bancorp regarding the dispute resolution associated with the sale of our TSS segment and 2020, the result, and a funding $36 million during the quarter all of which was reserved during the fourth quarter of 2020.
Additionally, T BK was able to collect some bonds related to our first and fourth quarter accrual.
Loud us the opportunity to reverse three point for millions of our accrual.
Additionally, we were able to purchase approximately 460000 and chairs of our stock at about $8 million.
Providing a little more color on the items affecting the business units. The expedited division performed quite well for first quarter. The freight market continues to be strong and offers right and line improvement opportunities evidenced by a 35 per cent improvement and revenue per truck per week.
Please recall that last year, we still had our solar division and the closure of that unit contributed to the 425 truck reduction and this unit.
On a reported basis revenue per mile for expedited appear flat however, the mix changed materially with the eliminating the solo fleet, thereby increasing the length of haul by 39 per cent and increasing our miles per truck for 34 per cent.
The driver market continues to be a challenge, but the large driver pay increase put in place and early January contributed to a 7% increase and our team count and a reduction of 9% unseated trucks since the fourth quarter of 2020.
The dedicated division continues to be our segment of earnings opportunity.
There was huge there was huge transition and this division throughout 2020 as we merged three separate dedicated fleets under common leadership and operating systems.
The leadership structure has been resolved and the system merger will be complete and Mei.
There was some nice improvement and revenue per truck and earnings and March which we expect to continue on into the second quarter.
We know which accounts need attention and the strength of the overall enterprise gives us confidence to take a long term approach to industry segments customer downside transitions and contract negotiations.
Our managed freight division experienced huge revenue growth, primarily driven by increases and our and brokerage freight.
This unit works very closely with our expedite and dedicated division's provided both committed and overflow capacity.
The robust freight market plus continuing to capitalize on the full enterprise sales and service capabilities Ixodic as we continue to drive the strategic gross unit.
We're cautious about the long term sustainability of the operating ratio and this unit as gross margins and ball and volumes can be volatile net.
Nevertheless, even at lower margins and the return on capital is hot for this non asset based business for the time being the leadership team is doing a great job.
And doing a great job delivering expected service to our customers.
The warehousing and division continues to continues its solid profitable growth.
We had one huge new startup last year and the pipeline is robust for additional startups this year.
As a reminder, around the current revenue size the growth and this unit can be choppy as we expect revenue growth versus year ago to level out and the second half of this year, unless we have additional startups and the second half.
Overall, we're very pleased with the direction of this unit.
Regarding our outlook for the rest of the year no question.
With this start to 2021 and we're excited about our earnings range for this year.
Although we're not providing specific guidance we.
We feel the transformation we've been working through over the last few years is beginning to show and a more consistent earnings model.
Better earnings and the first quarter, and less and the fourth quarter and trough years as well as year to year.
Our short term focus will be on improving the dedicated division while balancing the managed freight division's margins for the long term.
We feel the freight market will continue to provide opportunities for price and utilization improvement to help offset the challenging driver market and other cost headwinds primarily casualty interest.
Thank you for your time and NAV Casey will open up the call for questions.
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We'll take our first question caller. Your line is live please state your name.
Hey, guys its Jason Seidl from Cowen and how are you. This morning.
Hey, Jason and good morning.
One on one of concentrate a little bit on the obvious here. The dedicated segment that seems to be where you guys sort of have the most upside you alluded to some changes that were that were made and then some improved numbers in March.
Tell us Directionally, where you think profitability is going and <unk> can you guys turn a profit and then also if you could expand upon some of the let's say problem childs that and you might have on.
And your customer base and what can be done about that.
Hi, Jason This is Paul how are you doing this morning.
And so yourself.
Doing well doing well for Kemet looking back at the first quarter you know one thing.
Don't underestimate the effect of weather and March I'm, sorry February and it it had a it had a really negative effect, hence the significant improvement in March and some of the rate increases had started and we've got a couple and you know.
And we've said it before about half that business runs at acceptable margins.
And it's really good long term dedicated business and about half of it right now is I would call kind of Commoditized dedicated and it's business that we're good with the way the driver market is soaring up we're gonna have to get improved pricing on.
On a large number of those contracts have rate increases kind of in the June July timeframe. So I think you're going to see some incremental improvement on I'll call. It maybe get into the black and the second quarter, but youre not going to see it anywhere where we expect it to be long term, a and the third quarter it should be.
And the better than the second quarter.
And then we're going to continue that kind of you know, who and wait and fade and momentum and and here's where people want to partner with us and pay for the service that they're getting you know, we're going to keep moving with them.
But we're gonna have to have some help from customers, especially as dynamic as this driver market is so I hope that helps.
And it does Paul and when we look at the half of the of the business that you would consider sort of a good long term dedicated contracts, what sort of or would you put upon that half on half for.
Yeah, probably a low nineties.
Low ninety's, okay and in terms of the the driver market what should we expect from pay and then are there more pay increases coming down the road here.
Yeah, I would say, we're taking kind of a wait and see approach on the expedited side and a lot of that is just going to be dictated by what happens with our competitors and with the solo market or expedited pay increase was received really well and it's not just in terms of the pay increase but.
The miles were been on about put on the trucks. The the W. Two wages and those drivers are are really good numbers on the dedicated side.
I would say, it's and pockets, but why more accounts are going to have to be adjusted upwards than not and so we've done an analysis. This week and you know we've got a number of several and here's what I'll tell you. There's a correlation between the accounts that we're calling and the green for driver pay which is you know 75 per cent or better.
On a quartile for driver for like those accounts are doing pretty good from a requirement for perspective, the ones that are in the Red where were you know bottom 30 per cent.
For a pie that was where accounts, we're not making a lot of money on right now and so you know we're going on we got to move driver pay for steady the fleet and and not be filling in with a bunch of expensive filler and drivers and and that's supposed to go help us get the profitability back, but so overall, yes dedicated is going to have to have right and Craig.
It's just how much depends on it's very location specific right now.
Yeah that makes sense and my last question on the logistics segment, obviously, just you know.
And then and excellent quarter for you guys can you talk a little bit about how we should look at that growth was good throughout the year.
And I'll, let the market stays as hot as it is today I think you're going to see similar returns I think what happens the managed freight is going to be dependent on how long do you think we stay in this cycle is as we've said before.
That segment, a large percentage of that is where we play and the spot market and so you're seeing a lot of spot rates and there and a lot of spot freight and and pop up tight fright. Among a number of customers and there are a lot of customers that are expedited and debt that we have expedited and dedicated business with and.
So you know how that business goes for the rest of the year is going to be dependent on how hot the overall freight market. Many things I mean, if Q4 is like Q1, and you'll probably see a similar number if things were to trail off and you're going to start see on the volume and that division going down and the <unk>.
Margin going up a little bit you know our goal was by that time to have dedicated a growing from a returns perspective to.
Mhm offset or more than offset that.
The decline and managed freight.
And it makes sense I'll turn it over to somebody else gentlemen, I appreciate the time as always be safe out there.
Thanks, Jason.
And we will take our next question caller. Your line is live please state your name.
Hey, great good.
Morning, everybody, it's Jack Atkins from Steven Thank you for taking my questions.
Yeah. So you know I guess for me at least.
Just on Paul if I could just kind of dovetail.
One of your last points there in terms of just sort of how you think that the net.
Next several quarters play out from a cycle perspective because.
And given what we're hearing out there in terms of the difficulty finding drivers. It certainly feels like we're in for a you know and elongated cycle. This time, so I don't know who wants to take the question, but you know maybe David you know and love to get your perspective, just just given your your tenure and the industry and and all you've seen just on.
And sort of where do you think we go from here both from a rate perspective, and and and you know Henry how are we going to how are we going to be able to get enough drivers to be able to grow the fleet.
Yeah, Hey, Jack first of all yeah, how do we get enough drivers and I don't know.
And it could be it's a difficult environment.
Part of that difficult environment.
Keep a lid on capacity as we all know so that can be a blessing at a lot of times.
The fright environment I had we had a big management meeting last week I guess it was then.
And I was talking to some of our teammates and.
And.
You know when you think about and I always preface this with I don't know how about five year old Greg child's school and pay for it but if I'm only worried about the next couple of years because I do think it's two years I think we're gonna be C and I.
<unk> five per cent GDP growth is going to be a norm.
Not more for the next two years baseball, what Washington, Washington is doing and so as it relates to over the next couple of years I mean, I think the fright environment, it's going to be hot I think what we are feeling today well I was wondering I wanted to say it will.
Does it slow down and I may have where are we at seven 8% GDP that goes the five well probably or it could stay at seven or eight but it could be a little bit, but it's still going to be numbers that you and I have never stance or felt.
From a freight standpoint, and so I don't see that letting up I see that are solid and couple of years up a b and that that kind of environment and then on top of that you you heard Paul talk about what we've done on the expedited and while we're having to do on the dedicated side and we're having to go to them having to go to the market.
And because the driver pay and he's right that a lot of the dedicated side. It did pockets because you know you got 20 trucks here 100 trucks, there 50 droughts over here and all of that different markets throughout the United States. So we're gonna have to pay for them is dependent upon that but this driver situation is and back.
Yes.
The thing, it's not improve and you could paint a picture that it gets worse.
Another stat. They came up that it based on that for everybody just to kind of pay attention to that I'm starting to pay attention to and that is working percentage.
Talking to other per.
Arsenal free and carriers out there you know we all know we got to pay the drivers more and we're all trying to figure out where that is at 85000 or 90000 or 100000, we're all trying to figure out where the driver pay it's gotta go too.
And that one day and the second thing, though is that I think on where in the process and the last couple of Bot and we're going down this road that we're finding out that.
Just to get a driver, let's say the number is 95000.
But a lot of those drivers are happy and 70000, now and they're not coming to work for me and that's it for the 18th but got be onto it that's where the market is getting to very quickly, but they're happy make it 70, and one of things that we're seeing and for the last at the first quarter and that your wife, he percentage of Europe quit.
Last and what it has been about three or for a poet because we got more drivers that want to stay home and they're happy if they're making and the Saturdays and they read it.
Hawaii 10000 and I.
It is a pay and stay home and a little bit more so that they get the interest of the dynamic that none of that they've got calculate itself. We don't have drivers.
There's nothing out there that tells me that drivers are gonna readily be available over the medium and one that two years, and that's where I'm at and so the driver situation and then I can say, we're going to have pressure trucking companies our own capacity working capacity.
And that two to three percentage points and I am looking out past. The overall, so that say, it's going to remain part I believe that the our segment of the pipelines are going to continue to be good and I think that we're going to be able to accomplish what we needed to accomplish and why.
We want to accomplish over the next couple of years.
You said something about you know grow and play I'm on.
I had a girl with what it would be hard to grow our fleet right now. It's the main driver pay is so tough right now the driver situation is so tough. It's all you can do just to hold serve yeah, no yeah, absolutely and that's what we're hearing from others and so I guess when do you kind of put put all of those comments and contacts.
With the efforts that you guys have been undertaking over the last year year, and a half to structurally improve the profitability for business and.
And you put this type of super cycle on top of it.
You know you've got to be pretty excited about about certainly your expedited and managed freight businesses as you look out over the next couple of years, but it's but you know this is this really has to be up.
Very strong type of backdrop to be able to get the changes you need implemented and dedicated.
Yes, you're exactly correct.
And the thing that we've told internally through our people and it's true and that is we were producing some numbers now that we have never produced.
From a standpoint of turning our company and ran about think about 12 months ago. This time 12 months ago, none of us knowing where this virus would go away no none of us know and if there's one waker five years, they were going and we made.
Decisions to shut down.
It's about it's getting our dedicated straightened out we could not ask for a better market to get our dedicated straightened out and we will get it straightened out and we just got to work with our customers and again the pipeline is good on the ones that you know that we can't work with or decide not to work with us et cetera, but.
We're most excited we've been and 35 years and this business, Jeff One thing I would add on the driver piece that David mentioned is that we may get some help.
Yes.
And I hope, it's all for yet on and if but when let's call. It the government subsidies and so we could argue that might help a little bit but day on the other hand with all the energy around and and.
Infrastructure, Bill and spending we know thats, probably construction and general as a monster competitor.
Our our industry. So if that gets approved whatever gets proven all manner of its way and it's our if and when that's going to be a big pool.
From because again for the marketing because those jobs are going on or need to be paid and theyre going to probably be very well put.
As they are now so I think.
The view on labor, which is affecting all kinds of industries right now.
It's going to be a.
It's going to be a capacity constraint does it drive inflation and what does that do and all that that's another question Thats out there too, but I think capacity is going to be.
Limited the.
And the Oes and manufacturers or eliminate capacity, they're not there.
Not ramping up and a major major way.
And so because of labor because commodity pricing because of calls because and so I think the capacity part of this equation and I agree with David on all 100%. The next couple of years at least capacity is going to be.
What's the route where and I'm looking for it's gonna be reasonable, it's not going to be crazy people grow and fleet significant amounts.
Okay. That's very helpful last question and I'll turn it over and <unk>.
On a trip I'd love to bring you into the conversation here around cash flow.
Because the capital needs. This year are not great I think the net capex was about $20 million on but I believe that's what you said and the press release for your plan for this year, how should we be thinking about you know free cash flow in 2020. One is can you get kind of and help us think through that.
Yes, so we took a little bit of a step backwards from a debt perspective in Q1 because of the indemnification call but.
Our plan is to pay down debt and to continue to buy back stock as we get it and.
So I think from a free cash flow perspective rest of the year, probably in the neighborhood of.
Uh huh.
Okay. That's great that's great to hear and thanks again for the time guys I appreciate it.
Yes.
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Take our next question caller. Your line is five please state your name.
Yes, Scott group from Wolfe Research. Thank you morning, guys Scott.
So just.
Just on the expedited side can you just talk about the underlying pricing trends, there and if we're doing and 9% margins and the first quarter. How do you think about those margins and the rest of the year.
Yeah.
Scott and Theres no doubt.
This is Todd.
On the expedited.
And has been very strong over the first quarter definitely the last.
And January last two and a half months it has been very good and.
And we.
We expect that to continue we expect that.
There's going to be more opportunities to raise pricing and the expedited side and we've got three or four accounts that are you know on top.
Top accounts, but those are those are yearly yearly kind of negotiations that we have and.
A lot of those a couple of those have already been pulled up there pulled up into first quarter. So those are usually and that May April may time frame, we were able to actually to get some.
And a month ahead of time and so that's already taken the benefit as I say that is that we won't go back to those customers and.
Demand and other one and until the one year, it's up but the rest of the accounts that we've got out there is that we're looking at it on any new business that comes in it's coming in at a higher price.
And we expect we really believe that our expedite and model that is and as you know it can be volatile.
And that we've always operated at when it was 75% and the total today is 35 per cent of the total.
That we expect we expect that.
And that number to have about instead of being 85 and 95, we think it's going to be 83 day 90 threes.
They are and tough environments, there and tough environments, it's 93 and doing great and environment's going to be 83, we're also dealing with long term contracts with customers that we got and our top five we got.
We're working on our second one that have multi year contracts that do not allow them to downsize the fleet.
And.
If they elect to its over a couple year period of time, so anyway. They are multi year contracts on those so anyway, I pay and amongst the point that I said, there is that price and we continue to increase but to me. The most important thing is that we really believe we were running about 83 to 93 <unk> and that.
Model today and.
Instead of the where it used to be.
I think Scott one thing.
And we talked about at the last quarter call that there is a difference versus history.
When expedited was much bigger piece of the pie and good times, we're always trying to grow it.
So we grew it which added to the volatility factor of the model now, we're not about whether or not we could if we wanted to us and ask a question because the drivers but strategically we have made the decision were very happy with the fleet size, we're not planning to grow the fleet size. The division is performing very well take that pressure.
We're off to continue to grow the capital base and to feed that thing, but to improve it inside of itself. So that in and of itself, which only time will tell if that's successful or not but it helps the volatility question significantly and my mind, whose lipstick on a lot of the different.
Cycles of the past that says Oh, my goodness I wish we hadn't done that 200 trucks that are about 400 trucks and or whatever so now we're living with it and so that's only time will answer that but that's a significant move for us versus the past that's contributed to a lot more of the volatility is low the growth frankly at the wrong time.
And so we'll see how that plays out as far as margins, Paul and just how would you comment on the margins.
I think incrementally better as the year goes all again and kind of back to the same comment.
Driver state tie and the market stays hot I think it'll get incrementally better each quarter not materially, but incrementally better yet.
We wont be dealing with weather and.
Some of those kind of projects.
Can I just follow up on just putting those comments together.
If the right ranges and <unk> 83 to 93 MLR for for that expedited business. I would think this is the kind of environment, where we'd be closer to that 83.
And we should start trending closer to that level.
Good question, Scott and I think I think.
We're not where we want to be yet a.
B, we did disclose quite a bit of cash.
And a temporary costs coming back into the model to start 2021.
So we did worked through that it ended up being a little bit less and we solved but nevertheless, we did we did talk about that and so we're in transition to that and we think that that will continue now that said.
And 91 is the best first quarter and expedite its history.
So I could.
First quarter is always the worst quarter for expedited and so I think that.
And we've expedited and has started off.
The year, yes, it's a good market, but it started off the year.
Very well.
Yes, Scott.
Is it going and get to and 83 I don't know, but is it going to improve every should H for orderly better than the first quarter sequentially yes.
Okay and so.
So I guess.
Sure, though your point is.
And we've made a lot of mix changes and the business here to improve profitability and reduce sort of cyclicality here and yes, we are seeing tremendous benefits of cyclicality on the upside, but we're not chasing the market. So we don't think we'll see as much of the.
Pressure on the downside of cyclicality, if and when that environment emerges.
Absolutely that's been.
And that's been the plan.
William and working on for the last five years ish I would say, but I think here and the last.
Last year frankly.
For all the difficulty for all of us it actually accelerated.
The transition there is no question about that.
But I think that.
Where we are is giving us a lot of confidence as we move as we said in the prepared comments and trial year cyclicality.
And we're starting to see less we didn't go down fourth quarter was a good quarter from a freight standpoint, we didn't go down near as much but we're not going to go up near as much and the fourth quarter, either and so youre going to see and trial year more or less volatility and then year to year, we hope.
From the cycles will be less than we've had and Scott.
Got a couple of things that Joey talked about expedited b and a less volatile long term and because of the kind of constriction on the Sars and and really kind of darwinian.
What we're doing and who we're doing it for and maybe not be and is exposed.
On the getting dedicated getting about 50% of those dedicated drugs, where we need them is probably the biggest key to that.
And then the other thing don't forget is the cost structure changes we made last year. Those are also aiding and help and.
Mike the returns.
Margins more consistent.
One thing too.
A friend and here remind me expedite even those and 91 weather hit it hard and February and.
So a lot of the the earnings impact hit our expedited group, the most and still achieved.
And 91, and the first quarter so yes.
And that would just be that would've been Scott just.
Minimum of probably two and Lauren points for the quarter relative to three for the quarter was the negative weather here in February on expedited.
If you hadn't had that whether if that had been in April or something you'd probably ran.
Yes.
Okay very helpful. Thank you guys appreciate it.
Thank you.
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Okay.
Hey, guys how are we doing.
Good how are you.
I'm sorry, this is Dan Moore with Scopus.
Good day.
We didn't hear good here, you know, but no worries no worries.
Congratulations on a on a great quarter, and obviously a challenging operating environment.
One thing I wanted to focus on a little bit more was dedicated and.
I think most people view that as a extremely important.
Segment to long term success for the organization and the turnaround and you guys are.
Progressing through and and Paul you you kind of said as much with the with Scott on the line a second ago.
Like to ask is.
Your peers tend to focus on double digit returns and dedicated not a per cent not 6%.
And one would argue that something in fact, north of 10 and <unk>.
So sorry to generate the kind of returns on on on on assets and.
And that the that you wanted to be able to deliver long term could you talk to us a little bit about what your return profile is and that business long term, what you're targeting and.
I guess it sounds like it.
It sounds like the driver and environment is the biggest impediment.
Well beyond that if there's anything else, we need to be aware of thanks.
Yeah, I would say.
Right around that double digit number Diane.
And I mean, I think we're well.
I think we would all be please drop now getting getting that segment down to a non a very low ninety's or we've got we've got some accounts and operate.
On the legacy accounts, good accounts and operate in that space and we have a long time.
There is a as we've gone through this journey.
I'm really trying to as Joey said bring three dedicated fleets together get them under one operating system under one leadership team one one group of people recruiting at one of the things and it's become evident is that there's kind of two groups of customers and that bucket, there's but there's the customers.
And that has the profile you just talked about and we want more of those and we're going to go to the customers that we have that with and say can we have more of your business.
And then there is customers who have just commoditized dedicated and.
Right now those are the hardest accounts to say and open trucks and.
And they're gonna have to value it or we're going to give those trucks to somebody who's on the first bucket and you know what we've tried to stay true to is kind of our our culture and our history.
We met with somebody a few weeks ago that talked about another company, just Yankee and a bunch of trucks out we're not we're not going to guide to watch and trucks out we're going to honor our word but we also we're not going to run dedicated 90, 899 or 100 or.
And also Dan auto and and it's just it's important is that.
The complementary nature of our services, especially on the truck side I mean, it is a nice complement between expedited and a dedicated and.
We're just scratching the surface on the opportunity set that that.
One of the things that Paul and his change with him and taken a leadership role on the opera.
For Asian side, I think there's a there's a couple of really neat projects, there that really expose where they've been there and we've talked about it but I think kind of trying to trying to move the ball in that regard, but I think theres there are complementary, especially from a driver standpoint, and so that's just something that it's not that yes. They are.
And alone, but there is some complementary nature between the various services and.
And for the driver side, I think theres some opportunity there that helps us internally as well yeah for the Joey's point, there and I mean, where we're just looking at how do we.
How do we strategically manage the lifecycle of a driver and give them career auctions.
Come to covenant and never leave and we've probably got the best collaboration that we've had and my 12 years here and starting to move down that path and so.
There's still a lot of work to do but we're excited about.
Where it might take.
And just just as a follow up for all of that.
Could you touch on when Youll have had an opportunity to touch 100 per cent of those contracts within dedicated because I don't know what percentage of those those contracts we don't know.
On one year or more.
On multiyear yep.
And two thirds of on September 30.
Two thirds of them by September 30, and so I think we'll know closer to where we are and in Q4.
Earlier, I said Theres a number of them that are June and July.
And there's some that have some notice requirements that we're working through right now and and.
And might take four months five months and so I do think that we will know.
And the second quarter for.
For the field is that yes, I think that will know which ones, we're going to be successful with which ones. We're not going to be successful with and then looking at our pipeline on the ones that are not but that will be implemented and that third quarter, but I think that will have idea and we're gonna noted second quarter you know how the.
Hi.
And as late and then the pop on I mean, just I mean, it probably goes without saying, but the pipeline and are all accounts that would fit in that first bucket of partnership.
Now you engineering problem solving and it's not commoditized.
<unk> are fully you know.
Smaller fleets compared to maybe be more commoditized spot fleets.
Guys. Congrats again on a great quarter and bus and walk through the balance for the year.
Thanks, David.
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I think I've been released this is Nick Farwell can you hear me, David Joe, Okay, and Hey, Nick and.
Good morning, I'm curious I missed the comment about free cash flow I apologize what was the number over the next six months or annualized.
So we think it's going to be in the neighborhood of about $80 million.
Free cash flow for the next nine months, if you will for quarters Q through for Gotcha. Okay. Thank you very much and that and the other question is.
David what.
What do you believe is a reasonable or and dedicated once it's stabilized and a more normalized wherever the hell that means environment.
Mhm and not get something below 90 and.
Given that.
And that's an example night seems to even with Swift to.
Have achieved their old sort of low to mid 80 or.
Yeah.
Yeah.
And what you just said there is the internal discussions that we're also having Nick and you know as you heard earlier about half of that fleet half of our dedicated businesses and.
And the low Ninety's, let's say, it's 90 192, I mean theyre sprinkled in there 88, and 80 Sevens and.
And I'm sitting here looking at it there's quite a few of those.
But our first goal was to get 100 twos down to 90 Twos and then we'll see where the market is going to allow us to go.
So you know, it's one of those things that I feel confident that we can get it.
Take 10 points out of those on underperforming assets and get it for the first day out and that's why Joey earlier sometime or another either released or on one of these questions. You know that he said that.
Fourth quarter first quarter second quarter next year that we're working toward that so I mean, what what your stay and and what you. Just standard is exactly what we are studying a C and our sales and half of our fleet.
And those and that range, but we got to first get our second we got to get the other half down there at an acceptable number and.
And what would you say I know you've commented a bit about under the same sort of parameters, where do you think you can get long haul over the road business, where do you, what's and or do you think might be sustainable again and or whatever the hell of a normalized environment.
Yeah, Yeah, we do believe that you know.
And where we used to be.
And that is really it was really 87 to 97 and then when the fourth quarter came and PK, we would get into 80 twos and 83.
And the model that we operated on forever.
And then in the first quarter with breakeven make a little money those kind of things because the expedited with 75 per se on it and it operated at 97 or and so it was that 87 to 97, and we have changed that and our thoughts that the 83 to 93.
And you know, it's it's not long to be honest with you that I can see possibility that 93 is is to have but that day.
You heard them talk about the about the favorite and we just came out of first call for the 91 and it cost US two to three point and two weeks and February because of the just the cost of expedited and the cost of two people to a truck and and and a lack of sitting and Wyoming for 24 hours, and then and snow and ice and all of that kind of stuff there.
Costs can get there and so you saw that at 75 per cent of the total when it was and today is 35, and we're going to even make it less and that so and there is a range and whether its 87 and 97 and now its 83 day 93, but with a horrible February and it was and the Hainan and ease.
And I can tell you that DLR was at the high Ninety's and the month of February.
We operated in and 91 and.
And February cost us two to three points, so I can almost day that.
The first quarter, because we've never been there, but the first quarter may have been at 88 or 89.
And so that said I felt comfortable 83 to 93 is the number when it's in a normal a normal capacity and that's probably at 85 or 86 because of the day, it's not normal today is unbelievable.
No freight environment.
So anyway, it's better it's probably better about five points that we're we've ever been and 35 years and can it get better than that yes, it can but.
And we're working on our bottoms off they get there and pasta and earlier about the cost out.
On that P&L statement, we have we have cut so much cost out of this company I'm. So proud of the other folks and we're continuing to cut costs. So every time, we cut the call. It is absolutely, making and a better operating you know from a financial standpoint.
And as long as you don't have insurance going up 40% as a day at April one that you don't and there's some headwinds so I hope I answered your question, Yeah, Hey, Nick and I'll clarify real quick just your question on cash flow you know if youre thinking about net debt right now we're about at $123 million, we've got cash.
Net capex for the rest of the year of 10, we've got some cash tax payments.
So if you think about it.
We're going to try to get down to about $80 million to $85 million and net debt by 12 31, so that changes the number a little bit gotcha. Okay.
Still a hell of an accomplishment.
43 for 45.
5 million Bucks.
Yes, the model and the cash generation there is another place that.
And that you can see it you know week.
Week to week month to month quarter to quarter I think you said the growth of the non truck.
And the consistency of that.
Gross is really is really contributing to the cash flow.
Joey why you're you and and David have been around a while and this business and.
It's an observation and I'm just curious we've talked you have and the other trucking companies have talked about the constraints on the supply side drivers for example.
Obviously as a critical factor and you guys contracted your business for other long haul truckers are contracting or business and yet and one might hope.
Hypothesized that the demand for long haul carriage is if it had some change in any significant dramatic sense and in fact, if anything clearly with this current pandemic, it's probably increase dramatically hence the rate increases.
So I'm just curious with the long haul business being reached free structure by a number of companies and yet demand is still if not exceeding what it might have been earlier.
It would seem to me that pricing would be.
Better than stable for some period of time, maybe two three years I know that sounds rather bizarre but.
With this significant.
Imbalance and supply and demand and I could see I could conjure up your over the road long haul business, perhaps sustaining something and the low eighty's.
Yes, I think.
Yeah. So I think there are several factors that we've seen it probably call it a little gun shy on over the years.
You know whenever and expedited pricing really explodes. It competition gross now I think the competition will be different you know through the cycles going forward, mainly around the other freight providers, let's call for LPL space and so we all know a lot of the L. T cells outsource certain amounts.
And whether it's union or non union and so we've seen and there is an amount that a customer or even on the private company side, we really serve and expedited produce and the L. T. L space those are the big Swallowers of our expedited product and there is some.
Big shippers on the protein side, there's a huge shippers unhealthy outside and there was an amount they'll pay.
And then there is an amount they won't pay it.
And so we've tried to be very respectful and snug and up to that line, where they don't say well on go grow them on before I give it for you for that and so that's where you're constantly trying to find is where that is and still provide top notch service because both of those segments require it and you can't fool.
And then the outside or if that is where it is pricing and again.
Depends on where fuel is where it is pricing pushes to where I'll give up the service and so I'll go and put it on the right and so if those are the things you're trying to watch.
You have some big customers that can quote try to go and do it themselves that have higher pay brackets, and we do or when does the price push them to the rail assuming that can get a container.
And all spot and space and chassis and all that stuff and so I agree with you, though directionally and I agree with you there's stuff still got to go and then when you put where overall inventories are low across the supply chain, which is stupid low.
And just speaks to.
And I think it's going on as David said, several paragraphs on calls and again I think expedited and a good spot.
Leased for a couple of years is just our opinion.
Yeah.
Thank you very much I appreciate it Joey.
It's very intriguing environment for for.
You guys with capacity.
And just you, but anyone in the trucking business that has legitimate capacity.
Thanks Mary.
Yeah.
Occasionally we have any other questions.
If you'd like to ask a question free cash shovlin now.
And speakers, we have no further questions and key.
Okay. Thanks, Casey and thanks, everybody for joining us on the call and look forward to visiting with you all next quarter. Thanks a lot.
Yeah.
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