Q3 2021 Covenant Logistics Group Inc Earnings Call
Okay.
Excuse me everyone. We now have our speakers in conference. Please be aware that each of your lines is 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 I would now like to turn the conference over to Joey Hogan.
Again, please begin.
Thanks, Victoria Good morning, everybody.
Welcome to Covenant Logistics group third quarter Conference call as a reminder for everybody. This this call will contain forward looking statements within the meaning of private Securities Litigation Reform Act of 1995.
Forward looking statements are subject to risks and <unk>.
Is that could cause.
To differ materially from those contemplated by the forward looking statements.
Please review, our disclosures and filings with SEC, including without limitation the risk factors section in 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.
Certain bits to reflect subsequent events or circumstances.
A copy of our prepared comments and additional financial information is available on our new website at Www Covenant logistics Dot com. The investors section of that New website I'm joined this morning by our chairman and CEO, David Parker, our chief operating.
Officer, Paul Bond, and our Chief Accounting officer trip grants.
We're going to start with a summary for the quarter. After a strong second quarter. We once again achieved record revenue and earnings per share.
We're extremely proud and appreciative of our teammates efforts as we continue to transform our business into a full service logistics provider.
We still have more work to do we know what the issues are we have good plans and we remain focused on our strategic direction.
Additionally, during this time of supply chain disruption, we will remain extremely proud to be a prouder an industry that has stayed behind the wheel consistently since the pandemic began the.
The industry has shown.
Shown great resolve leadership and sacrifice to keep goods moving on the road and win and within our warehouse communities.
Certain we will continue.
In summary, the keel out highlights of the quarter.
Or freight revenue grew 28% to 250 million compared to the 2020 quarter.
Our asset based truckload group revenue grew 7% versus the third quarter of 2020 with 157 less trucks.
Are less asset intensive managed freight and warehouse segments combined grew 73% compared to the third quarter of 2020.
On the safety side, we produced another solid quarter for their D O.
T accident rate per mile being 13% below the year ago period, the lowest third quarter rate in 10 years although.
Rising insurance premiums and inflation in claims costs across our industry offset some of this benefit.
Our tell leasing company investment produced another strong quarter contributing an additional.
Cents per share versus the year ago period.
And then lastly, we were able to capital continue to capitalize on strong cash flows by reducing our net indebtedness by another 25 million since the second quarter of this year for a total of $39 million since the year began.
Providing a little bit more color on the items.
<unk> each of the business units.
Our managed freight division continued its strong performance for the year for the first time, it's our largest division inside the group.
This revenue for the quarter grew 88%.
As the year ago quarter, and eclipsed the 200 million Mark on a year to date basis in the quarter.
The results for the quarter.
We're primarily attributable attributable to the robust robust freight market growing its own customer base handling overflow freight from expedited and dedicated plus capitalizing on our heritage of providing pop up capacity for various retail customers.
This unit remains a strategic growth.
For covenant for both.
And as high return on investment dynamics.
Even though we continue to be cautious about the long term sustainability of the topline revenue and operating ratio within this unit. The leadership team is doing a great job staying flat.
So it's just for.
Vision of tumors, but also diligent on adding and developing sustainable relationships with <unk> customers in the right industries.
The expedite division continues to produce strong results.
Supply demand imbalance in the marketplace continues to lead us to customers that really need and value team.
For our Cutler for the long term.
We are focused on partners with with shippers that are looking past today's frothy freight market and locked in capacity that keeps our teams busy and productive even during the slow times.
We're very excited about where this project and strategic direction is today.
<unk> simply been able to improve our operating ratio by 730 basis points to $84 eight.
<unk> led by 21% increase in revenue per truck.
Both pricing and utilization are up nicely.
On the negative side, we've lost some capacity as our average tractors are down 156.
But the driver market being as bad as it's ever been.
Driver wages in this segment are up 15% on a per mile basis versus year ago with this being the number one issue in this division.
The dedicated division fell slightly short of our goal of a high <unk> or in the third quarter.
With the transition of mostly automotive, but other businesses as well in July July was a rough month with a lot of equipment movement shutdown expenses and driver wages.
The months of August and September did hit our high <unk> target. However.
Revenue per truck improvement is beginning to accelerate being.
With 5% sequentially versus the second quarter and up 13% versus the third quarter of 2020.
Another positive in the quarters that are opened truck situation is the lowest we've seen in several quarters with only 7% of the fleet open at quarter end.
Continued progress on rates and utilization, particularly.
Up a handful of customers remain necessary. Nevertheless.
We're on track for meaningful improvement in 2022.
Despite the rare loss of one customer early in the quarter. The warehousing division continued to grow from a revenue perspective, but took a step back from a profitability perspective in the quarter.
We added one new customer late in the quarter with a strong pipeline for the next several months.
Operating income was negatively impacted due to additional contract labor cost as it relates to the pandemic and tight labor market.
And additional building ramp for our relocated customers facility prior to resumption of revenue.
And additional revenue at that location.
We remain very excited and committed to the strategic growth Division.
Regarding our outlook for the future.
For the balance of 2021, our focus remains to improve the profitability of our dedicated segment and continue running expedited and managed freight for the law.
Long term I quote, we're not getting caught up in the spot market and quote period.
Additionally, peak will be small for us relative to our past further, allowing us to remain focused on the previous initiatives we.
We continue to anticipate cost headwinds and driver and non driver compensation and.
It's along with equipment and parts supply.
Inflation is definitely affecting transportation and logistics.
On the bright side, we expect to be able to pass through cost increases to customers that value. Our services as we expect the supply demand and balance to continue for the next few quarters.
Benefit things considered we're feeling we are we feel we're going to close out 2021 on a very strong note with earnings approximating third quarter results.
Thank you for your time for this opening in and Victoria will now open up the call for questions.
Thank you if you would like to ask a question. Please signal.
All things Star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to retire Clinton.
<unk> pumped on the phone line will indicate when your line is open. Please state your name by posing your question again Press Star one to ask a question, we'll pause for just a moment to allow everyone an opportunity to signal for questions.
We will take our first question.
Hey, It's Scott group from Wolfe Research Good morning, guys. Thank you.
Scott Good morning.
I wanted to follow up on the comment about.
The seated tractor count starting to improve.
Maybe just talk about what youre seeing from a driver standpoint, and if you think that that's sort of.
Broadly happening in the industry are more specific to you with respect to the driver market.
Yes, Scott this is Paul.
So let me kind of paint a picture sequentially.
We did a lot of pay increases dedicated an an expedited in.
Alright.
Unsafe goodness was still pretty rough in July and August.
I would say the team count on the expedited side.
I'd actually went backwards throughout the quarter, even in light of the a pretty material pay increase that we launched the first or second week of July. So I think it's I won't break it into the dedicated expedited because it's a little bit of different stories.
Dedicated.
Awesome awesome trucks.
<unk> seen it as the quarter went on and it has only been in the last couple of weeks that we've really started to see in that kind of kind of bounce up early October.
And it's bouncing out I'll call it decent levels not just the floodgates are open on the expedited side.
So fire.
On the dedicated.
A lot of pay increases in June and July and probably by about late August early September we started to CN.
<unk> stabilize in dedicated.
And I would say late September.
We were getting the drivers we made it in the last.
Couple of weeks, that's actually fell off a little bit and so.
It is.
Little bit of a roller coaster with both of them.
Dedicated was got better has gotten a hair worse in the past couple of weeks expedited got worse and it's gotten a hair better in the last couple of weeks and so there is some bounciness of noise.
If you put it in a macro view.
<unk>.
The last week of September and first couple of weeks of October are in total are better than June or July, but not materially better.
Okay. That's helpful. And then maybe just do you have some preliminary.
Any thoughts around pricing for next year and just.
What are the puts and takes that you see in terms of the ability to grow earnings again next year from some pretty amazing results. This year.
Hey, Scott This is David Hey.
Two things.
Net.
Next year, if you depend upon what's out of the corn your own debt that as the economy stays where it's at today or does it go backwards if it goes backwards.
I'll know that.
Truckers are going to be as great. As it is this year. So that is something that we'll just have to watch it.
Figure out what it's going to do if it stays the way it is.
Youll stay double digit increases in my mind.
The market and so I think that's going to be a very good year I think that the.
The supply chain is still going to be a major disruptor out there.
But it really is the take on all of our take on what the economy going to do next year.
Pone, which way the rates are going to go but it's going to be.
Even if the economy slows down rates are going to go up they're going to continue to go up theres headwinds from a standpoint of cost increases that are happening.
Driver pay and equipment in.
In house people and maintenance.
Dependent I mean, theres, just a lot of cost wins theyre going to have to be absorbed.
Rate increases.
Is 2022 bid season, starting at all yet or not yet.
No not yet.
Okay Uptime, we have our fourth quarter conference call as kind of window start.
Okay Alright. Thank you guys appreciate the time.
Okay. Thanks, Scott.
Yes.
Thank you. Our next question comes from Jack Atkins with Stephens.
Hey, good.
Hey, Jack adapter.
Hey, good morning, everyone. Thanks for taking my questions.
So sorry, I guess, the if we can maybe start out and Joey I don't know if you want to take this or Paul but would just be curious to kind of get a little bit more color on the steps you guys are taken to to you know get.
Some of these longer term commitments, particularly within managed freight and expedited secured could you give maybe give us an update on sort of where that process stands and how are you feeling about that as we go into 2020 two.
Yeah, I would say are only only expedited side, Jack we're feeling feeling really good.
I don't know that we want to give an exact percentage as to where we are what we're calling longer term agreements, but I would say it's.
A couple of things this is a significant portion of the business.
<unk>.
A significant portion of the business.
A significant portion of the business that we.
The engineer and try to optimize freight within an expedited network. So the stickier from a customer standpoint, and a driver standpoint.
And so hopefully we're madhu and that it's not as it's not as OTR fail and it shifts that's not dedicated but it's not.
Our OTR, it's kind of somewhere in between and it depends on the customer exactly how those agreements look and theres. Some hybrids of things in there and so I think we're continuing to press down that path.
Nicely on the managed freight side.
The base business there is a lot of <unk>.
<unk> business and there is no doubt.
We're working hard with a handful of customers right now to lock in some.
I'll call, it 12 months or greater contracts and.
I would say that's not as great of a percentage that's something we're continuing to work on every day.
Okay, that's encouraging to hear.
I would be curious maybe kind of within that context.
And David if you would like to give some maybe a longer term perspective in terms of how you've seen the business trend over the cycles, but you know how do you feel like the business is positioned you know once you kind of get those longer term contracts in place longer term commitments in place rather.
You know as we kind of maybe if we go into a more challenging freight market. Whenever that is you know 2023 of them whenever you know tip to whether the cyclicality because it feels like you guys have made a heck of a lot of progress putting the business in a position where you know that they're gonna be peaks and troughs, but then the volatility is much less.
Yeah, Jack I would say I've never been this excited I mean it is.
Unbelievable, what what the team has been able to accomplish over the last year and a half and.
Pre pandemic starting around early part of 2020, so it's been a year and a half since we've been going down this road with.
With our strategic plan and.
The next the next slowdown is not going to be as critical to us because of the expedited and that's your real question is on the expedited side, it's not going to be as up and down through the market as it has been because there is a big portion.
<unk> of our business is going to be under contractual agreements.
That make it much more difficult for the customers to get out of those trucks now utilization may go down a little bit is because at the end of the day load is there a load is not there, but they cannot fire trucks and we.
We're still got some more to go on that but I'm excited worked out right now and we're still in the process of getting a couple of more large customers that we're negotiating with now and I think it's 80% chance that we're going to get it done.
And so it is going to protect expedited to a good degree.
I mean is there still when things get slow is it going to slow down yes, but it's not going to be we're not going to operate that division from 88 to 100 twos and evident by the fact that what youre, saying the last couple of quarters.
Our on that on that business, So I am excited.
Still got I think the runway on the dedicated side.
He is making great headway.
I wish you could see the amount of accounts, we've only got about a dozen accounts that we need to really attack and we're in the process of attacking them and have been attacking once those dozen or.
Our healed with whatever that means and it's going to be with a better <unk> and better profitability or we're not going to grow the business one of the other.
As I look at.
Been here 35 years.
Look at this the best quarter in the history of the company.
About the order ever in the history of the company and the runway is still long.
That's why it has me excited and in.
And the same thing as <unk> talked about on the on the managed freight.
As I look at that besides the spot side of the business.
There's only five or six.
Yes that I would say, a five or six customers that I want to get healed on the exposure side and we got a couple of them. So we're probably one third there, but we're having meetings all of the next couple of months to attempt to get the rest of them there and I think that.
I.
I'm happy with is <unk>.
I think we have more success, but anyway that gives you an idea.
Absolutely and I know another strategic priority over the last couple of years has been really shrinking the balance sheet and you guys made.
<unk>, you know significant step over the last quarter paying down debt and it gives you a lot of flexibility here.
Maybe curious to kind of hear how you guys are thinking about.
The opportunities to use the balance sheet strategically.
Strategically about returning capital to shareholders, perhaps but also maybe M&A opportunities. How are you guys looking at that as you move forward over the next year.
And a half.
Yeah, I think Jack obviously Theres no question.
A well capitalized balance sheet gives you a lot of flexibility and so.
Irwin.
Stock was.
Lower let's just say that without getting into what's going.
On today.
Was lower.
Where we are presented opportunity, we just felt very strongly.
Sure.
<unk> of the company and we will continue to watch that very carefully.
Second as far as the M&A side.
We're feeling better in total what David just said in total.
About the business my opinion.
A lot better and the model is playing out so I think with the balance sheet.
Where it is.
Are we ready to make.
To pursue in addition, either internally.
Sure.
Externally.
<unk>.
Yes.
So.
The market is hot right now I'm, not saying, we're getting ready to do something right now, but the market is hot but we're being trying to be very strategic and things that complement what we're already doing.
I would add that add scale and value.
Into our.
Our gross services. So I mean, it's a good it's a good place to be it's really a good place to be and everybody is aligned with that.
And.
I think obviously, we have some opportunity on the table.
With a dedicated division give some earning outside.
On.
A lot better about the.
Long term consistency of the expedited franchise, obviously the question in the back of everybody's mind is will it stick.
With.
With the downturn, we believe we believe the majority of it will if not all of it.
So we won't know till we get there, but everybody that we've done that.
These agreements with our <unk>.
Our long term.
Customers slashed partners and so we're highly confident that their commitment is strong.
Brokerage.
Brokerage is probably the one our managed freight if you will that to me it's not dedicated it's managed freight from our standpoint.
Sandpoint of obviously the.
Returns are really strong right now no question.
We've historically been a very big project.
Supplier for our shippers, we've done that for a long long long long long long time, whether its peak.
There is other Christmas.
Ms products, whether its consumer product launches.
This is all public I'll go back I mean, we handled the Allegra launch years ago 800 loads in two weeks, we handle that and question.
Pull that off or not and we did a good job of that.
And so we've had we've got that heritage with the shipping.
Shipping community.
And we're going to continue to capitalize on that and we're doing quite a bit of that right now and so we're trying to keep that it's not probably not to recognize that it is going to go all went away tomorrow.
But what do we do to solidify that and internally grow our business and we're doing both of those.
And so will it stay where it is you look externally and you go Oh that angle stay there, but we're working hard to keep it. It's just hard for us to say because of the external marketplace and the comparisons across the marketplace and all of that but we're working our tails off and providing a service for our shippers and thats the.
One to me that I don't want to call. It a wildcard, but it is really important and as we think about covenant and its model in the future. If we can keep it where it is its huge if it backs up more to industry standards is going to back up more to industry standards.
No.
That to me is.
The big question, but.
We're excited that how the model is playing out just real quick I mean, as I said managed freight was the largest division in the quarter, 36% of the revenue expedited in dedicated were about the same call it 29% warehouses six and growing models playing out.
And the modest plan out and that's that's one.
Thanks.
Most excited about and.
Just just to add on the Joey's point I went back yesterday I was looking at net debt.
18 months ago are sitting at $337 million of net debt.
We've had $272 million of improvement from where we were in March.
Our March 31, 2020 to where we are today and we've got no go look becoming debt free, but we're certainly quickly moving that direction and again thats not a go but what that does is provide us opportunities and Joey has said this before our.
Our biggest opportunity has been internally.
With our current business that we have.
And I have been impressed because theres a lot of M&A opportunities out there. They are flying all over the place I've been impressed with the discipline that we've had to stay focused on the internal business and look at the opportunities that really align really well with our strategic.
So the discipline of doing that has really been impressive to me.
Sounds great. Thanks, again for the time guys really appreciate it.
Thanks, Jack Thanks, Jack.
Thank you we'll take our next question.
Please go ahead.
Okay.
Hey, good morning, Thanks for the time.
I'm sorry, we didn't hear your name sorry, the thing went blank this is bert.
<unk> with Stifel.
Hey, Brian.
Sure Hey, guys, how you doing.
Good.
You mentioned the impact of inflation on your business in your prepared remarks.
Do you think thats whats keeping the smaller carrier growth at Bay. So even if you end up paying higher wages across the board the supply part of the equation just doesn't pick up pick back up as fast as it typically asked just because of the cost side of the equation is that.
Is that the right way to think about it and do you think that's.
As a tailwind that maybe gets you beyond 'twenty two.
Yes, I think that depending upon.
Murdo on how we think how all of our <unk> zone and what the economy is not going to do but yes. There is.
Hey, a big installation.
That we all.
I have got but the small carriers is going to be decimated to them.
We're going to be a difficult time for small carriers I mean, we're in negotiating equipment right now.
Numbers that are not burden.
I don't know what a small guy a small company does in so yeah. They are going to make.
They're going to have a wall that theyre going to have to go through.
And if there's any slowdown in the economy.
Some of those costs are not going to stop and it's going to be very difficult for the small carrier theres no doubt about it we're talking to somebody the other night, if you think about it and I haven't talked about theres the cost.
Of the equipment and then there's the availability of equipment.
Our main dry van trailers are about little buckets of gold running room there.
Sure.
And so the cost is going up the availability is tight and it doesn't matter, who you talk to nobody sees that change it for 12.
Yes.
And so then you got to ask yourself well that gets you to this time next year bottom out 'twenty, three and beyond 'twenty, three and the folks we're talking to her.
Big equipment leasing and resale company in and they start talking about EPA engine changes that are coming in kind of 'twenty.
524 type timeframe and then there's the pre buy of phenomenon. The truckers do because theyre trying to get ahead of the new technology, because the first year of engine technology. There is generally a lot of issues and so you start doing that and you start kind of you see this squeeze on equipment.
Good could be 24, 36 months kind of deal.
Again, it's.
So I think it is probably a tailwind as you mentioned.
For a couple of if I would hate to be a small carrier running a seven year old truck I mean worst dated there what average age 22 months or so so where our average age is 22.
And the manufacturers, whether it's tractors or trailers, but let's just talk about tractors.
We're not going to get our order that we won't next year, we're not going to get the total order I mean, it's going to our average age will continue to increase not because of our newest but because they cant manufacture the trucks and you said it was a seven year old truck that youre.
We're going to run another two years.
I mean, there are maintenance maintenance cost in itself will implode them.
But remember as we know the average average size.
Americas seven trucks.
And that includes 918000 or 2500.
<unk>, which is dominated by.
The small carrier so they don't buy new trucks, they bought in the used market and so the used market right now is it.
As silly as far as what a used truck is selling forward so as that.
Obviously, the spot market is holding up the market.
Market, if you will assuming thats being hauled by smaller carriers and so thats been propped up.
And then if you have needs. It you need to add a truck or locked that a truck or replace a truck smaller folks are paying goodness 20, 30% more than they would normally.
And so they still got to fund that as interest rates are cheap today.
But and then how are they going to how they're going to pay for that capital.
In the future whenever the future let's.
Call It <unk>.
<unk>, the economy or freight and so on.
It's a pretty big question as you kind of work your way through that in the next two to three years.
In the cycles.
Today, though.
So the good thing for US is that our equipment plans, we can weather and equipment storm whatever that means and the larger fleets are as you've got flexibility <unk> got the capital structure, you've got the flexibility to extend if you have too is the big issue is just supply.
And Stan I continue my trade cycle in the normal course of business and move and right now it's really tough so I could argue until that moves some inflation coming with that.
Not able to move with that because.
And anything everybody's shouldnt getting all kicked up about gain on sale all of us were.
<unk> business of moving equipment.
I mean moving freight.
We're in the business of moving freight yes, if you sell a truck today youre going to make bank on it so okay, but what about tomorrow.
Whats the business tomorrow, what's the cost tomorrow.
So.
To run our business off of gain on sale in the answer.
We're in the bid because that's not what your businesses and so I think there is some obviously some opportunity to help earnings with gain on sale I don't want you tried chocolate.
Folks that haven't tried tackled this big and we're able to keep there.
Our borders ish for this year youre going to have big gains is helping our zones ones ahead of low cycle. This year arent.
Sure So it's a.
I think the smaller folks the equipment issue is a huge is a huge issue over the next two to three years.
Which in my opinion.
English is good for the survivors I think it's a good thing for the survivors, that's going to kind of help the supply demand imbalance question.
And as it raises its head my opinion, you could say it like this nobody thinks labor's going down nobody thinks maintenance was going down nobody think strokes are going down nobody thinks fuel probably going down but if you just say if you think you are in an inflationary environment whenever you have a dip in spot rates the people that <unk> spot rates, it's going to hurt.
Yes.
Great answer I guess, if I look at it as the equipment side is to some degree transitory.
Maybe insurance maiden and tires other inputs are less so and so when you got three trucks versus 3000 or ability to unitize thats little different so it sounded like you guys would agree with that.
Whenever it.
So I appreciate that just one follow up for me.
On the dedicated side.
Have you would you say competition has been a challenge clearly theres been a lot of carriers moving into the space over the last year just.
By virtue of the labor situation it sounds like some of your shipyards are okay.
Exiting contracts. So I mean, what do you think why would they exit if they didnt have an alternative.
I would say, it's maybe maybe us exiting more than them exiting on a couple of situations, where they just they think they can get a one way model or some other type model to work.
Better Forum.
But because of our taking the rates up.
We all know when we started the pandemic, we had 300 plus trucks run in automotive.
We had a big portion of what 20% of our fleet was automotive.
And we're still living Nightmare Darko.
And Ah.
We're about halfway through that on our sales we've taken that from 20% of the fleet and about 10% of the fleet, but one of things you saw in the second quarters. When you can start getting rid of a 150 trucks or so and there are 400 trailers that are all over the United.
States think about the costs that are involved in sand.
I'm never going to come back, but I can't handle this shutting down a plant every other week I mean, I can't do that in.
We have the pipeline.
150, droughts and put them into other types of business, but the second quarter got a tremendous.
And the amount of cost.
<unk>.
And.
You say where that goes.
I need to go to zero, but what retirement, where that's going to go.
Maybe just one quick follow up on that you talked about.
I think you've historically talked about dedicated trying to sort of go after.
Pieces of business with $10 $15 20 trucks as opposed to sort of larger swaths of contracts that you think that's still the right strategy and is that working.
It is but here's what I'd say it is but it takes a while to get there.
When you are taking a little bit in March.
Big lots are easier than they failure.
Faster, but it takes a lot more swings at the point on those 10, and 20 deals and so I would tell you a lot of what we're adding are those top accounts.
But to David's point, when you're when you're exiting 80, or 90 or 100, and you've got to make it up with four <unk>.
There's a lot of cost in.
Moving all the trucks and trailers and drivers to do that one of the things just to add onto the dedicate four of our top 10 customers in dedicated had major supply chain issues in the third quarter three of them.
And one of them had to do with the ports and.
So.
Again, it's.
The costs.
<unk> two is David Joey most said.
Downsize some business and then one for your top 10 customers have major supply chain issues.
Part of the reason the dedicated ran we ran for the full quarter.
Thanks, so much for the time.
Sure.
Once again, if you would like to ask a question. Please press star one we'll take our next question.
Caller. Please go ahead.
Hey, guys its Jason Seidl from Cowen.
Hello, Jason.
So I apologies.
I went on a little bit late here, but one or two.
Drill down on the dedicated and sort of how you are looking at that improvement understand you got rid of some accounts and there were some supply chain issues in the quarter, but what sort of improvement do you think that we're going to see.
<unk> over quarter, and then how should.
<unk> you look at some of the new accounts that you're taking on their level of profitability as we look out to 'twenty two.
Here's what I would say.
Well, we we ran kind of that high 80 high Ninety's O R. In September once we got through.
Our August and September once we got through all of that cost in July.
And we feel confident that we're going to be able to improve sequentially.
From three to four.
And so we're trying to leave it at that right now, Jason, but it's going to improve from what you saw in Q3 in the fourth quarter.
Should we.
And I think youll see some incremental improvement from Q4 to Q1.
So.
The incremental improvement is.
This coming.
Let me ask it another way what percent of your business changed over in the quarter to new customers.
Here in the quarter, probably 10% during the quarter.
Yes.
And then and then we've got another 5% in process right now.
Another 5% is it safe to say that the.
The accounts that have changed over are well in the <unk>.
Ability levels. Okay can we look at the perfect I wanted to follow up.
On a question that Scott asked you asked about CV trucks, I want to come out of from another angle.
When you look at increased driver pay look at increased recruiting costs.
What on a percentage basis how.
How much more does it cost you to put a new but in a seat right now.
Well in.
Driver driver pay Q2 over Q3, just in the dedicated is up about 12% and then you're going to have the increased cost of recruiting and so it's.
20%, probably 15% to 20%.
Okay from Q2 to Q3 and installed the rights up nicely as well too but rates are up but so are the costs.
Only only expedited side.
Beginning we raise pay as we said in July and we're going to have another.
Pretty sizable pay increase coming out on the expedited side in the next few weeks.
Okay.
Okay fair enough.
Switching over.
A little bit to the warehousing side of things.
Obviously, we saw a spike up there in the in the in the.
Or how should we.
Look at that business, you talked about partially offsetting some of the costs going forward.
So where you can get somewhere between.
<unk> and <unk> in terms of that or.
Yes.
I would say.
Q3, Q4 investment for growth I think youll see more revenue.
Better or in Q1.
That sounds fair enough lastly.
Talk a little bit obviously, your Dutch tender you you probably didn't get anywhere near as many shares.
As you wanted.
Unfortunately today Youre getting another bite at the Apple in terms of a much lower stock.
And then where you were before.
And any thoughts on.
You know kind of repurchasing your shares on on a regular basis.
At these current levels.
Yeah, I think Jason.
We're disappointed.
We saw really.
Pricing in the market wasn't recognizing it in.
We came out big and we're wanting to go after it obviously the market didn't play with US and said Oh wait a minute that's too cheap I'm not going to sell at that so the market moves so that wasn't our strategy, we want to buy and <unk>.
So that desire dependent on.
Good bad nail value and the recognition of value and our progress remains on the table.
I won't comment if we're going to.
Two.
Irregular program or whatever but its trip said earlier and I said, I think anything around capital structure and or growth off.
Does that make sense because of where the balance sheet is as we're looking at everything very very closely.
Well you are in a much nicer position now than you were a few years ago that's for sure.
I appreciate your time as always.
Thank you Jason.
Thank you we'll take our next question.
Opportunity.
Yeah.
Okay.
Yeah.
This is Nick Farwell.
Could you comment a little bit about your hedging strategy fuel hedging strategy to what degree have you implemented it to it to what degree or are you going to be implemented.
Where do you stand in that.
[laughter], none none and maybe.
Nate because you've known for a long time, we don't have anything outstanding right now.
Looking back she had we did we.
We've historically been pretty active in the market.
Yes.
And.
Yeah, we've had periods of time, where it was really good in period of times of what the difference between then and now is there was there are several chapters, where we had to make sure our cost was fixed as possible and so we're well into.
To take on some.
Additional insurer.
In it and it's too.
Just to know what our cost was as we were kind of going through some various.
Transition times.
Today with where we are.
And I can say overall, you know it was a negative but the periods some of them, we did really well some we really.
And really pushed a lot of money, but our cost is fixed.
And so we've taken a more.
Let's say aggressive approach and kind of let's call. It rod the market if you will.
Not that we're not hedging we're not interested ever ever. It's just we're taking a little bit more.
And whenever you want to call it aggressive approach on that and kind of ride with the market. Our surcharge program is still really good the recovery percentage continues to increase.
I am not the net cost of fuel after surcharge.
We're in pretty good shape and are more concerned about the impact of fuel to the economy.
Economy than I am to us because of the strength of our our surcharge program. If you take into consideration the time lag in the surcharge.
Does that cover quote unquote as a gross statement.
The swing in energy price 75.
Oh, okay. Okay.
Okay.
And the other.
Question is what as you restructure expedited Ah.
And you focus more on on longer term customers in what ways has this changed your geographic activity. Your lanes is it is it.
It did it shrink your average length of haul did it take you out of the West coast at a focus you more in the.
Northeast what are the implications.
Hey, Nick this is Paul.
A link to haul and expedite the franchise's probably as long as it's been the average over the last five or six years. So I'd.
I'd say, it's more of a science.
Okay, great. Thank you Paul we did Nick its Scott.
Scott.
The long term contracts with the customers versus having some of those customers. We've had a lot of them for years and years of years, but we just affirmed it up so that theyre in the downtime that they have got more they'll be picking us.
That load than somebody that the nickel them.
<unk> cheaper than us during the tough times and that's really what the contract does.
And so that and then.
And again, there is no dedicated quote and the expedited, but we've got 60% of our freight Thats engineered.
I mean, it's going from a debate back day.
They are a b C back to a and.
We started this year that number was probably about 20% and we're up to 60% of that it will probably go up to about 70% of the freight.
Generic and the turnover is unbelievable better on that group of drivers there.
Have the consistency.
I say that data all the way back in the past.
Go ahead Josh.
No I was going to say that.
Anecdotally, which is [laughter] a week.
Insight, but it but perhaps an insight.
Driving and I'm in California, and driving up to Lake Tahoe are down too.
The southern part of the state in the past I've seen covenant trucks at a fair a fair number of covenant trucks.
And others, obviously Gordon in U S.
Hum.
It's very unusual over the last three four months for whatever it's worth very few named Kate what would I call.
Brand name long haul truckers, but Gordon you guys, USPS, Brexit et cetera, it's almost all logistics and I find that confusing maybe you can kind of.
Enlightened me is why that's the case, especially around the port of L. A I'd say just.
I'm astounded.
Oh Boy you got first of all our bright go into in particular, California has not changed a bit we are we're still running the same same bonds.
Finally, I'd say, 90% of them are the same lanes that we've always ran so you know you are you just not seeing the trucks.
That said as we all know.
California is a is the only state into itself and.
Okay.
Or I'll watch.
No 200, whatever that got 200000 containers out of the ocean and well no wonder I mean, we could have been predicting some of this.
10 years ago, where some of the craziness of the state of California has.
And so that said that said, there's a lot of carriers are saying, hey managed spray that covenant, let somebody else that wants to go to California take my assets off it and quote broker it out going.
No. It's coastal covenant really does not do that we've been committed to California for many years, but that's another reason, you're seeing logistics and off brands, whose that I guarantee you. Those carriers are you that you used to see are still controlling the freight, but they're saying why am I going to California, let somebody.
Body else go.
Well I live here, so I can tell I can totally endorse what you're saying [laughter]. Thank you very much David doesn't surprise me.
Thanks, Nick.
Thank you that concludes today's question and answer session. Mr. Hogan at this time I will turn the conference back to you for any additional or closing remarks.
Onto the west Okay. Thanks, everybody for participating Victor Victoria. Thank you for your help and we will talk to everybody next quarter. Thanks a lot.
This concludes today's call. Thank you for your participation you may now disconnect.