Old Dominion Freight Line, Inc.

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 and through May 1st, 2020 by dialing 719-457-0820. The replay passcode is 150-2975. The replay of the webcast may also be accessed for 30 days at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements among others regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release, and consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events, or otherwise. As a final note, before we begin today, we welcome your questions, but we ask, in fairness to all, that you limit yourselves to just a couple of questions at a time before returning to the queue. Thank you for your cooperation. At this time, for opening remarks, I would like to turn the call over to the company's President and Chief Executive Officer, Mr. Greg Gant. Please go ahead, sir.

Good morning, and welcome to our first quarter conference call. With me on the call today is Adam Satterfield, our CFO. After some brief remarks, we will be glad to take your questions. First quarter seems like a distant memory at this point, but we were pleased with our financial results for the quarter. We improved our operating ratio to a new first quarter company record, and our 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 were cautiously optimistic at the beginning of 2020 as we believed the operating environment would turn positive. Our volumes were trending in line with normal seasonality for the fourth quarter of 2019 and 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 the COVID-19 pandemic would have on the country and the general business environment. While no one could have fully anticipated the effects of this pandemic, the situational awareness guiding our response was developed from the crisis management planning exercises that our team periodically performs. One of the most critical things we focused on during training in this importance of timely 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 addressed the rapidly changing environment. While no plan will be perfect in these types of situations, our response was coordinated, quick, and effective. once again proving the flexibility of our people and our business. I believe our response has 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 difference becomes most evident during challenging times. With that in mind, the safety and well-being of our OD family of employees was and continues to be our first priority as we address the impact of the COVID-19 pandemic. We have followed guidelines issued by the US Centers for Disease Control and Prevention and the World Health Organization related to employee health and safety, while also adhering to any national, state, and local mandates within the areas we serve. Among our many initial initiatives, we have distributed face coverings to our employees, increased the cleanings of our facilities, limited non-employee visitors, established social distancing practices, and provided resources for our employees to clean and disinfect their trucks and workplaces. We also provided non-executive 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 of the response of our OD family of employees as we continue to deliver best in class service. In terms of how we have responded to the rapid decrease in business levels, Associated with the 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 of 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, we would not have 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 increased for many of our customers, which further supports our existing business models. We are fortunate to have so many large national account customers that remain open for business. Although these customers continue to ship goods, often on an 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 steady ever since. This has allowed us to quickly adjust to our new daily shipping accounts. The unfortunate reality of the sudden and significant reduction in revenue, however, has been a necessary adjustment to our workforce. In this case, and with the belief that business levels will be restored once the economy reopens, we implemented an employee furlough program. For the duration of this program, we will provide health benefits for these employees at no cost, and they will also retain their seniority with the company. Other measures to reduce cost have included parking certain equipment to minimize maintenance expense while also improving the efficiency of our fleet. We discussed on our fourth quarter call that our fleet was already a little heavy as we entered 2020, which was why our capital expenditures for equipment was lower than normal this year. We will still incur monthly depreciation costs on all of our units, but this strategy allows us to maintain adequate equipment capacity for the foreseeable future. We are currently experiencing an environment unlike anything we have ever seen, but we continue to be confident that our business model works up and down the economic cycle. The majority of our costs are variable, and we are doing an excellent job of managing our costs in relation to the drop in revenue. The rapid decrease in business and ongoing uncertainty about the macroeconomic environment add difficulty to our decision-making process. We have quickly adjusted while also simultaneously preparing for how we will manage increased business levels when volumes return. We are also encouraged by recent news that certain states are in the process of allowing various businesses to reopen. I believe our country will return as strong as ever and fully realize that responding to rapid growth can be difficult. We know this from experience as we have seen many periods with 20 plus percent revenue growth. I am confident that our past experience, existing capacity, and dedication of the OD team puts us in a better position than any other carrier to respond to increased customer needs whenever that time comes. I am incredibly proud of our employees for both our performance in the first quarter and their response to this pandemic. Our employees are on the front lines and clocking in every day so that OD can continue helping the world keep promises. Thank you for joining us this morning, and now Adam will discuss our first quarter financial results in greater detail.

Thank you, Greg, and good morning. Old Dominion's revenue for the first quarter of 2020 was $987 million, which was a 0.3% decrease from the prior year. The first quarter of 2020 included one extra workday, so the decrease per day was 1.9%. Our operating ratio improved 60 basis points, and our earnings per diluted share increased to $1.11. These 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 times that was partially offset by the 2.6% increase in LTL revenue per hundredweight. fuel surcharges, LTL revenue per hundredweight increased 3.3%. While 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 month of March were flattish as compared to the same period of 2019 due primarily to a 6.3% increase in weight per shipment. It is important to understand that Revenue per hundredweight is a yield measurement that is not always equivalent to actual pricing. Multiple factors can have a significant impact on revenue per hundredweight, 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 cent sequential decrease in revenue per hundredweight excluding fuel surcharges. The last time our average weight per shipment changed so quickly was the 60-pound decrease from June to July of 2018, which led to a 54-cent sequential increase in revenue per hundredweight, excluding fuel surcharges. Changes in revenue per hundredweight are 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-term pricing philosophy. We also believe the pricing environment remains relatively rational considering the significant drop in demand due to the COVID pandemic. Our first quarter operating ratio improves 60 basis points to 81.4 due primarily to the quality of our revenue and increased operating efficiencies. These efficiencies allowed us to effectively improve our direct operating costs as a percent of revenue in the first quarter. Our average headcount also decreased 5.2% compared to the 5.1% decrease in average shipments per day. In regards to our April top line trends, revenue 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. The decrease in revenue also reflects reduced fuel surcharges, as the average price of diesel fuel is 20% lower than it was in April of 2019. Our actual results have been slightly better than we initially expected when the stay at home and similar orders were implemented throughout the country. We take no solace in that fact, however, and eagerly await the reopening of markets around the country. As usual, we will provide actual revenue-related details for April in our T&Q. Due to the unprecedented decrease in revenue we experienced in April, We implemented the furlough program in an attempt to balance the number of employees actively working with current freight trends. As a result, our current number of active employees has decreased approximately 15% as compared to April 2019. While the loss of revenue will have a deleveraging effect on our fixed costs, approximately two-thirds or more of our costs are variable or semi-variable. We will continue to make our best efforts to match these costs with revenue while also controlling discretionary spending. We will not over cut expenses, though, as 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, and door capacity in place to support our customers when the economy and business levels return to normal. We're fortunate to have the balance sheet strength to provide us with this flexibility. Old Dominion's cash at the end of the first quarter totaled $357 million, and our outstanding debt totaled only $45 million. We have approximately $200 million of borrowing capacity on our revolving line of credit, and we also communicated with our traditional lenders to discuss additional sources of liquidity if needed. In addition, we continue to generate strong cash flow from our business. Our cash flow from operations totaled $204 million for the first quarter, while capital expenditures were $52.2 million. We returned $196.6 million of capital to our shareholders during the first quarter, including $178.3 million of share repurchases and $18.3 million in cash dividends. Our effective tax rate for the first quarter of 2020 was 26.3%, as compared to 26.1% in the first quarter of 2019. We currently expect our effective tax rate to be 26.3%, This concludes our prepared remarks this morning. Operator, we will be happy to open the floor for questions at this time.