Old Dominion Freight Line, Inc.

Good morning and welcome to the second 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 August 7, 2020 by dialing 719-457-0820. The replay passcode is 171-8368. 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 conference over to the company's President and Chief Executive Officer, Mr. Greg Gant. Please go ahead, sir.

Good morning, and welcome to our second 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. The OD team delivered solid financial and operating results for the second quarter, despite the operating challenges we faced with the economy. Although our revenue declined 15.5%, We were pleased to improve our operating ratio to a quarterly record of 77.8%. We accomplished this by focusing on improving our yield, managing our variable cost, and controlling our discretionary spending. Our yield management process has strengthened the quality of our revenue and profitability over the long term. Through this process, we manage profitability on an account-by-account basis. We believe this approach is consistent and fair for our customers. It is also supportive of our ongoing investments in capacity and technology while helping offset cost inflation. We believe customers appreciate the consistency of this approach as they know what to expect from us each year. Providing superior service at a fair price is our value proposition. which is critical to our long-term customer relationships. Our team is relentless in its commitment to providing the very best levels of service to our customers regardless of the economic environment. While we contended with many operating challenges in the second quarter, including the 16.6% decrease in shipments per day, we produced a new company quarterly claims ratio of 0.1% while also improving productivity. There are many components of our industry-leading service, and based on customer feedback, we believe the gap between us and our competition has widened in the current environment. It has historically become a common practice in our industry to focus primarily on cost in a recessionary environment. This narrow focus generally leads to customer service failures, which is why we are so committed to the service standards that support our revenue quality. We have long believed that this creates a competitive advantage for us in our industry, and it is especially critical now because the importance of high quality and dependable service seems to have recently increased for many of our customers. As evidence to this trend, We have been awarded new business in the past few months from customers that have historically provided lower rates rather than overall value. This trend not only leads us to believe that many of our competitors are remaining relatively disciplined with their pricing, but it is also encouraging for future market share opportunities. While the quality of our revenue is critical to our operating ratio, Appropriately managing our cost is just as important. Minimizing our cost inflation on a per-shipment basis is an ongoing process based largely on the productivity of our employees as salaries, wages, and benefits represent our largest expense. As a result of operating efficiencies and improved productivity, we are able to improve our direct cost as a percent of revenue during the second quarter. The unfortunate reality of the sudden significant reduction in revenue that occurred in April 2020 was an adjustment to our workforce to balance our employee count with available work. Believing that the economy could recover quickly, we implemented an employee furlough program that initially resulted in a 15.5% year-over-year decrease in our full-time employees in April. While the economy is still recovering, our volumes increased sequentially in May and June, and we are cautiously optimistic that this accelerating trend can continue. Many of our furloughed employees have been able to return to work as a result of this improvement. We took various other measures to reduce operating expenses while also controlling discretionary spending to reduce overhead costs. In addition, circumstances associated with the COVID-19 environment created certain cost savings that are expected to diminish in future periods, such as a reduction in group health and dental claims, travel, and customer entertainment. The second quarter of 2020 was one of the most difficult periods I have experienced in my career, and I am especially proud of our team's ability to respond quickly and manage our operations in this environment. I think the quality of our results shows that our business model works in both good times and bad. While certain challenges will likely continue until the economy recovers, we believe there will be long-term changes to supply chains that should create opportunities for the LTL industry. With our industry-leading service, our unmatched long-term investments in service center capacity and the dedication of our OD family of employees, I'm confident that we are in a better position than any other carrier in the industry to respond to increased customer needs for LTL services. As a result, I am also confident in our ability to continue our long term of producing profitable growth while increasing shareholder value. Thank you for joining us this morning, and now Adam will discuss Core financial results in greater detail.

Thank you, Greg, and good morning. Old Dominion's revenue for the second quarter of 2020 was $896.2 million, which was a 15.5% decrease from the prior year. Our operating ratio improved 10 basis points to 77.8%, which contributed to our earnings per diluted share of $1.25 for the quarter. Our revenue results for the second quarter reflect a 12.1% decrease in LTL tons and a 3.8% decrease in LTL revenue per hundredweight. The decrease in the average price of diesel fuel reduced our fuel surcharges, which had an impact on our top line revenue as well as our yield. Excluding fuel surcharges, LTL revenue per hundredweight decreased 0.5% due primarily to the significant increase in weight per shipment. Multiple factors can have a significant impact on revenue per hundredweight, most notably being the average length of haul and weight per shipment. Changes in revenue per hundredweight are also not linear with respect to changes in our mix. As a result, revenue per hundredweight is a tough measure to evaluate when the mix of our business changes so significantly like it did during the second quarter. While the change in revenue per hundredweight might suggest otherwise, we continue to negotiate rate increases during the second quarter and believe underlying pricing trends remained relatively consistent. We believe revenue per shipment is a better measurement as we focus internally on maintaining a positive spread between our revenue and cost per shipment. The 4.9 percent increase in revenue per shipment excluding fuel surcharges for the second quarter was relatively consistent with the change in the first quarter of 2020 as well as our long-term trends. With respect to our revenue trend during the second quarter, revenue per day on a year-over-year basis was down 19.3% in April, but then sequentially improved in the remaining months of the quarter. Average revenue per day in June, for example, was down 11.4% as compared to June 2019. Our change in volumes also followed a similar pattern. On a sequential basis, LTL shipments per day decreased 15.7% in April as compared to March 2020. Shipments per day then increased 9.7% from April to May and increased 7.1% from May to June. The sequential acceleration in shipments and revenue has continued into July. With only a couple of days remaining in the month, our current revenue per day is trending down approximately 3% plus or minus. As usual, we will provide the actual revenue-related details for July in our second quarter Form 10-Q. Our operating ratio improved 10 basis points to 77.8%, which was a record for us despite the significant decline in revenue. More than two-thirds of our costs are variable or semi-variable, and our team was effective in matching these costs with the change in revenue while also controlling our discretionary spending. Our operations team also did an outstanding job with improving efficiencies during the quarter. We have historically improved productivity during recessionary environments, and from experience, we believe we can maintain much of this productivity once we return to a growth environment. While the loss of revenue certainly had a deleveraging effect on our fixed cost, the improvement in our direct cost as a percent of revenue more than offset the increase in overhead cost as a percent of revenue. Old Dominion's cash flow from operations totaled $312.2 million and $516.2 million for the second quarter and first six months of 2020 respectively, while capital expenditures were $67.9 million and $120.1 million for the same period. We returned $146.1 million of capital to our shareholders during the second quarter and $342.7 million for the first half of the year. For the year-to-date period, This total included $306.8 million of share repurchases and $35.9 million in cash dividends. Our effective tax rate for the second quarter of 2020 was 25.7% as compared to 26.1% in the second quarter of 2019. We currently expect our effective tax rate to be 26.0% for the third quarter of 2020. This concludes our prepared remarks this morning. Operator will be happy to open the floor for questions at this time.