Old Dominion Freight Line, Inc.

Good morning and welcome to the third 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 November 4th, 2020 by dialing 719-457-0820. The replay passcode is 810-5860. 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, we welcome your questions today, but we do ask, in all fairness, that you limit yourselves to just a few 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 third 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 strong financial and operating results for the third quarter, despite a number of unusual operating challenges related to the effects of the pandemic. After experiencing one of our sharpest ever declines in volumes during the second quarter this year, the sequential increase in volumes during the third quarter was one of the strongest in our history. Through incredibly hard work and dedication, the OD team rose to the challenge and continued to deliver on-time service of 99% while matching our record low cargo claims ratio of 0.1%. We produced record profitability during the third quarter of 2020 by continuing to execute a simple operating plan, which we have described to you many times before. The long-term strategy is focused on delivering a value proposition of superior service at a fair price, which generally creates the capital for us to further invest in the capacity and technology that our customers demand to support their own initiatives. Superior service also goes beyond on time and claims free deliveries. Every member of the OD family understands the value of our service and how critical it is for supporting our yield management initiatives. Our long term approach to managing yields on an account by account basis has strengthened the quality of our revenue and profitability over the long term. We believe customers also appreciate our consistent pricing philosophy, which should continue to be a key factor in our ability to win market share over the long term. With the pricing environment improving and expectations for rates to rise further in our industry next year, we believe we are at an inflection point where market share wins can accelerate. While most people may look forward to turning the page on 2020, we will work tirelessly to finish this year out strong, and we'll also use the period to prepare for 2021. We believe the domestic economy and customer demand will continue to improve, so we must ensure that we have the necessary elements of capacity to support our anticipated growth. Given our long-term market share opportunities, We intend to steadily invest in equipment and additional service center capacity that should include the opening of several new facilities before the end of the first quarter next year. We will also continue to invest in our most critical asset, our OD family of employees. We are actively hiring additional drivers and platform employees to balance our workforce with growing demand and shipment trends. And we will continue to provide our team with the training, benefits, and opportunities to succeed and support our customers. With our unique position in the market and ability to further invest in ourselves, I am confident in our ability to continue to grow profitably while increasing shareholder value. Thank you for joining us this morning. And now Adam will discuss our third quarter financial results in greater detail.

Thank you, Greg, and good morning. Old Dominion's revenue for the third quarter of 2020 was $1.1 billion, which was a 0.9% increase from the prior year. We operated very efficiently during the quarter and established new company records for our operating ratio and overall profitability. Our operating ratio improved 480 basis points to 74.5%, and earnings per diluted share increased 24.8%, to $1.71. Our revenue growth for the third quarter may have been modest, but we were pleased to actually return to a positive trend. The increase reflects a 1.3% increase in LTL tonnage that was partially offset by the 0.6% decrease in LTL revenue per hundredweight. This yield metric, as well as overall revenue, was negatively affected by the significant decrease in the average price of diesel fuel as well as changes in the mix of our freight. Our underlying pricing trends remained relatively consistent during the third quarter, as indicated by the continued strength in our LTL revenue per shipment. On a sequential basis, revenue per day for the third quarter increased 18.1% as compared to the second quarter of 2020, while LTL shipments per day increased 15.4%. Following the steep drop in volumes in April, that generally resulted from the initial stay-at-home orders, our shipment levels have steadily increased above our normal sequential trend. At this point in October, with almost a week remaining in the month, our revenue per day is trending higher by approximately 2% to 2.5% as compared to October 2019. Our shipments per day are trending in line with normal seasonality, but our weight per shipment is in the 1,570 to 1,600 pound range which is lower than the third quarter. While the weight per shipment is still higher on a year-over-year basis as compared to October 2019, the sequential decrease is due to measures we took to limit the number of heavier-weighted LTL shipments in our system as well as improving revenue trends with our smaller customer accounts that generally have a lower weight per shipment than a larger national account. As usual, we will provide the actual revenue-related details for October in our third quarter Form 10-Q. Our third quarter operating ratio improved 480 basis points to 74.5 percent, with improvement for both our direct operating cost and overhead cost as a percent of revenue. We improved the efficiency of our operations and produced increases in our laden load average, P&D shipments per hour, and platform shipments per hour when compared to the third quarter of 2019. While we will continue to add drivers and platform employees during the fourth quarter, as Greg mentioned, we believe we can effectively balance our labor to revenue trend in line with the normal sequential change in this expense line item by continuing to focus on productivity. We will also maintain our disciplined approach to controlled discretionary spending and make every effort to minimize cost inflation in other areas. Old Dominion's cash flow from operations totaled $170.2 million and $686.5 million for the third quarter and first nine months of 2020, respectively, while capital expenditures were $46.3 million and $166.5 million for the same periods. We paid $17.6 million of cash dividends to our shareholders during the third quarter and returned $360.3 million in total capital to shareholders during the first nine months of the year. For the year-to-date period, this total includes $306.8 million of share repurchases and $53.5 million in cash dividends. There were effectively no share repurchases made during the third quarter due to the six-month accelerated share repurchase agreement we executed in May. We recorded the initial delivery of shares in the second quarter, and the remaining unsettled shares will be delivered in the fourth quarter. Our effective tax rate for the third quarter of 2020 was 24.8% as compared to 24.9% in the third quarter of 2019. Our rate in the third quarter benefited from certain discrete tax adjustments, and we currently expect our effective tax rate to be 25.9% for the fourth quarter of 2020. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.