Old Dominion Freight Line, Inc.

Good evening and welcome to the first quarter 2021 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through April 30th, 2021 by dialing 719-457-0820. The replay passcode is 762-3805. 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, that are 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 do 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 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. We are pleased to report a great start to 2021 for Old Dominion. Our financial results were highlighted by new first quarter records for revenue, operating ratio, and earnings per diluted share. The operating momentum that began in the second half of 2020 continued through the quarter, and we also benefited from an improving domestic economy. Our revenue increased to $1.1 billion as a result. which is the highest level of quarterly revenue we have ever achieved. The 14.1% revenue growth rate was also our highest since the fourth quarter of 2018. After essentially going through two flattish years in 19 and 20, while our revenue was relatively flat over the past two years, and that was an unusually long period for us to go without growth. We maintained our commitment to our long-term strategic plan and invested during those times for our future. Our first quarter financial results validate the benefits of this long-term strategy. While our strategic plan has worked throughout many economic cycles, we generally see our largest increases in market share when the domestic economy is strong and industry capacity is generally limited. This is the environment in which we are now operating. We have also recently received encouraging feedback from many of our customers regarding the ongoing recovery of these business levels and their increased demand for our services. As a result, we expect to see a continued acceleration in our market share trends as we progress through this year. Our focus is never to simply increase market share and revenues. Our objective is to win market share in a way that can produce profitable revenue growth. We achieved this goal in the first quarter as our ability to deliver best-in-class service at a fair price contributed to the increase in our volumes. The resulting improvement in density as well as an increase in yield that exceeded cost inflation led to the 76.1% operating ratio for the quarter and 53% increase in earnings per diluted share. With a favorable operating environment and improving trends, we intend to invest significantly in all elements of capacity this year to support our revenue growth initiatives. This starts with our OD family of employees which already grew by over 1,000 new full-time employees during the first quarter. We intend to hire additional employees this year to further increase the capacity of our workforce. In addition, we will support our team's ability to deliver superior service by investing approximately 605 million in capital expenditures during 2021. This total includes new tractors and trailers, as well as an expansion of our service center network that could include an additional four to six service centers. We will also continue to invest in new technologies that are designed to improve customer service and increase the efficiency of our operations. The OD Team will be diligent in managing productivity, cost, and capacity this year to maximize our ability to produce profitable growth in 2021. This diligence, however, will not affect our focus on the long-term opportunities for our business. We believe we are the best positioned company in the LTL industry to win market share in both the current environment and over the long term. This provides us with confidence that the continued execution of our strategic plan, combined with our financial strength and available network capacity, can produce additional growth in earnings and increase shareholder value. 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 2021 was $1.1 billion, which was a 14.1% increase from the prior year despite having one less workday. Our operating ratio improved 530 basis points to 76.1%, and earnings per diluted share increased to $1.70. Our per-day revenue growth of 15.9% included a nice mix of increases in both our LTL tons and yield. LTL tons per day increased 10%, while our LTL revenue per hundredweight increased 5.6%. We are winning market share as demand for our industry-leading service has increased while the domestic economy is improving. In addition to our service advantage that includes 99% on-time performance and a cargo claims ratio of 0.1%, our proven strategy of investing in service center capacity ahead of anticipated growth has also provided us with a capacity advantage in the marketplace. This strategy is different for many of our competitors, as we believe the average number of service centers operated by the other large LTL carriers has decreased over the past 10 years. We currently have approximately 25% excess capacity within our service center network, which is in line with our long-term targets, and we plan to further expand our network this year to stay ahead of our growth. Our plan is to ensure that our network is never a limiting factor to growth. On a sequential basis, revenue per day for the first quarter increased 3.3% as compared to the fourth quarter of 2020, with LTL tons per day increasing 0.7% and LTL shipments per day increasing 1.5%. These were all above our normal sequential trends, which typically decline from the fourth quarter. The monthly sequential changes in LTL tons per day during the first quarter were as follows. January increased 0.3% as compared with December, February decreased 4.4% versus January, and March increased 10.7% as compared to February. The 10-year average change for the respective months are an increase of 1.2% in January, an increase of 2.2% in February, and an increase of 5.1% in March. While there are still many workdays that remain in April, our revenue performance has remained strong. Our month-to-date revenue per day has increased by approximately 45 to 50% when compared to April of 2020. As a reminder, our revenue decreased 19.3% in April 2020 due to the significant impact of the COVID-related shutdowns. We will provide the actual revenue-related details for April in our first quarter Form 10-Q. Our first quarter operating ratio improved to 76.1% with improvements in both our direct operating cost and overhead cost as a percent of revenue. We have said many times before that the long-term improvement in our operating ratio requires an improvement in density and yield both of which are generally supported by a favorable macroeconomic environment. The strength of our first quarter results reflect how important these factors are to our success. Our direct costs benefited from an improvement in our line haul laden load average and pickup delivery shipments per hour during the quarter. We lost a little productivity on the dock, but that is common when business levels accelerate and we add a significant number of new employees. While we would like to see our platform productivity improve, We believe it is more important for these employees to properly load our trailers to maximize employee safety and line haul efficiency while also protecting freight from damage. As Greg mentioned, we will continue to add drivers and platform employees during the second quarter as our volume trends continue to accelerate. We will also continue to use purchase transportation to supplement our workforce until the capacity of our team can support our anticipated growth. We improved our overhead cost as a percent of revenue during the first quarter, primarily by successfully leveraging our revenue growth. As expected and mentioned on our fourth quarter call, certain costs that were reduced in 2020 because of the pandemic have started to increase. While many of these costs, such as travel and customer entertainment, are not completely back to pre-pandemic levels, we expect that there will be sequential increases in aggregate overhead costs this year. We will maintain our disciplined approach to controlling discretionary spending, however, and make every effort to minimize cost inflation in other areas. Old Dominion's cash flow from operations totaled $310.3 million for the first quarter, and capital expenditures were $51 million. We currently anticipate our capital expenditures to be approximately $605 million this year, which includes $275 million for service center expansion projects. We utilized $309 million for our share repurchase program and paid $23.2 million in dividends during the first quarter. The total share repurchase amount includes $275 million attributable to an accelerated share repurchase agreement that was executed during the first quarter. Our first quarter shares outstanding reflects the initial delivery of shares under this agreement and a final calculation of total shares repurchased will occur no later than the end of August of this year. Our effective tax rate for the first quarter of 21 was 26.0% as compared to 26.3% in the first quarter of 2020, and we currently expect our annual effective tax rate to be 26.0% for the second quarter of 21. This concludes our prepared remarks this morning. Operator will be happy to open the floor for questions at this time.