Covenant Logistics Group, Inc. Class A

Welcome to today's Covenant Logistics Group Q1-22 Earnings Relief and Investor Conference Call. Our host for today's call is Joey Hogan. At this time, all participants will be in the listen-only mode. Later, we will conduct the question-and-answer session. I would now like to turn the call to your host, Mr. Hogan. You may begin.

Thank you, Ross. Welcome, everybody, to the Covenant Logistics Group first quarter conference call. As a reminder, this conference call will contain forward-looking statements. Within the meaning of the Private Securities Litigation Reform Act of 1995, forward-looking statements are subject to risk and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Please review our disclosures with the SEC, including without limitation risk factors in our most recent Form 10-K and our current recent Form 10-Qs. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances. A copy of our prepared comments and additional financial information is available on our website at covenantlogistics.com, the investor section. I'm joined this morning by Paul Bunn, our Chief Operating Officer, and Tripp Grant, our Chief Accounting Officer, and David Parker is available via the phone. In summary... We're very proud and pleased with our first quarter results, which represent yet another quarterly earnings record for any quarter in the company history. In addition, it's the first time in our history where our first quarter earnings were greater sequentially than the fourth quarter. This exciting achievement could not have been accomplished without the contribution from each of our business units. All business units improved its OR versus the fourth quarter. The small acquisition we made in February, combined with a purchase of 655,000 shares and an average price of $22.60 under our share repurchase program, produced earnings accretion to the quarter and is expected to continue. With this strong start to the year and the hard work of our team transforming our business to a less cyclical model, we are confident that we will exceed 2021's full-year adjusted earnings per share target for the four-year of 2022, absent something truly unexpected. The key to my highlights for the quarter were our freight revenue grew 28% to $258 million compared to the 2021 quarter. Adjusted earnings per share increased 141% to $1.35 per share from the year-over-year quarter. Our asset-based truckload freight revenue grew 15% versus the first quarter of 21 with 218 fewer trucks. Our less asset-intensive or asset-light divisions of managed freight and warehouse combined grew 55% compared to the first quarter of 2021. On the safety side, our chargeable DOT accident rate was the lowest on record and 31% lower than a year ago. Our tail leasing company investment produced a record quarter, contributing 30 cents per share. or an additional $0.17 per share versus the year-ago period. Due to the strong cash flow in the quarter, our net indebtedness increased only $22 million after utilizing a combined $52 million of cash and borrowings under our credit facility on the small acquisition and our share repurchases. We finished the quarter with a leverage ratio of slightly less than 0.4 times, a debt equity ratio of 12%, and a return on invested capital of 14%. Now Paul will provide a little color on the items affecting the business.

Thank you, Joey. For the quarter, our asset light business, which are comprised of our managed freight and warehouse, were once again our largest group, both in terms of freight revenue and adjusted operating profit. This group comprised 40% of our total freight revenue and 50% of our consolidated adjusted operating profits. The sheer volume of overflow and special project freight dropped throughout the quarter, but overall revenue margin expanded, covering much of the volume decline. Our warehouse team is doing a great job building a nice pipeline with several startups planned for the remainder of the year. This group remains our top priority for growth, focusing on talent acquisition and technology enhancements. We are very excited about the prospects within this group. The expedited division was 31% of our consolidated freight revenue and produced 38% of our adjusted operating profit in the quarter. It grew its revenue 16% versus the year-ago quarter due to a strong rate environment and contribution from the small acquisition. The acquisition contributed to the sequential weighted average growth of 36 tractors in the quarter. Expedited produced a record first quarter with an 88 adjusted operating ratio, 260 basis points better than the fourth quarter, a first for our company. Even in a slowing environment, new business startups continue, and our team count is growing in the second quarter. After multiple increases in 2021, we feel our driver pay is in good shape at present, but we'll continue to watch it closely. The dedicated division was 29% of our consolidated freight revenue and 12% of our adjusted operating profit in the quarter. This division continued its steady sequential improvements with adjusted OR improving 180 basis points from the fourth quarter and 580 basis points from the year-ago quarter. Revenue per truck continues a sequential improvement of 8% from the fourth quarter, which has been a big key to sustainable gains. Also, the wheat and feed plan for accounts continues, with seven startups completed in the first quarter, totaling 61 trucks, and five or six planned in the second quarter for around 80 trucks. The pipeline for the remainder of the year is robust, supporting our expectation that margin improvement will continue. We plan to begin briefly discussing each quarter the performance of our 49% interest in Transport Enterprise Leasing, or TAIL. TAIL is an investment that we've had since 2011. During that time, TAIL has grown to over 2,000 tractors and 6,500 trailers in its portfolio. Our investment in TAIL is included in other assets in our consolidated balance sheet, and has grown from our initial cash investment of $4.9 million to $51 million, including the cumulative earnings we have recognized. As a reminder, TEL focuses on managing lease purchase programs for its clients, leasing trucks and trailers to smaller fleets and shippers, and aiding clients in the procurement and disposition of their equipment through a robust equipment buying and selling program. TEL contributed a total of $0.30 per share to our overall results. or an additional 17 cents a share versus the year-ago quarter. TEL's revenue in the quarter grew 41%, and pre-tax operating profit margin increased 43%. Due to the business model, gains and losses on self-equipment are the normal part of TEL's business and can cause earnings to fluctuate from quarter to quarter. We are very happy with the TEL leadership team, its future, and its contribution to Covenant's future. TEL is an untapped value for our shareholders. Joey will now walk us through our outlook.

As we said in the release, we expect to have a good second quarter and delivered record four-year adjusted earnings per share in 2022. This expectation takes into consideration our expectation of a more balanced freight environment in the second half of the year. On this point, we think it's important to differentiate between the spot market, which has more volatile rates and volumes and receives a lot of analysts and investor attention, and the contract market, where most of our freight comes from, and which our customers tell us will retain consistent demand for the remainder of the year. Thus, while some of the froth may come out of our rates and volumes, we expect the core to remain solid at least for the next couple of quarters, absent a major shock to the system. Even in a moderating freight environment and with increased capital expenditures for the remainder of the year, we expect to generate positive cash flow, giving us the resolve to stay focused on good, long-term strategic investments. Looking further ahead, we also believe that 2023 will be a breakout year for Covenant, proving that our model is more durable than in the past. We stand firm that the changes we've made to our business model over the last few years will provide more consistent earnings and cash flows compared with our results in the past cycle troughs. We believe time and performance will provide clarity to that. In the meantime, we will continue to produce cash and maximize opportunities for our shareholders. Thank you, Ross, and now we'll open up the call for questions.

We would like to ask a question. please press star 1 on your telephone keypad now, and you will be placed in the queue in the order received. Please be prepared to ask your question when prompted. Once again, if you'd like to ask a question, please press star 1 on your phone now. Our first question comes from Scott Group from Wolf Research. Please go ahead, Scott.

Hey, thanks. Good morning, guys. I'm Scott. Scott. Joe, we just wanted to follow up on your outlook there. We typically see a pretty nice sequential improvement in earnings from first quarter to second quarter. Any thoughts on how to think about 2Q?

Scott, I think what we said was intentional. We feel we're going to have a really good second quarter. I agree. History says that the second quarter exceeds the first quarter. history doesn't say that first quarter exceeds the fourth quarter. So, I think that we feel good about the second quarter. That's probably Scott Osh to say about that right now.

Okay. Maybe talk about then like the individual segments and, you know, where you see the best potential for sequential earnings improvement from first quarter and where you see potential Risk from quarter levels.

I've got this, Paul. I'll kind of walk you through it. I mean, I think expedited could be flattish probably with the first quarter. Dedicated, I think you're going to see some continued improvement, sequential improvement from the first quarter. Warehousing, probably flattish with the first quarter. And then, as you know, the wild cards manage freight. And I think you're going to see that pull back from the first quarter, just from what's going on in the market. Tail, I think, you know, tail is also, we started talking about tail more this time. You know, I think tail could pull back a little bit. I don't think you'll see quite the acceleration you saw from fourth quarter into the first quarter. So expedited and warehousing flattish, dedicated better. tell and manage trends of the wild cards. And, you know, we really think managed trends margins, you'll see those pull back as well as revenue for the second quarter.

Okay. Joey, you're right that there's a lot of focus, obsession on spot market right now. Just curious, your take of what's going on in the market. Is this the beginning of the end for spot rates? Is this temporary? And then what, if any, impact are you seeing on contractual pricing negotiations? Are you seeing any decel or slowdown in contract pricing?

Well, I just think the first thing is the spot market on the truck side, 1%. I mean, it's very small on the truck side of the business, so it doesn't, quote, bother us. I think, obviously, though, it's a big part of the market, so it can impact the contract side eventually. We all know spot moves first, and then contracts potentially moves after that. I think what we're seeing right now, we're pretty confident that our rates will continue to grow from the first quarter to the second quarter. And so thus far, our contract business looks good. Both expedited and dedicated have new business starting up in the second quarter. So we feel good about that right now, as well as a lot of the work that our expedited team has done to, let's call it, solidify volumes into the future. We're confident that that's going to, you know, help us nicely going into the year. I think where we do see it the most is potentially in our brokerage business, and Paul's already kind of commented on that. I think what I'd point to, though, is, you know, revenue dropped pretty meaningfully from fourth quarter to the first quarter in that group, about almost 20%. So the peak-ish impact, even though peak was small for us, combined with the slowdown in the volume, you know, we did see it there, but then what the results showed was that margins expanded a little bit from fourth to first, which, again, we know that as well. In a slowing spot market, brokerage side tends to expand at least its revenue margin. What happens from this point forward, I think that – Our business pipeline looks good in our brokerage segment right now. The team's doing really good. We just continue to have to pedal down to continue to grow that business. So we'll see. I agree with Paul. Revenue could be down a little. I don't know if it's going to drop a whole lot from where it was in the first quarter. Margins will be the question. Right now margins are holding. So we'll see how, you know, the rest of the quarter plays out, you know, 1%. down GDP in the first quarter. So there's no question. We talked about that back in January, that the economy is going to slow. But for us, we're really encouraged how the year started out and the results of our work the last four or five years.

Scott, I'll add one thing to what Joey said. I think we've tried over the last couple years, and you guys know what we've been doing, we've really tried to make sure we're aligning ourselves with customers where we're actually adding value. And that's what gives us confidence that, you know, this isn't a rate shop play because we didn't maybe take as much advantage of the market as we could have. And so we've really tried to exit through these weed and feed process where we were just a commoditized player. And still got, you know, still got a few of those accounts we're working on. But for the most part, I think we're in better shape than we've been because we're more value add, less commoditized. Yep.

Maybe just to that point, so remind us, because Expedited lost a little bit of money, I think, in 2019. What are the changes within Expedited that you guys have made, and what is the new sort of peak to trough margin range you think for that business now?

You know, I think it's – during the last couple years, as I said, we tried to partner with people who had brought us to the dance, and so – I would say it's a pretty concentrated business, and we've got some multiyear agreements with a number of those customers. And so I think that's what we've done to try to tighten it up. I think the peak to trough is from, you know, high teens to high single digits is probably the peak to trough on the margin standpoint. Okay.

And, Scott, one more point I'd add back to that. If you're looking back at 2019, you remember we had a lot of solo trucks running, including the reefer trucks, formerly known as SRT, running in that division, formerly known as Highway Services. And then in 2020, we kind of changed our segment profile to just purely be a teams-based operation. The fleet count came down quite a bit. But a lot of the volatility that really, you know, caused us to kind of break even, if you will, in 2019 has been pulled out as part of that restructuring we did in 2020. Okay.

Thank you, guys. Appreciate the time.

Thanks, Scott.

Thanks, Scott. Our next question comes from Jack Adkins from Stevens. Please go ahead, Jack. Hello, Jack. Are you on the line? Are you muted?

Yeah, sorry about that. I was muted, guys. Good morning. Thanks for taking my questions. Morning. So I guess maybe if we could start, I'd love to get you to maybe talk a little bit about the acquisition of the quarter AAT. From what you're saying, it was already accretive to results in the first quarter. Tell us a little bit about sort of their business model and maybe how it fits into, you know, your longer-term sort of strategy around reducing some cyclicality within the business?

Yes. A, it's a small operation but profitable. And B, it's primarily all teams, which is obviously a complement to what we do. It's a very specialized group of trucks that work for the government. So it hauls government munitions, if you will. It's a high priority special clearance DOT number, all the drivers are cleared. You know, it's an asset that we've looked at for quite some time. I'm very pleased with the performance of the group. I'm very pleased with the covenant group that's assisting a very, very small operation, but making sure that we understand how to complement our existing team business. And so that's a very small segment in the marketplace. There is some volatility to it, but it's consistent, if you will, from a volume standpoint. So not a lot of – there is some pricing issues, volatility, but the volume is pretty stable. Revenue for truck parameters around that group is very high, much higher than our kind of existing expedited business. So the main thing is that it gives us a diversification with the customer base, A. B, it gives our drivers, and that's as much of it as anything, another opportunity in their career path. So You have to have a lot of experience, no accidents. It pays very, very, very well. But there's high demands for that. You're working with a lot of military bases across the country. So I'm excited. We've got some neat growth opportunities that we're exploring. We're taking it slow to make sure we don't overwhelm, you know, a very specialized team. But I'm excited about our covenant team. So, you know, we're not required, nor will we, kind of disclose results separately. And so it's just a separate division as part of the overall expediter group.

Okay. That makes sense. But it sounds like that's a good acquisition and it's off to a good start. Yeah. We're very pleased. So I guess maybe shifting gears to your TEL investment, obviously that's becoming a bigger and bigger piece of the earnings stream here. I guess when you think about maybe what we saw in the first quarter of How do you break that down between maybe what's longer-term, maybe sustained improvement in the contribution from TEL relative to, you know, maybe some gains that could be flowing through there? And I guess maybe I'm just trying to think bigger picture. You know, is that asset signing, you know, call it three-, four-year-type leasing agreements, and maybe you've got some longer-term visibility there. Can you help us think about that?

Yeah, a couple things just to kind of take a quick picture. As we've said, we've had the investment since 2011. It's made a cash distribution to Covenant virtually every year along the way. I think there was one year that we did not make a distribution. Every year it's made money, every single year. So through the 18-19 recession, through COVID-19, 2020, it's made money. So it's a profitable operation. The business is stable, kind of as evidenced by that. It's been on a steady growth rate. We made a large investment back in 2019, 18, 19, I want to say, that we had to work out of. It did kind of stall the growth for a little while. period of time, but the group did a great job of working our way through that investment. So it does, as we said in the comments, there are three distinct segments. So what you're referring to is the equipment sales business. It's a really neat model from a standpoint, you know, if the client base on the equipment Lease purchase side or the small fleet leasing side has some weakness. The equipment sales side is a great complement to that to move that equipment to the extent it needs to be moved or there's not a new customer to take that equipment. The lease purchase side is very stable. It's medium to large fleets and not what I would call a lot of volatility in that segment. The small fleet leasing has just been steadily growing for several years. And credit profile is strong. The team there does a great job on the credit side. As of right now, there's zero. I'll just share this as an anecdotal point. There's no receivables over 30 days. So very strong credit profile and process. The team does a good job. And they're also very, I call it creative working with their clients. It's more than it's providing a service that they do as well. So it's truly a complimentary service. How do we help you do better in your business? Yes, we're here to make some money and to produce profit, but it truly is a neat operation working with a client. So now, the equipment sales side, yes, it has gains and losses in the markets. Right now, the market's really good. So the extent it needs to move equipment, they're doing well now. And So I think the benefit is always being in the market is the key. We're known as a good-sized buyer and seller. So good markets are bad markets, and I think that's helping the model and has for a long period of time.

Jack, specific to your question on kind of the waterfall and the leases, I would say most of the portfolio is multi-year leases. There's a piece of the trailer pool that is – that is not multi-year leases, but it's a customer that's a 10 plus year customer, uh, been leasing those. And so it's a, it's not a, here's the thing. There's, there's no rental component to it. There's really hardly no short term component to it. Most everything is, you know, either somebody they've worked with for eight, nine, 10 plus years, or, um, or something that's probably got a, you know, three, four, five year life kind of attached to it. And Joey said, they've, they've taken this most recent environment to really upgrade the kind of credit quality of their customer base. And, you know, so it's kind of where they're at.

Okay. That makes sense. It sounds like that's just a structurally – another piece of business that's just structurally more profitable this cycle than the last cycle. Yes, yes. I guess, you know, maybe shifting gears a little bit and going back to your prior question, but when you think about the expedited piece of business – and you talked about all the work you've done there to give yourself more visibility. You know, any sort of update on what portion of that business is maybe under longer-term commitments that make you kind of feel pretty comfortable that, you know, no matter what kind of may happen with the cycle, you've got some pretty good visibility into sort of how the earning stream is going to flow there.

Yeah, 60%-ish.

That's great. That's great. And then last question, I'm going to take another stab at the second quarter, and I understand the hesitancy to maybe get too granular, but, you know, when you kind of, Paul, take all the different puts and takes that you walk through from a segment perspective and kind of roll it all up, I mean, would you think that you'd be able to hold earnings flat quarter over quarter, or is it just too hard to say at this point given the potential volatility within Expedite?

It's really undetermined where managed freight shakes out, Jack. I mean, you know, March a lot of times determines where you come out for the first quarter and a lot of times June determines that on the you know just so many work days no holidays in those both of those quarter end months and you know and a lot of customers shipping stuff out you know pre-4th of July and beverage season and produce season and seeing how those things materialize and how the port situation materializes and so you know to Joey's point I'd hesitate to to give you a number, but it's going to be a good number. You'll be happy.

That sounds great. Well, guys, congrats again on the great quarter, and I'll pass it over.

Our next question comes from Jason Seidel from Cowan.

Please go ahead, Jason. Thank you, Rapporteur. Gentlemen, good morning, and congrats on just a great quarter. I wanted to piggyback a little bit on that question as we look sort of on the managed transport side, quarter to date here. What are you seeing in terms of your margins thus far as compared to 1Q?

I would say margins are about the same. Margins are about the same, but, you know, margins are about the same. Revenue is running a little lower. Margins are running about the same. Okay.

And so it really is what our margin is going to do in June's situation in terms of determining the quarter for that section. Yes. Okay. Perfect. You know, you guys have been aggressive on that buyback. You know, your bucket's almost empty now. Talk about, you know, plans to sort of re-up on the buyback in terms of allocating capital. Okay.

Yeah, we're pushing – we've been real pleased with how the buyback has worked. It's somewhat of a creative program, but nevertheless, it's performing well. And, you know, we expect to be completed in the program in the second quarter, and we're looking very diligently to what's next. So not ready to say whether we're going to re-up or not, but – We're excited about what our opportunities are, Jason. Okay. Fair enough.

Joey, I wanted to sort of go to a comment you made. You talked a little bit about, you know, how sort of spot leads contracts. Are you seeing any degradation at all in the amount of increases you're getting in the contract side, or is it still up into the right?

It's still up. I mean, last year was – Well, we had to, right? I mean, we raised driver wages three times, if I recall. So we were in a market where we had to move. And yeah, the carriers improved their margin overall last year. But I mean, it wasn't like, I'll call it stupid improvement. And because our costs were just exploding. And even though driver wages may be moderating now, it's probably the word I put on it, there's other increases that are still coming. I mean, we had a We had another pass-through increase on equipment last week that just came out of nowhere. And so the equipment market, the over-the-road repair market, labor availability, parks, all that is still there and is still going up. And so I'm just using that group as a category of cost increases. So we need to continue to get some increases. Is it going to be as frothy as it was last year? No, it's not. But I believe that we're still happy with what's going on. And second quarter is a big quarter from a pricing standpoint. But it's not as big as it used to be for us because our dedicated kind of happens throughout the year, if you will. Exit is still heavy in the first half of the year. And then brokerage is kind of whenever those contracts come up. So we're not as heavily weighted as we used to be in the past because of how the model has changed. And, you know, our warehouse business is kind of, it comes when it comes with a new business. And so that renews annually with those contracts. So kind of what I'd ask you to think about is the impact of rate movement to the enterprise is going to be less than in the past because our model has changed. And so the impact of maybe slowing rate market growth is less of an impact today than it has been in the past for us.

Okay. That makes sense. If I jump to managed transport for a minute here, are your lengths of your contracts changing in this business? And if so, how?

You're saying basically how much spot versus how much contract are we on the managed transport side?

And even on your contract side, you know, because one of the things, you know, one of the providers said the other day was that they're seeing, you know, more of a shift to sort of the, you know, three- to six-month type deals that are out there.

I'm just curious. I would say, you know, we've been trying to shift the business a little more contract and spot. Last year it was more spot. You know, a lot of brokers, you know, want to be 50-50, 60-40. And so I think, you know, we're – We're probably aiming to try to be 60-40 by the end of the second or third quarter on contract versus spot. And I would say, Jason, most of our contracts are still 12 months. They're still 12 months.

Okay. That makes sense. Well, gentlemen, again, impressive quarter. I appreciate the time as always, and I'll turn it over to somebody else.

Thanks, Jason.

Our next question comes from Bert Stubin from Steeple. Please go ahead, Bert.

Hey, good morning, Joey, Tripp, Paul. Hope you guys are doing well.

Good morning. Morning, Bert.

I'll keep it pretty brief. I just had two questions for you. On the topic of – we were starting to get into this, but could you quantify, like, the spot exposure differential? Like, where is it today across the entire business, and how does that compare to, let's say, 2018 or, you know, the last cycle? Like, Joey, I know you've talked a lot about the resilience of the business, but I'm just curious how that's affecting things right now.

So let's go back to 17. This is a little dated. Actually, in 17, what we called highway services had a fair amount of solo trucks in it. It was contractual. A lot of that was contractual, but there was some spot to that. The expedited piece of highway services has always been heavy contract, much to the market's not understanding. It's just heavy, heavy, heavy contracts. The spot, if you will, in the past has been what Pete did to expedite it in the fourth quarter. I could call that spot because it doesn't happen every quarter. It's a one-time event year. That's much less today as we saw last year. It was almost nothing last year. Well, part of expedited success has been that, is that that impact to the fourth quarter and then the cost drain in the first quarter is now gone. So they can stay focused on running business 52 weeks a year. Not 100% gone, but practically gone. In 2017, we didn't have warehouse. It's a very stable cash flow. We didn't have managed trans, which is a very stable cash flow. Brokerage was much less in 2017. So when I talk about if you really go back to 2017, prior to the ramp-up in 2018 and the drop in 2019, I mean, 17 to, let's call it today's model, is drastically different, drastically different. And so the spot impact back then was much greater back then, even though it was small. It was probably the solo piece, and Exadata was a much bigger piece of the pie. And so, Bert, I'm not answering your question with specific numbers, but it's just – Kind of look at 17 and today, and it's just drastically different. Today, what I can say, the spot impact today is inside of the brokerage piece of managed trans, but you have a hedge, if you will, in the sense that as things soften volume-wise, typically your net revenue margins increase. So it offsets some of that volume decrease, potentially. And... So it's just a different, just a totally different ballgame.

Just to maybe put some numbers on it, like just to frame it or ballpark it, if it was like 20% in 2017, today it's 10%, something like that?

Yeah, let me frame it for you, Bert. I just said a minute ago, let's just use for the 50-50 spot versus contract mix in brokers. Because as we said, the rest of the business is pretty much contracts. contract-dedicated, contract warehousing. Expedite is pretty much contract. So you've got 50% of your... Let's just talk with the managed trans. 35% to 40% of total managed trans is spot market, spot and surge. So that's where your exposure is, is on that bucket of revenue.

Okay. And just for my follow-up, I mean, it sounds like you have certainly an easier path to beating 2021's EPS. So, you know, if we were to think of you in sort of like a $4 EPS range this year, like how do you think about the future? It seems like you have dedicated is just going to keep sort of slowly getting better, expedited maybe, you know, you've talked about it being low 90s maybe in a tougher year. And so then that makes just managed freight the concern potentially if things roll over. How do you think about that? Are you just thinking that the revenue arose, the margins stay sort of positive, or is there a situation, if we were to stress it enough, where OR would rise above 100 in that business in a bad year?

No, no, no, no, no. I don't see it rising above 100. A lot of folks have been talking this kind of peak to trough, and so you just gave us your number on peaks, something with a four in front of it. From a trough standpoint – 25%, 30% pullback in total, and a lot of that would be in the managed trends business or the brokerage side of the managed trends business and softening margins. But I think we would ascribe to that 25% to 30% kind of pullback from peak to trough, wherever you define peak as. And then we're hammered down every day trying to grow top line revenue and improve margins in other businesses to offset as much of that as we can. But that's kind of your trough numbers.

Yeah, just to clarify that just so I understand it. I mean, I feel like to go down more than 25% in earnings, you would need sort of more than managed freight headwinds. Like you would probably need expedited to be materially worse. Is that sort of how you would frame like a bear scenario for you guys?

Yeah, a bear scenario would be, you know, Significant drop in brokerage before we're able to kind of add to the base business and expedited pulling back to mid-nines.

Got it. Okay. Thank you very much, Paul Jones.

As a reminder, if you would like to ask a question, please press star 1 on your phone now. Gentlemen, it appears at this time there are no further questions.

Ross, thank you for your help this morning, and I appreciate everybody's attention to the call, and I look forward to talking with you in the second quarter. Thank you.

This concludes today's conference call. Thank you for attending.