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Edited Transcript of ODFL earnings conference call or presentation 27-Apr-17 2:00pm GMT

Thomson Reuters StreetEvents

Q1 2017 Old Dominion Freight Line Inc Earnings Call

Thomasville May 1, 2017 (Thomson StreetEvents) -- Edited Transcript of Old Dominion Freight Line Inc earnings conference call or presentation Thursday, April 27, 2017 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Adam N. Satterfield

Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary

* Greg C. Gantt

Old Dominion Freight Line, Inc. - President and COO

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Conference Call Participants

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* Albert Brad Delco

Stephens Inc., Research Division - MD

* Allison M. Landry

Crédit Suisse AG, Research Division - Director

* Ariel Luis Rosa

BofA Merrill Lynch, Research Division - Associate

* Benjamin John Hartford

Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst

* Brian Adam Konigsberg

Vertical Research Partners, LLC - VP

* Christian F. Wetherbee

Citigroup Inc, Research Division - VP

* David Griffith Ross

Stifel, Nicolaus & Company, Incorporated, Research Division - Director and Transportation Analyst

* David Pearce Campbell

Thompson, Davis & Company, Inc. - Research Analyst

* Jason H. Seidl

Cowen and Company, LLC, Research Division - MD and Senior Research Analyst

* Patrick Tyler Brown

Raymond James & Associates, Inc., Research Division - Research Analyst

* Ravi Shanker

Morgan Stanley, Research Division - Executive Director

* Scott H. Group

Wolfe Research, LLC - MD and Senior Transportation Analyst

* Seldon T. Clarke

Deutsche Bank AG, Research Division - Associate Analyst

* Todd Clark Fowler

KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst

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Presentation

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Operator [1]

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Good morning, and welcome to the First Quarter 2017 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today and through May 5 by dialing (719) 457-0820. The replay passcode is 8629557. The replay may also be accessed through May 27 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're 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 update publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

(Operator Instructions) At this time, for opening remarks, I'd like to turn the conference over to the company's President and Chief Operating Officer, Mr. Greg Gantt. Please go ahead, sir.

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Greg C. Gantt, Old Dominion Freight Line, Inc. - President and COO [2]

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Good morning, and thank you for joining us today for our first quarter conference call. I'm here today with Adam Satterfield, our Chief Financial Officer. David Congdon could not be here today, and they asked me to step in. I've met many of you previously at conferences or here in our office, and I look forward to meeting more of you in the future. But for now, let's get started on our call, and after some brief remarks we'll be glad to take your questions.

We're off to a good start in 2017 and produced our best financial results in terms of year-over-year growth in revenue and earnings per share versus the second quarter of 2015. We believe this is a welcome sign of an improving economy and are pleased that momentum with our revenue has continued to date in April. As we said in our fourth quarter conference call, we believe Old Dominion is well-positioned to benefit from a stronger economic environment. We have the capacity to absorb an increase in demand for our superior service which is consistently delivered by a team of employees that are dedicated to exceeding our customer's expectation. In the first quarter, we delivered 99% on time, and produced another company record for our cargo claims ratio at 0.2%. Looking ahead, we remain cautiously optimistic about the economy, and will continue to be prudent with our approach to managing labor and equipment capacity.

Regardless of how the operating environment

unfolds, however, we are confident that by consistently providing our customers with superior service at a fair price, we can extend our long-term record of consistently gaining market share. We believe an increase in market share adds network density, which combined with an improvement in yield can allow us to earn an appropriate return to support our business model and growth strategy. Our long-term growth strategy includes continued investments in additional service centers and equipment capacity as well as our technology infrastructure, while also providing consistent training and education for our OD family of employees. Having refined our business model for the past 2 decades, we are stronger and more capable of executing on our strategies than ever before. We believe that customer demand for the basic value proposition that we provide at all times, claim-free service at a fair price will continue to grow over the long term. We're confident in our ability to continue meeting this demand in the years ahead, which we expect to drive long-term growth and earnings and shareholder value. Thanks for your time this morning, and now Adam will discuss our first quarter financial results in greater detail.

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [3]

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Thank you, Greg, and good morning. Old Dominion's revenue increased 6.6% in the first quarter of 2017, to $754.1 million. We had a 20-basis point improvement in our operating ratio and as a result, our earnings per diluted share increased 11.1% at $0.80 per share. The increase in revenue for the first quarter reflects an increase in both yield and LTL tons per day. LTL revenue per hundredweight increased 4.9% and increased 2.4% when excluding fuel surcharges. Our yield metrics were impacted by both the increase in LTL weight per shipment and decrease in length of haul, which generally puts downward pressure on our revenue per hundredweight. LTL tons per day increased 2.4% as compared to the first quarter of 2016. With LTL shipments per day increasing 1.4% and LTL weight per shipment increasing 1%. On a sequential basis, our LTL tons per day in the first quarter decreased 1.3% as compared to the fourth quarter of 2016. This change was slightly worse than our 10-year average sequential trend, which is a decrease of 0.8%. Although the quarterly average was below our long-term trend, our volumes accelerated as we finished March, and have trended favorably into April as well. For April, our LTL tons per day have increased approximately 4% on a year-over-year basis and our yield continues to trend favorably. Our first quarter operating ratio improved 20 basis points to 85.7% as compared to the first quarter of 2016. This was the first improvement in our quarterly operating ratio since the third quarter of 2015, and occurred despite the 40-basis point increase in depreciation cost as a percent of revenue. Our operating ratio benefited from a 30-basis point improvement in insurance and claims expenses as a percent of revenue as well as improvement in our variable operating cost. The operating ratio also benefited from the increase in revenue, which helped create leverage on certain fixed costs. As we enter the second quarter of 2017, we anticipate a higher rate of cost inflation due to planned increases in spending. Among other things, these additional expenditures will include cost related to our strategic vision to become the official freight carrier of Major League Baseball, which we expect to generate opportunities for increased brand recognition and market share growth. Old Dominion's cash flow from operations totaled $110.8 million for the first quarter. Capital expenditures were $57 million, and we continue to expect total capital expenditures of approximately $385 million for the year. We returned $8.3 million of capital to our shareholders during the first quarter, which included $8.2 million in the form of a cash dividend, our first ever dividend payment. The average closing price of our common stock at $88.74 during the first quarter, we only repurchased $50,000 of our common stock. These purchases left us with approximately $200 million available for purchase under our current $250 million stock repurchase program. Intend for our share repurchase program to be the primary form of returning capital to shareholders over the long term, although, there may be periods when our repurchases are limited. With an average share price in the lower 80s, to start the second quarter, we have repurchased $2.6 million of shares so far in April. Our effective tax rate for the first quarter was 38.6% as compared to 38.4% for the first quarter of 2016. We currently expect our effective tax rate to be 38.6% in the second quarter of 2017. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.

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Questions and Answers

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Operator [1]

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(Operator Instructions) And we will take our first question from Brad Delco from Stephens.

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Albert Brad Delco, Stephens Inc., Research Division - MD [2]

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Greg or Adam, could you talk about what you think the drivers were or what geographies are seeing strength with your comments about acceleration in late March and into April? And then Adam, could you give March tonnage, and that April tonnage number you gave of plus 4, is that adjusted for Easter or is that with the tougher comp?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [3]

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That's just what the number is today, not the actual comp.

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Albert Brad Delco, Stephens Inc., Research Division - MD [4]

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Okay. And then in terms of just the general, where you're seeing the strength and what you think really drove this late quarter acceleration into April?

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Greg C. Gantt, Old Dominion Freight Line, Inc. - President and COO [5]

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Brad, we're fairly consistent across our network. Obviously, there are some better than others but it's fairly consistent. We may have one here there that needs some support and there's reasons for that but our sales folks are on top of it. But for the most part, it was fairly consistent across the network.

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [6]

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The other part of your question, Brad, the March volumes, on a sequential basis, March was up 5.6% over February. Our 10-year average is plus 5% and when you think back in the middle of March, we had some weather issues in the Northeast, but we just really finished that month out really strong. In April, the normal increase is 0.5% above March and at this point, we are churning pretty much in line with that normal trend, maybe even slightly above despite the -- how well we performed in March.

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Albert Brad Delco, Stephens Inc., Research Division - MD [7]

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And would that be unusual considering you probably had what, a half day on Good Friday?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [8]

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I mean that Good Friday is baked in to those long-term trends but you're right. Good Friday always is impacted pretty significantly. Good Friday, as you know, was in March of last year. But nevertheless, that's what the trend is right now.

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Operator [9]

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And we will take our next question from Brian Konigsberg with Vertical Research Partners.

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Brian Adam Konigsberg, Vertical Research Partners, LLC - VP [10]

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Just wanted to touch on the revenue per hundredweight. I think, good result again in the quarter. I think you noted like the haul was down and you kind of performed despite that. Maybe just talk about what you see as far as trend in the remainder of the year, and how we should be thinking about pricing as the year progresses.

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [11]

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We think the pricing environment continues to be stable. We haven't seen a lot of competitiveness. You always see some spotty pricing issues but it just -- it feels a little bit better. But I think we'd still characterize it as stable. I think that we had good performance in the first quarter. There's no exact algorithm to normalize for changes in mix with the weight per shipment increasing and length of haul decreasing. But when you just look at the absolute revenue per hundredweight, with and without fuel, they were both higher than where we were in the fourth quarter. Regarding our weight per shipment, if you just look sequentially, it decreased from the first quarter into the first, but even going back to last year, and say, the third quarter, when weight per shipment was more in line with that quarter, I still think our absolute level is right in line or slightly better. So we will continue to target as we've always said, 3% to 4% increase to price increase with our contractual accounts as they renew. And then when we evaluate new business and we brought on a fair amount of new business in the first quarter, we go through our normal costing and pricing process and look to ensure that each account spends on its own from a profitability standpoint and that we earn a return that's necessary to allow us to be able to reinvest in the business and execute on our strategic plan.

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Brian Adam Konigsberg, Vertical Research Partners, LLC - VP [12]

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Great, that's helpful. If I could just have a follow-on. Just kind of thoughts on the ability to add terminals this year. I know you were planning to add, my number is, 4 to 5, I believe. Correct me if I'm wrong on that one. But how is that shaping up as far as you see it today? And any visibility as far as the cadence over the next several years like 35 to 40 you're targeting over the longer term?

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Greg C. Gantt, Old Dominion Freight Line, Inc. - President and COO [13]

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We are on target with what we had planned for this year. I think you probably know we are adding in some of the major markets. We've got one underway in Houston, 1 in Dallas, Chicago, suburbs of those, but we're well -- those are well underway. But we'll see how it goes. It's difficult now to add real estates. It's hard to find land, there's not very many existing structures available like there were 10, 15 years ago. So it's difficult, but we will add as we see the need, and as we have opportunities. We're always opportunistic if we can be. But it's well underway. And I'm not sure about that 35 to 40 number. But we'll see how that goes. But we are adding as we see the need.

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Operator [14]

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And we'll take our next question from Chris Wetherbee with Citi.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [15]

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Wanted to touch on the yield dynamic in the month of March. Just want to make sure I understood, sort of how that was playing out, I think your quarter-to-date, your February was almost 100 basis points or so lower than what you ultimately finished out for the year, so just -- was there -- was it the new customers coming off of the network that got sort of that revenue per hundredweight boost. Just want to understand that a little bit better if we could.

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [16]

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Some of it, we know, I talk often about. It's hard to just look at yield on a 1-month basis and certain mix changes can have more of a pronounced impact. If you look back into last year, going from February of '16 into March of '16 our weight per shipment decreased in those months, and so the absolute level revenue per hundredweight was a little bit lower in March. And so it made the month comparison a little bit easier, if you will, and so then that obviously brought up the quarter. But we -- like I've said, and we continue to say, we still, we always target earning the appropriate amount of revenue per hundredweight, if you will, and it's really that's not how we price, but we just look at all the business that comes to us. And we had a lot of the growth that we had in the first quarter came from existing accounts and some of our 3PL accounts that were bringing new business to us. So that is going to have an underlying impact on mix. But we feel good about our performance with pricing. And what we're doing, and we're going to continue to target those same types of increases that we always have to ensure that we're offsetting our own cost inflation.

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Christian F. Wetherbee, Citigroup Inc, Research Division - VP [17]

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Okay. That's helpful. I appreciate the color. And then just wanted to circle back on your comment around the cost side and specifically, I think the baseball contract. How should we think about that and maybe how that plays relative to your typical sort of strong incremental margins in a growing volume environment. Just wanted to get a sense if you could help us quantify some of those dynamics that would be great.

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [18]

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I don't want to give specifics on the numbers. But obviously, we'll probably see increases in our general supplies and expenses, and our miscellaneous expense line items as well in the income statement. But on the last call, we talked about cost inflation for the year, and we generally say 3% to 4%, and I mentioned at that point that we anticipated cost inflation more in line of 4% per shipment this year because we had some planned increases in spending that we were evaluating basically and we've got the 3% wage increase that's driving most of our cost. But now we'll have a little increase from a sequential standpoint in the second quarter in those miscellaneous -- the general supplies and expenses and miscellaneous expenses. So that would take us up of that 4% level kind of for the year. But some of that, and frankly as we get more volume growth and we talked about this, it's creating leverage on our overhead cost. And so obviously, we would like to see continued increase in shipment counts and that could help offset that cost inflation as well as we had good productivity in our operations in the first quarter, and we had improvements in our line haul productivity. We had improvements in our P&D. Our dock was flat. But if you recall last year, we had a really good productivity improvements in our docks. So that continues to be very efficient productive operation. And so those obviously will all go into to help in our cost.

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Operator [19]

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And we'll take our next question from Amit Mehrotra with Deutsche Bank.

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Seldon T. Clarke, Deutsche Bank AG, Research Division - Associate Analyst [20]

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This is Seldon Clarke, on for Amit. Can you talk a little bit about your headcount growth in the quarter? And why we saw that come down while shipments were up last quarter? And do you still expect us to grow in line with shipments over the longer term?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [21]

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Oh, it never grows exactly in line. And we obviously, a lot of times, you'll see changes in our headcount in a growth environment increasing prior to the growth in shipments, but I think that we just continue the -- it was -- headcount was just down slightly really from the fourth quarter, March compared to December, but it's just an ongoing evaluation of where we have people, and where we make changes and some of that could -- it can be just spread across the country based on volumes in any particular location or even here in the offices. But anyways, typically, our headcount increases are generally ahead of growth in shipments because we like to get our people in and get them trained on our systems, and how we handle business so that we don't have any letdown in service, knowing that service really has been the key driver to our long-term growth in market shipment.

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Seldon T. Clarke, Deutsche Bank AG, Research Division - Associate Analyst [22]

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Okay. That kind of, is the reason why I thought headcount would be up in Q1. You typically don't expect it to go the other direction. And then I guess, next, are you seeing any sort of shift in mix giving the ongoing changes in retail and e-commerce? And do you think that's part of the driving force kind of behind the decline in weight per shipment and shorter length of haul?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [23]

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Yes, retail for us is about 25% of our revenue. We did have some growth with some of our retail accounts in the first quarter. I mentioned we had some growth in our 3PL maintenance business as well, whether or not that's kind of 3PL or retail-related or industrial. It's sort of under the covers of all the accounts they bring to us. But long term, I think that you'll see the industry continue to benefit from e-commerce trends and it just depends on where you are on the supply chain. For us, we're not doing the final mile delivery to home. We've got some residential delivery, it's less than 2% of our deliveries. But most of our freights going to be further up supply chain going into distribution centers or fulfillment centers.

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Operator [24]

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And we'll take our next question from Jason Seidl with Cowen.

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [25]

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I wanted to talk a little bit about, sort of, the mix of business and how it might relate to a potential tightening in the truckload capacity as we go throughout the year and moving to 2018. Is this something that we should expect? Is this something that Old Dominion expects to happen? Granted it would be more of a late impact for this year versus the rest of the quarters.

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Greg C. Gantt, Old Dominion Freight Line, Inc. - President and COO [26]

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Jason, we're expecting that. We will just have to wait and see. We keep hearing anecdotally of some small carriers fall away already. So don't know that we can count for a whole lot at this point but we are expecting that later in the year. We'll see where it goes but definitely have that on the radar.

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [27]

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And you guys think this will help actually improve the pricing dynamics, which have admittedly been very, very solid for the LTL sector?

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Greg C. Gantt, Old Dominion Freight Line, Inc. - President and COO [28]

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Yes.

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [29]

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Okay. On the Major League Baseball contract...

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Greg C. Gantt, Old Dominion Freight Line, Inc. - President and COO [30]

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If it tightens like we expect it or like it could, it would have an effect on the price.

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [31]

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Now, the contract for Major League Baseball that you called out, you didn't obviously get into some specifics on exactly how much it was adding. But could you talk a little bit about, is it just going to be a one-quarter cost? Or is this something that's going to impact '17 in terms of just upfront cost?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [32]

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It's more so over the second and third quarters. If you think about the baseball season, that's where we'll be spending the money during that season. So the first quarter didn't have those costs in it really and there may be some in kind of the beginning of the fourth quarter but the majority of it will be in the second and third.

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Jason H. Seidl, Cowen and Company, LLC, Research Division - MD and Senior Research Analyst [33]

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In the second, third. I'm assuming you guys in the second quarter right now are going to take all the bats out of Shea Stadium because apparently my team is not using them right now.

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Operator [34]

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And we'll take our next question from Ravi Shanker with Morgan Stanley.

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Ravi Shanker, Morgan Stanley, Research Division - Executive Director [35]

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Just sort of a bigger picture question. This debate on soft data versus hard data there when it comes to broader economy. Given what you're seeing on the ground and the trends in March and April, are you kind of feeling confident that, that soft data strength is translating into a hard data pickup as well or do you think it's too early to tell for the rest of the year, I mean?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [36]

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We've talked about this before where we started seeing the pickup in ISM and industrial activity. And we started seeing that in our volumes going back into the fourth quarter we're all trending favorably and then we took a little bit of step back in February where we were under normal sequentials and February, that was a bit of an odd month with only 20 work days, and we had some weather in it and just the way the days fell. Certainly, the pickup in March and then the way March finished, and then the acceleration again into April, we're feeling pretty good about that. But as Greg mentioned, we continue to be more cautiously optimistic because we want to just make sure that we really see, not only the same momentum with the economy but also in freight volumes and so we continue to stay on top of it and managing capacity both from a people standpoint and an equipment standpoint. Certainly, we've gone through this many times before and we will make sure that we have the people in place, be it our drivers and those working on our docks to be able to handle our customers' freight and pick up in their business and so forth. But it seems like now some of our numbers are coming in line with these macro industrial numbers, 60% of our business is industrial-related. So those now are going hand-in-hand, and it's kind of reconciling with feedback that we've received from our customers and from our sales force in the field as well that have been indicating for some time that our customers seem a little bit more optimistic about the pace of the economy and maybe the direction that we're headed.

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Ravi Shanker, Morgan Stanley, Research Division - Executive Director [37]

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Great. And just one maintenance follow-up. Did you give us the trends for weight per shipment and revenue per hundredweight in April so far?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [38]

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The tonnage, I didn't give weight per shipment. I just indicated that tons are up about 4% to date through April. And that, yield, yield continues to perform well and pretty much in line with the performance that we've seen in first quarter.

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Operator [39]

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And we'll take our next question from Allison Landry with Crédit Suisse.

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Allison M. Landry, Crédit Suisse AG, Research Division - Director [40]

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Just a quick clarification on your last comment. The April tons down or I guess up about 1% . Was that a sequential reference?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [41]

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I said 1%. I meant to say 4%, we're up. Tons on a year-over-year basis, the tons in April were up about approximately 4%.

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Allison M. Landry, Crédit Suisse AG, Research Division - Director [42]

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Okay. Year-over-year? Okay.

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [43]

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Right. The normal sequential, I think I gave this earlier. The normal sequential increase in April from March is a plus 0.5% and we're right in line with that, just slightly above it, is kind of how we're trending right now.

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Allison M. Landry, Crédit Suisse AG, Research Division - Director [44]

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Okay. Perfect. So thinking about the incremental margins, right around 19%. With the uptick in pricing and tonnage, could you talk a little bit about maybe why you didn't see little bit stronger contribution margins?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [45]

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I'll say we felt pretty good with the 19% after the year we just went through ...

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Allison M. Landry, Crédit Suisse AG, Research Division - Director [46]

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Sure. Absolutely.

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [47]

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So getting back to that point and actually having some overall improvement feels good to us, and a lot of that just comes from the top line, but the normal sequential change in our operating ratio from the fourth quarter into the first is about 100-basis point deterioration. That's pretty much where we were, it's really about 130 basis points. So we did a little bit better from a normal sequential standpoint, but the reality is, while we feel better the revenue is up 6%, and we've still got a lot of cost in the business, and we added a lot of CapEx last year, and the depreciation continues to be a headwind for us from an OR standpoint, and that may moderate a little bit. We've talked about it, we just got to grow into some of the investments that we made last year. We still got a little bit of growth anyway.

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Allison M. Landry, Crédit Suisse AG, Research Division - Director [48]

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Sure. That actually makes a lot of sense and understood on the sequential change in the OR and certainly on finally getting to a point where you're seeing the year-over-year margin improvement. And just in terms of, just a last question here. I guess, it was back in September of 2015, you held an Analyst Day, and highlighted for us several of the different technology initiatives that are underway and -- just wondering if you can provide us with an update on where that stands? And I think, one of the bigger projects or perhaps the biggest project, Operation Delta, but the progress is tracking like there. And then, is there a way to frame the productivity benefits that you've realized so far? And how we should think about that going forward? And hopefully, within the context of an improving freight environment?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [49]

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We did talk about that at the Analyst Day and the reality is we've put a lot into it, it's reflected in our numbers. We've done a lot of hiring. We're just finishing up kind of the first phase of some of what we've done, and a lot of it was really just getting the infrastructure right, and some of the different data center build outs and boxes put in place. But we're -- it's probably taking longer than what we initially anticipated to go through this conversion product of change in our code, and the most important thing we didn't want to do is impact our current systems, the technology that we're providing to our customers delivering every day. And so we've continued to program in the old environment to meet customer needs and we felt like that was important. So it's kind of adding to this overall modernization initiatives. So with that said, we're just kind of finishing this first phase on it. Honestly, we're going through an evaluation right now of what's going right, what hasn't gone as well as we would have liked and trying to reassess kind of where we are and how we think we're going to get this total project accomplished. But again, the most important thing was making sure that our systems, and I think from a technology standpoint, if you visited our docks, we've got a high utilization of systems in place for managing our freight, and we want to make sure that nothing impacts that overall and obviously, in an optimal best case scenario and what the intention of the project was, was not only getting to this new environment but as you mentioned, would be generating some operating efficiencies and so forth. So we're not there yet but -- certainly we hope to be.

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Operator [50]

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And we'll take our next question from David Ross with Stifel.

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David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - Director and Transportation Analyst [51]

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Can you talk about your average fleet age, right now on the tractor side. What your targets are? And then any maintenance issues you're having?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [52]

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The average fleet age at the end of last year was about 4.5 years and that was a slight improvement from where we were the year prior, those are all the investments that we made last year that continue to bring it down. But we're continuing to see the maintenance cost or maintenance per mile as trending favorably as we bring in new equipment into the network and generally those costs are from a maintenance standpoint are better. And if you think about kind of where we are in the lifecycle and you know the way we use equipment for kind of 10, 12 years for our tractor, we're getting to the point where we're cycling through, if you think about 10 years ago, was when we went through a major engine change. So some of those units we have had some maintenance reliability issues with and maintenance cost increasing. So a lot of that $155 million of CapEx this year on equipment, we might could have got by with a little bit more. But we felt like it was the right thing to do to go ahead and cycle out and maybe more of those older pre-'07 type engines that we had in the fleet.

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David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - Director and Transportation Analyst [53]

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And you guys do all the maintenance in-house? Or the majority of it?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [54]

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Yes. We do most of it in-house with the shop locations that we've got spread throughout the country but there are certain places where we've got to outsource that.

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David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - Director and Transportation Analyst [55]

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Are you seeing any issues with recruiting technicians?

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Greg C. Gantt, Old Dominion Freight Line, Inc. - President and COO [56]

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It's difficult in some places, David. But you just have to work harder at it but it is difficult in some places.

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David Griffith Ross, Stifel, Nicolaus & Company, Incorporated, Research Division - Director and Transportation Analyst [57]

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Better or worse than the driver situation?

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Greg C. Gantt, Old Dominion Freight Line, Inc. - President and COO [58]

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Place to place, it varies. It just depends. But we're doing fine.

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Operator [59]

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And we'll take our next question from Todd Fowler with KeyBanc Capital Markets.

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Todd Clark Fowler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [60]

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Adam, to your earlier comments about growing into investments that you made last year, how do you think about the sort of number of quarters or tonnage growth right now than you could sustain and keep the leverage on a depreciation line before you'd have to maybe making sizable investments again? I'm just trying to get a sense of, I don't really know if it's a question about excess capacity but it's probably more of a question about it feels like you've got some leverage in the model now based on the investment last year and if you continue to see this sort of tonnage growth, can you sustain that leverage?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [61]

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I still look at it as we're making sizable investments this year with a $385 million CapEx and $155 million on the equipment side. But where we were in the first quarter, just to get depreciation back to just a flat basis, would require double-digit growth in revenue. Going into the second quarter, and kind of the back half of the year I think we've got an opportunity for that depreciation line to start normalizing if we can continue to see a strong revenue growth, I think, in the second quarter than where we are, a similar type of thing would take about 10% or so for our depreciation to kind of normalize at 6.2% last year in the second quarter. And to get to where we are, the good thing about this year, last year if you recall it was not a necessity but we accelerated the delivery cycle of our equipment and so we started having depreciation hitting the books a little bit sooner than normal. This year, we're really just starting to take delivery in April on the equipment side. So we're back to more of a normalized cycle and maybe taken a little bit of heat off of the sequential change in depreciation.

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Todd Clark Fowler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [62]

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Is the thought process that you can get depreciation back down to 100 basis points lower than where it is right now as a percent of revenue? I think that's where it's been, maybe going back 3 or 4 years ago.

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [63]

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Todd, I don't think that we will get back to that level. A main reason why is think about some of the operational changes that we've made with purchased transportation. And so there's an element in that transportation that was spent for equipment for those owner-operators or truckload substitution that we were using. So there's an element of that, that now will be in our depreciation line. Whether that's just again in our linehaul operations and we're pretty much 100% using our own people and our own equipment for line haul and then in our container drayage operation where we had previously used owner-operators and today we're running that model, we're using employees and our own equipment as well.

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Todd Clark Fowler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [64]

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That's a helpful reminder. And just for my follow-up, weight per shipment has been pretty stable. Really going back through the better part of last year. Is this where weight per shipment is going to settle out kind of in a new environment or would you expect it to drift back up if the economy picks up particularly in some of the heavier weighted industrial-type shipments?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [65]

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I would like to see it increase. That was the other element that gave us some confidence in the fourth quarter on our weight per shipment. It has been trending around 1,550 pounds and it went up to 1,600 pounds in the fourth quarter, and now we've kind of trended back down a little bit, and I don't think that, that is related to the economy. Generally, you would think rising weight per shipment is better economy, when I look through, and I've said this a couple of times now but some of the changes follow up sequentially in weight per shipment. Many of those are coming from customers, particularly 3PLs that we had some pretty good growth with. And so I think it's just new business that's been brought into it. So it's not necessarily an existing customer that got fewer widgets on each shipment. It's just we're getting a different mix of customers within that 3PL maintenance business.

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Todd Clark Fowler, KeyBanc Capital Markets Inc., Research Division - MD and Equity Research Analyst [66]

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Okay. That makes sense. And then, of course, I think that there was -- it's pretty well documented some available truckload capacity here in the first quarter as well. So, okay.

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Operator [67]

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And we'll take our next question from Scott Group with Wolfe Research.

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Scott H. Group, Wolfe Research, LLC - MD and Senior Transportation Analyst [68]

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So just a follow-up on weight per shipment. Adam, can you give us the monthly sequential change in weight per shipment? And then anything you can tell us about weight per shipment sequentially so far in April?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [69]

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Yes. The weight per shipment, it had decreased from where we were in December, decreased down about 1,570 pounds in January and then 1,557 and 1,559 in February and March, respectively. And so those were what we did, it's pretty much kind of in that same category in April. Somewhere -- it's kind of just trended back to that 1,550-pound range, and again we would like to see that moving north right now. Now I think with the shipments and the tonnage, we got more tonnage in the first quarter than shipments, and that can be a better thing, but you start getting to a point where the weight per shipment stays kind of flat, we can have more shipment growth than weight like we did in '15.

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Scott H. Group, Wolfe Research, LLC - MD and Senior Transportation Analyst [70]

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Okay. So if weight per shipment then is, call it flattish year-over-year, kind of in the second quarter so far. Should -- I'm guessing, rev per hundredweight should be better in the second quarter than what we saw in the first quarter. Is that fair?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [71]

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If weight per shipment stays about the same as in the second quarter as the first then I think the revenue per hundredweight would be around the same point. We would like to see it increasing a little bit sequentially as we've got contracts that turn over and we'll be getting increases on those.

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Scott H. Group, Wolfe Research, LLC - MD and Senior Transportation Analyst [72]

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I was thinking on a year-over-year basis.

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [73]

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Year-over-year basis?

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Scott H. Group, Wolfe Research, LLC - MD and Senior Transportation Analyst [74]

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Yes.

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [75]

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Even on a year-over-year basis, in the second quarter of last year the weight per shipment was 1,559. And so we're right in that same ballpark, so perhaps from where we are, you may see some acceleration in that year-over-year change there.

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Scott H. Group, Wolfe Research, LLC - MD and Senior Transportation Analyst [76]

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Okay. Okay. And then ...

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [77]

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2.4% that we just did in the first quarter.

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Scott H. Group, Wolfe Research, LLC - MD and Senior Transportation Analyst [78]

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Okay. That's helpful. And then if I look typically from the first quarter to the second quarter, it looks like you get -- the operating ratio improves 4 points maybe 5 points.

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [79]

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It's been a while since we've done 5 points, Scott.

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Scott H. Group, Wolfe Research, LLC - MD and Senior Transportation Analyst [80]

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Okay. So 4 points, that's right. Yes. Okay. So 4 points. Given kind of what you're talking about of some of the incremental costs, should we be expecting something more muted than that or are there any other kind of factors that we should be thinking about as we're thinking about normal margin progression 1Q to 2Q?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [81]

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The average is about 400 basis points. As you said, the last 2 years, it's improved about 360 basis points, I think, in '15 and '16. So I think based on the comments that we made about increased cost into the second quarter from the first that we really haven't had in years past. It's going to be more of a challenge, I guess, to get to that number than we had in other years.

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Scott H. Group, Wolfe Research, LLC - MD and Senior Transportation Analyst [82]

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Okay. But you're not quantifying how much of an impact that cost inflation is going to have?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [83]

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We did say that we anticipated inflation now at about 4% for the year, really. And it was, if you take cost, and I'm excluding fuel from that, obviously fuel is up over 20% in the first quarter. But it was about 3% cost inflation on a per shipment basis in the first quarter. It would be 4-ish or so in the second quarter.

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Scott H. Group, Wolfe Research, LLC - MD and Senior Transportation Analyst [84]

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Okay. And just last thing real quick. Do you think fuel on a net basis was a positive or negative for you in the quarter?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [85]

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That's always a hard one and a slippery slope, I think. It was something that we deal with as the prices go up and down. And last year, it was down all year, and we deal with that when you go through your pricing conversations with your customers, and what's the ultimate, what's the revenue that a customer brings to us, and what are the costs associated with handling that business. Now in the short run, obviously, if you got a little bit more fuel surcharge revenue then that creates probably a little bit of leverage on nonfuel-related, petroleum-related product costs, but certainly we're seeing tremendous cost inflation in the operating supplies and expenses line, and it's not only fuel but it's other lubricant, tires, any kind of petroleum-based products. We generally get cost increases when fuel is higher.

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Operator [86]

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And we'll take our next question from Ariel Rosa with Bank of America.

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Ariel Luis Rosa, BofA Merrill Lynch, Research Division - Associate [87]

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So first question, wanted to touch on the cadence of CapEx. Throughout the year, what you think it might look like? And also if you could touch on what you think your ability might be to add trucks' profitability in this environment?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [88]

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It will expand, $57 million in the first quarter and most of that was on the real estate side, very little in the equipment. And so generally, that starts picking up in the second and third quarters. Obviously, the new equipment that we're bringing in and cycling out the old, we'd rather have it in our operations, and all of our new trucks, as you know, start out in line hauls. So we're putting the most fuel efficient equipment on the road to get the most mileage out of. So we would like to have that in place as business starts picking up through the second quarter. And on the real estate side, it really just -- it varies from year-to-year based on any kind of projects or if there is a large item that is in the mix that may have been a leased facility that we buy and so forth, but on the equipment side, that's the one that's more standard in the [spend], so that's what impacts the income statement the most as well. The land and structure is not a significant of an impact.

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Ariel Luis Rosa, BofA Merrill Lynch, Research Division - Associate [89]

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And Adam, could you touch maybe on that question about ability to add to the fleet profitability?

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Greg C. Gantt, Old Dominion Freight Line, Inc. - President and COO [90]

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This is Greg. Right now, we're expecting if business continues to accelerate, we're expecting to hold some trades if we need to. We'll see where that goes. We're not getting rid of the old part of our fleet as our equipment comes on, we'll hold that and get rid of it as we deem that we need it or not. So that's where we are right now. We know we can add to the fleet if we need to. How quick? We just have to wait and see at the time. But right now, there are no plans to do that. Our first attempt will be to keep our trades a little bit longer till we get in the slower season, we'll keep them as long as we need to.

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Ariel Luis Rosa, BofA Merrill Lynch, Research Division - Associate [91]

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Okay, fair enough. That's a solid answer. And then just quickly if you can just talk about kind of what the competitors' environment looks like, and if you're seeing opportunities for new bids coming in the door? If you're seeing customers switching more frequently given kind of what's going on with ELDs and maybe some flow-through from truckload?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [92]

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None that we're seeing anything different from normal at this point. Especially, on the ELD side, I think it's probably a little early for that. There's a lot of uncertainty as to what that's going to do from a current capacity standpoint and long-term capacity standpoint in the truckload environment, but I'll say that we are well positioned, and we think, maybe the best positioned LTL carrier from the investments that we've historically made in network capacity, in our ability to hire and bring on drivers and so forth to meet growth. We've done it before and we think that we'll be able to do it again. But we are sitting, I would say, with at least probably on average 25% capacity in the real estate network and so we think that gives us a tremendous advantage and heads-up and handle growth if it comes our way.

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Ariel Luis Rosa, BofA Merrill Lynch, Research Division - Associate [93]

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Okay. Great. That's really helpful. And then just really quickly, my last one. A number of carriers mentioned about some challenging conditions in California. Just wanted to hear if you guys experienced any of that? And if those challenges have abated?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [94]

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Every day.

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Ariel Luis Rosa, BofA Merrill Lynch, Research Division - Associate [95]

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Fair enough. But it sounds like it was pretty bad at the start of first quarter and maybe now has alleviated a little bit? Is that fair to say or are you guys still seeing some network fluidity issues?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [96]

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Nothing we can't deal with. It's not stopping us, we're dealing with them as they come up, but nothing we can't work around.

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Operator [97]

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And we'll take our next question from Ben Hartford with Baird.

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Benjamin John Hartford, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [98]

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Adam, a few modeling questions. Did you provide the actual tonnage growth year-over-year in March or for March?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [99]

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The actual for March was 3.5%.

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Benjamin John Hartford, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [100]

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Okay. That's helpful. And then can I confirm the working days progression this year and next year?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [101]

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Yes. Hang on a second. Let me get to it. So 64 days in the first quarter, 64 days in the second, 63 days in the third and 62 days in the fourth quarter.

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Benjamin John Hartford, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [102]

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And then next year, do we get a 64, 64, 64, 62?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [103]

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Actually 64, 64, 63, 63.

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Benjamin John Hartford, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [104]

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Okay. The tax -- relatively effective tax rate for the balance of this year and any placeholder for '18?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [105]

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Well, we said 38.6% for the second quarter, but I guess we will have to continue to wait and see what comes out of Washington and your guess is good as ours in terms of where corporate taxes go. But right now, if trends continue, 38.6% is kind of what our annual effective tax rate is.

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Benjamin John Hartford, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [106]

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Okay. That's great. And then now that you instituted the dividends, how do you think about, from your standpoint, how do you think about any sort of progression from that $0.10 per share quarterly dividend? Is there a dividend yield target that you have in mind? Are you taking a wait-and-see approach. How are you thinking about planning future dividends here going forward?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [107]

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Yes. It's more of a wait-and-see approach. And like I said we want our share repurchases really to be the primary form of returning capital. But obviously we've got a very strong balance sheet with debt-to-capital at 4.7% and we continue to look for opportunities along our capital allocation plan for where we can allocate additional capital and we've got a heavy CapEx spend again this year. But we'll continue to look at ways primarily to invest in our LTL business first and we'll continue to look at the other ways to invest in some of the other smaller businesses that we have, the non-LTL services are mainly drayage, our truckload brokerage. And see if there's anything else along those lines. But -- and kind of -- there will just be a continual evaluation, I guess. We're still early with the dividend, and we will continue to look at it and talk about it with the senior management through the board.

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Benjamin John Hartford, Robert W. Baird & Co. Incorporated, Research Division - Senior Research Analyst [108]

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Sure. Makes sense and last one if I could. The other revenue line item was down about 50% year-over-year. What was the driver of that and what's the representative number for an annualized other revenue figure for '17?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [109]

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Yes, actually the non-LTL revenue was $13.9 million and that compares to $13.2 million in the first quarter of '16, and I think a lot of people -- I think, we've talked about this before, but the statistics that we give, in our earnings release, they do not include the adjustment that we make at the end of every quarter for revenue recognition. And the reason we do that is we want the revenue to be a match with associated weight. So I think a lot of people are using our revenue per hundredweight and our weight to try to back into what LTL revenue is, and then the non-LTL piece. So a lot of times, people will miss and have that revenue recognition impacting the non-LTL. But it was actually an increase and most of that is coming through, we've had a little bit of growth in our truckload brokerage business.

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Operator [110]

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And we'll take our next question from David Campbell with Thompson, Davis & Company.

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David Pearce Campbell, Thompson, Davis & Company, Inc. - Research Analyst [111]

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Wondering if you could explain to me exactly what you're doing for Major League Baseball? In terms of delivering cargo, are you doing it to all baseball teams? And what percentage of the gain in freight in April would come from Major League Baseball? Is it a material number?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [112]

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It's just another marketing and advertising opportunity just like any other opportunity along those lines that we might have. And so it's -- I don't know, if it's ever possible to say that one piece of freight came from a commercial or a trade publication or what not, but we felt like it was a good opportunity. You'll start seeing the MLB logo on some of our trailers. There are opportunities with certain games, an All-Star Game, World Series and so forth. And we have separate deals with several teams that we use for various marketing and entertainment activities. So certainly, the objective with this is to continue to show an increase in brand recognition and ultimately we believe that it will be able to help us achieve some of our longer-term market share growth objectives.

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David Pearce Campbell, Thompson, Davis & Company, Inc. - Research Analyst [113]

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So it's more of a promotional cost than it is a revenue growth?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [114]

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Well, certainly, we hope and believe that it will lead to revenue growth. But I don't know. It's just like any type of marketing advertising. It's hard to pinpoint a one-for-one relationship.

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Greg C. Gantt, Old Dominion Freight Line, Inc. - President and COO [115]

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We have multiple forms of advertising.

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Operator [116]

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And we have one question remaining in queue at this time. We will go next to Tyler Brown with Raymond James.

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Patrick Tyler Brown, Raymond James & Associates, Inc., Research Division - Research Analyst [117]

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Adam, I know you noted a higher weight, lower length of haul negatively impacting the yields. But I'm just curious if you're seeing any changes in the more let's call it the less talked about characteristic of class and specifically, are you seeing any downward pressure in class as the industrial economy is kind of stabilized here?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [118]

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Not per say, nothing that stands out from one material direction or the other in movement there. But you're right. I mean class is the other element of mix that really is never talked about but they can certainly have an impact there.

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Patrick Tyler Brown, Raymond James & Associates, Inc., Research Division - Research Analyst [119]

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Okay. And then can you quantify the improvement in line haul and P&D?

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Greg C. Gantt, Old Dominion Freight Line, Inc. - President and COO [120]

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Quantify the improvements?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [121]

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Yes, we had in the line haul, our latent load average improved 0.9% and our P&D shipments per hour improved 1.6%.

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Patrick Tyler Brown, Raymond James & Associates, Inc., Research Division - Research Analyst [122]

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1.6%, okay. Then Adam, this is a bigger picture question, and I know you don't give guidance, but can you just talk about whether you think the OR can improve for the full year. I mean, if you've got unit cost inflation tracking up 4%, your contract renewal of say, mix adjusted or whatever are probably up less than that. Do you feel that there is operating leverage that can make up the difference or just any thoughts there if you're willing?

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [123]

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You know I may borrow a line from my mentor Westfried to say, yes, we don't give guidance on the OR. But -- obviously, every day, we're focused on trying to drive productivity and improvement to the bottom line and we want profitable growth and we're managing the business to generate that. So certainly, we're focused on it and a lot of it is going to be just dependent on the revenue growth for the balance of the year. And as we said earlier, and even in this quarter, we had a big headwind on the depreciation line and so that's just sort of getting things right sized and kind of growing back into the network, the investments that we made last year, and certainly, we didn't think it was a wise decision. We could have eliminated a lot of equipment last year. And we think that, that would have been very shortsighted. But now, we are getting back into it. And we think that we can generate leverage. We've said many times, the long-term key is for margin improvement on improving density and improving yield. But you need a positive macro and economic environment to support and pricing environment to support those initiatives. And certainly now, we're getting the benefit of added volumes and network density. The yield is still trending in the right direction and the economy seems to be improving. So perhaps we get all of those ingredients working for us this year.

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Operator [124]

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There are no further questions from the phone. I will turn the call back to Adam Satterfield for closing remarks.

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Adam N. Satterfield, Old Dominion Freight Line, Inc. - CFO, SVP of Finance and Assistant Secretary [125]

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Well, thank you all for your participation today. We appreciate your questions and please feel free to give us a call, if you have anything further. Thanks and have a great day.

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Operator [126]

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And this does conclude today's conference call. Thank you again for your participation and have a wonderful day.