Covenant Logistics Group Inc (CVLG) 2007 Q1 法說會逐字稿

At this time, I would like to welcome everyone to the first-quarter conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (OPERATOR INSTRUCTIONS). Thank you. Mr. Hogan, you may begin your conference.

Thank you. We'd like to welcome everyone to our first-quarter conference call. As usual, joining me on the call here are David Parker, our CEO and Chairman of the Board, as well as various members of our senior management team.

To start, just to remind everybody, this call will contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21E of the Securities Act of 1934 as amended. 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. So we ask you to please review our disclosures and our filings with the SEC.

As a reminder to everyone on the call, a copy of our prepared comments and additional financial information are available on our Website. Our prepared comments will, again, be brief, and then we will open up the call for questions.

In summary, a soft and competitive freight environment combined with costs rising faster than revenue contributed to our results being below a year ago. We began the quarter quite promising, with revenue per truck up about 4% versus January of 2006. And then the weather and competitive environment kicked in, and our revenue per truck flattened out versus a year ago for February and March. Additionally, adverse weather throughout February and March affected our expedited and SRT service offerings by about $2 million of revenue during the quarter.

From an operating standpoint, even with the difficult freight market, average miles per tractor increased 1.2% versus the first quarter of last year. And our rates were up 1.1% while our deadhead or nonrevenue miles increased from 9.9% in the first quarter to 10.3% this year. A combination of these factors produced a 1.8% increase in average freight revenue per tractor per week.

Additionally, our consolidated revenue generated from freight brokers increased to approximately 14% of consolidated loads from 9% of consolidated loads in the first quarter of 2006. The main reasons for the increase were soft freight demand in the Southeast that affected our Star Transportation subsidiary and the assimilation of the former Covenant refrigerated trucks by our SRT subsidiary, both of which require brokered freight to keep their trucks moving.

Revenue from freight brokers for these two subsidiaries was over 20% on a combined basis, while revenue from freight brokers at our Covenant Transport subsidiary decreased slightly and remained below 10%.

Typically, revenue from freight brokers does not have separately stated fuel surcharge component. Instead, one rate covers freight rates and fuel. The increase in volume from freight brokers from 2006 to 2007 had a positive impact on [average] freight revenue per mile of approximately $0.01 a mile. The overall effect on operations was negative, however, because fuel surcharge is not recovered, and broker rates tend to be lower than other rates, excluding the portion that would be equivalent to fuel surcharge. Accordingly, the results of SRT and Star suffered.

From a cost standpoint, our after-tax cost per mile increased about $0.035 a mile over the first quarter of 2006. The main variances were discussed in our release. One additional item to note was that our capital costs, comprised of lease revenue equipment, depreciation and amortization, and interest was up for three main reasons.

Number one, our tractor and trailer fleet expanded, largely due to the third-quarter 2006 Star acquisition. Number two, non-cash amortization of the intangibles associated with Star; and three, we recorded a $340,000 loss on disposal property and equipment during the quarter compared to a gain of $140,000 during the first quarter of 2006.

From a balance sheet perspective, we were able to reduce our total indebtedness, including off-balance sheet obligations and outstanding letters of credit by $17 million during a quarter. Our compliance and our bank covenants remained about the same when compared to December of 2006. And we have about $25 million of available borrowing capacity at March 31, 2007.

As stated in our release our assets held for sale actually increased during the quarter to $26.5 million. We expect to reduce the balance to below $20 million by June 30, settling to below $10 million by the end of the year.

Now I'd like to briefly comment on the pending worker's compensation suit from the state of Tennessee. As a result of our past use of a "Notice of Waiver by Employee for Benefits" that the Tennessee Department of Labor and Workforce Development deemed to be inappropriate, suit was filed in Hamilton County Chancery Court by the state of Tennessee. We've reached an agreement with the state to discontinue the use of the waiver, and have entered [into and agree to order] enjoining its use in the future.

In accordance with our agreement with the state, we are reviewing the usage history of the waiver. And based on our preliminary findings on the most recent files, it appears that it was used a very small percentage of the time. At this point, we'll have no further comment to make, and will advise you on any material changes in its status.

David will now give you an update on the business realignment and our outlook for 2007.

We're approximately 21 months into our business realignment which is expected to be a multiyear effort to implement. Our three main operational objectives for the first half of 2007 are one, to assimilate Covenant's former temperature control service offering into SRT -- the single drivers, as you know, went to SRT -- and then, the Covenant expedited service offering, which took the team drivers out of the temperature control when it went to the expedited division.

Number two, to improve the average freight revenue per tractor per week in Covenant's dedicated service offerings through contract negotiation; and three, to significantly improve the average freight revenue per tractor per week of Covenant's OTR regional service offerings by concentrating a downsize fleet into more profitable lanes.

We made good progress toward all of these goals during the quarter. The assimilation of Covenant's temperature control service offering into SRT and into expedited has gone very well. SRT has done a great job integrating the 175 trucks, and has nearly all of its trucks manned, and expected to gradually reduce its dependency on broker freight throughout the year.

On the dedicated side, as of March 31, we have negotiated or renegotiated 83% of Covenant's dedicated service offering contracts with more favorable terms. And we expect to negotiate most of the remainder during the next few quarters. We also addressed the problem of one dedicated fleet that temporarily idled about 50 trucks. But we believe this has been solved.

I'm very excited about the seeded revenue per truck generated out of the dedicated division. Also, we have high expectations for the rest of the year. The soft freight environment has begun to impact the dedicated arena as well as more customers are attempting to take advantage of the soft freight market. But on the other hand, the bid pipeline for dedicated business continues to look very promising.

Finally, we're beginning to see the results of our efforts on the OTR regional service offering. We believe the network is beginning to stabilize, represented by approximately 14% increase in the average freight revenue per tractor per week compared to the first quarter of 2006. But still, I would say our regional service offering has a long way to go.

That will end the prepared statements. And we'll go ahead and open it up for any questions that you may have.

(OPERATOR INSTRUCTIONS) Justin Yagerman, Wachovia Securities.

David, I guess -- why don't you just kick off -- usually, you guys are talking to your customers on a regular basis. And I wanted to get a sense, because it sounded like at the end there, you were saying that things have gotten a little weaker recently. Is that the case, or have things gotten sequentially stronger through the quarter and into April? How would you characterize the current environment, I guess both sequentially and year-over-year?

Justin, I would have to say that it's kind of -- really, same old, same old. January, to give you through the quarter and then up to April, January felt pretty good out there. I was very happy with the month of January.

And then as we got into February, February just continued to get worse as the month proceeded, with the last week of February and the first week -- early days of March just being terrible. The worst February that we have ever had in my history, ever been in the trucking business, was our February. It was just a horrible, horrible month. We literally went about 10 days total in a period of time there where we couldn't move a truck from Texas to Chicago. And so it was just a bad time.

March came around, and March continued to get stronger as each week came about. And so we started getting pretty excited about that.

But April has just been kind of a -- it's not February. I would relate it more to January kind of feeling. It's not as depressed as February. It's not as high as March ended. March ended a pretty good note for us. But April kind of feels kind of like what January did, which is okay.

I really believe that all of our -- my personal opinion is that all of us truckers will really be able to tell what maybe the year beholds in the month of May. I'm really thinking that May is going to be an important month for how we're feeling. We're going to be through the bid process on most of these big bids that are out there, as well as -- if the economy is going to start turning around, as we are all preaching that it is, I would think that we're going to have to start [sifting] a little bit about that in May.

So maybe you could talk a little bit about the bid process and what you are seeing from customers? Where are they pushing for out there, and what are you guys looking at -- do you see opportunities to get more customers in on your regional lanes, and introduce new freight opportunities there? Or is this going to be more customers pushing back and trying to get price away from the carriers?

I do think that there's go to be a lot of customers that are going to try to get price away from the carriers. I do think that there are a few customers that are willing to work with you, because they do realize that capacity eventually will start tightening up once again. But I do believe that most of the bids are done to extract pricing out of them.

In the first three months, we had about 195 bids -- 175 bids in the first three months compared to 90 -- 95 in the first three months last year to give you an idea -- so it's almost double the amount of bids that have been out there. I will say they have started to curtail as we're speaking today. So we're virtually through with it -- not virtually; we're definitely a long ways through with it.

And Justin, I would say that we have won about as much as we have lost. That's kind of where it's that. There's definitely going to be some reshuffling of customers throughout the networks because we have lost some business. But we have also picked up business, and the business that we picked up is predominantly, I would say, on the flattish -- maybe up a little bit on pricing on business that we picked up. And the business that we lost was because we were not interested in going down on pricing.

Okay, well, I guess that's a positive thing then. When you look at the operating stats in the quarter, they started to show some promise. Your revenue per truck per week was up. Your utilization was up. Pricing was up. Can you talk a little bit now that you're through 83% of these contracts on dedicated and on regional, where did you come from, where are you now in terms of OR by division and kind of -- at least in relative terms, what is that looking like, and what do you expect that to do through the rest of the year?

I do expect that that's, based upon the economy, not getting any worse -- let's assume that. I do think that we will continue to see some better results from the standpoint of operating stats. I am expecting that to happen.

The reason why I say all that is as I look across the segments of the business environment, SRT will become less dependent upon brokers. They have done a great job. When we gave them the 175 trucks, Tony and I truly felt like it was a five- to six-month process, and we still feel like it's a five- to six-month process starting in February. And they are making headway by the (inaudible) lot of areas that had to use brokers way too much. But they're working very diligently to replace that.

So SRT, in my opinion, as the year progresses will continue to do better. And turn back to where we're all used to seeing SRT operating at in the foreseeable future on SRT.

As I look on the dedicated side of the business, they're making some good headway. And the best way to look at that, because we made a decision, a right decision on the dedicated in late February -- it was sometime in February -- on a particular couple of accounts where, quite frankly, we had -- the driver pay side of the equation was just too high for the miles which they were generating. It was actually de-incentivizing the drivers to run maximum output. And we made some changes, and that opened up about 50 trucks.

But it was the right decision to make. And we'll get through those 50 trucks. They have filled about half of those trucks, to give you an idea. So when I look at dedicated, because it's still operating in the first quarter above 100 -- so when I look at the revenue per truck on (inaudible) trucks that are running there, their revenue is quite nice.

And I still believe that by the end of the second quarter -- it may be June 30, but by the end of the second quarter, that we will have the dedicated side of it producing the required revenue that we need. It looks like right now on the dedicated side that we're not going to lose very few trucks, if any. It may be 30 or 40 trucks, but right now, I'm not ready to say that. It's running 677 trucks, and so far, the customers have been very open and good partnerships with the customers on renegotiating pricing that goes into effect whenever their contracts expire.

There's no doubt that as contracts expire, say, now or May 15, you may have one that tells you to forget it -- May 15 when their contract expires. But we -- other than 30, 40 trucks, we don't see that as being a major obstacle. So I think that most of the trucks are going to stay put.

And quite frankly, the pipeline will be dedicated -- it's pretty strong. The only problem that's you've got in dedicated, it takes about a year or a year-and-a-half to develop an account -- it's a long term, but the pipeline is very strong. So I'm still feeling good about the dedicated side of going forward.

The OTR side -- as I look at it, we have made some great strides. Jeff Paulsen and his crew have done a very good job in OTR. And when you see revenue per truck up 14%, they're in a down time that we're going through in the first quarter, as well as they were affected [in about] Midwest tremendously in the month of February, with two or 300 of their trucks stuck for four and five days at a time. They have overcome a lot of obstacles.

But they're about halfway there, Justin, so I don't want to -- so as much as I'm happy about it, and I am happy, and I tell the employees we're happy, we're about halfway there. We need about another 15% revenue. And quite frankly, it's about one more load per week per truck. If they could get one more load per week per truck, they're going to be close to being there. But that's a lot easier said than accomplishing that.

So OTR is still operating bad. It's still operating negative -- all the ugliness words that we want to use, but they've made some nice headway. But until they at least in my opinion get another 10% more revenue per truck per week, they're still going to be over the 100 OR. So we have still got a ways to go over there, but they work very diligently.

And then as I look at the Star side of the business, there's no doubt that the number one area in the country that has led this downturn has been the Southeast. The Southeast has just been horrible. And along all divisions, along all lines of business, even the ones that have done okay in the first quarter like expedited, they have -- the Southeast has suffered.

And I think it goes hand in hand with this housing industry. Think about the carpet, the textiles -- a lot of the products that are made in the South that relate to the housing industry -- they just didn't have it in the South.

So in effect, when 95% of your business is the South, like Star's is, and it dropped as dramatically as it dropped, they have suffered. Their OR is in the high 90s to give you an idea. So I believe as the economy recovers, that Star will recover. It's just a matter of when the process is going to go.

And then the expedited is -- it had a tweak down pressure on it, but it's doing okay.

Okay, I will turn it over to somebody else. But just if you could comment on kind of when you pull the plug on any underperforming trucks in OTR, that would be my last question here.

That is something that we believe that December 31 got us to the correct amount of trucks. We believe that we have accomplished that. And we believe that the operating stats are starting to show that. So that's the communication that we have had, that Jeff and I have had over and over and over. And we are all the same wavelength on that. We hope that the economy again stays where it's at. If it doesn't go any further south, and it stays where it's at, we expect to continue to see operating stats that look favorable. We continue to expect to see that increasing. And so as long as it's not going downwards, we'll continue to fight with that because we do believe that it's a segment that our customers are asking us for.

So we're not ready to even go down those roads of what they have got to do. I'm happy with what they have done, but they're not there yet.

Edward Wolfe, Bear Stearns.

In talking to Justin, you were talking about the bid process -- bids are going to come back flat to maybe up a little bit.

Can you talk about within your businesses, if you look at refer versus regional versus long haul versus dedicated, where are some of those bids coming back a little stronger, where a little weaker?

(multiple speakers) a year ago.

(multiple speakers) Yes, let me just go down through the list in my mind here, Ed. The dedicated side is up. Dedicated business on any bid is -- on the trucks that were operated there is starting to move pretty decent -- as you look at it, get rid of those 50 trucks that we have kind of got to get filled with drivers. But excluding that, the running trucks are up pretty . nicely. So the dedicated side is happening.

The expedited side is having some pressure. It's kind of flattish is really what the expedited side is. It seems like they were getting some increases, Ed, and then they're having to make some compromises on the [bid] or (inaudible) on other ones. But it's flattish on the expedited side of the business.

OTR is starting to increase as we speak. It has been flattish, but the last couple of weeks they have been able to take on some accounts that are paying some decent or higher pricing. So they're flattish to up on the OTR.

Star is having a difficult time, predominately not because of their existing business, but on the bids that they're doing, they're gaining freight rate. But 20% of their business right now is with brokers. So that's camouflaging and making their pricing go down on it overall. So as their business gets better and they're able to replace that 20% then you would see their rates being is what you would see on the Star side of the business.

(multiple speakers) On the [repro] side, flattish. SRT, two things. SRT is having -- flattish on pricing. And then they're also at 20% kind of numbers on brokerage, up from about 10% a year ago. So they've increased about 10% on brokerage.

And as they replace the 20 -- it's actually plus 20%. When they replace the plus 20% and get it back in line with 10%, then you would see their pricing being up a little bit as they replace the brokerage freight.

Okay. If you add all that up and you were kind of flat to up a little bit, how do you deal with costs that are going to -- I'm guessing have to be up 3, 4, 5% this year? So all that points to that -- unless the world gets a bit better, but even if it does, you're contracting now for a year out with 1%, 2% pricing, when costs are going up more than that. Shouldn't margin work against you in that scenario?

You know, Ed, we're actually -- (inaudible)

No, we are -- if you look at our costs -- actually, our costs were down $0.01 a mile from the fourth quarter. And insurance did help us there. But we feel that we have seen the peak of our costs because we've again been talking about for two or three quarters now -- we've got one thing helping us on the cost side that's hurting us now, but as we downsize the fleet and sell some of the properties we have -- until we get all of that right-sized out, we're still carrying costs associated with several trucks and trailers that we've got parked, whether it's permits; whether it's the capital associated with that; whether it's property taxes on facilities that we're trying to sell. And so actually, we have quite a bit of cost help coming as we reduce that asset held for sale category.

Number two is the effect of the downsizing that we did back in January and February. We have not seen a full quarter effect of that. And in fact, we did have some small amount of severance costs associated with that -- probably about $300,000 that affected us in the quarter.

So the big drivers, at least going forward on the cost side, is driver pay, which -- to the extent there's any of our drivers on this call, we're very happy to have you, and we're not planning on lowering driver pay. In fact, we were trying to work hard to get as many drivers as we can and keep the ones we have. But it is our largest variable cost, and we don't anticipate having to raise that throughout this year.

Number two, fuel -- fuel will do whatever fuel is going to do. And we feel going forward as we replace the brokerage freight that we're carrying, that is going to help us costwise, because our fuel surcharge revenue will grow.

Three, accidents -- I think we've had some opportunity going forward to continue to lower our long-term accrual rate, but nevertheless, I have still set a higher mark in the release than probably what we hope will transpire throughout this year.

So I have more cost help in the headwind than I do cost hurt. The only one that I would say is one that we're obviously concerned about is the new engines, and which is why we bought 2,000 trucks last year and are only buying 400 the second half of this year. So the effect of the new engine will be to us over the next three-year period of time very minimal this year, obviously growing next year.

So in my mind, as I sit here, I have got -- I feel more cost help than hurt. And so as we improve our revenue per truck, hold our costs, and in fact hopefully continue to reduce it, I will just have the opposite -- some margin help going into the future.

Joey, how do I think about driver pay? If you just averaged in what you gave midyear last year and then look at just -- if you're not raising pay but you're not lowering it, but people get older, and from being two-year drivers to three-year drivers, and get inflation from moving up the kicker -- how do you think -- without a driver pay increase, should driver pay go up 2, 3% a year? How do you think about that?

All things equal, it's about 3%. I agree with that.

And then is there something from last year that comes in for part of the year?

No, we did not raise the scale last year. But one thing that is a factor and we alluded to it, I think, in the release is that -- helping us in other ways is that our mix of experienced drivers and students that we're bringing in the house has almost flipped from 60% students last year to 60% experienced drivers this year, which is impacting the driver pay number.

So that is kind of the pressure that you're seeing here kind of this year compared to last year is that -- is obviously, our turnover is about the same as it was last year, but directionally, it's moving in the right direction. We're having more experienced drivers.

And the scale moved, as you alluded to -- the $0.01 a mile, if you will, from one year to another. So that's the pressure we're seeing.

And so I think that that's controlled, if you will, and I agree -- absent the new engines, the driver pay, the mix change that we have there is a cost headwind. But on the other side, we're reducing our recruiting dollars significantly because of the mix of drivers that we're bringing in the house. So I have a little bit of help there down in the operations and maintenance area that we're still being a little conservative on going forward. But that's buried in a bigger area that you're seeing.

How much is something for recruiting dollars for drivers. What was that kind of figure at the height in '05, say?

4.5, $5 million.

A year?

Yes.

Okay -- CapEx? Are you still kind of $15 million net CapEx for the year?

Yes, I think that's probably the upper end. But it's 10 to $15 million. We are going to have negative CapEx going forward, if that's such a word. Our dispositions will be higher than our purchases. As we sell more of this equipment, we're not buying much, as well as we sell and reduce the assets held for sale. We will have proceeds in excess of purchases going forward, because we are already at $13 million through the first quarter. So it's kind of flattish directionally for the rest of the year.

Okay. David, one more question. In your remarks, you said regarding dedicated that the soft rate environment had begun to impact the dedicated arena. But then you also said more customers are attempting to take advantage of the soft freight market and then the bid pipeline is starting to grow.

What is it that you're seeing on dedicated? And why has that lagged? And it feels like that is getting worse now or better? I was confused by the comments.

Well, really, what I was trying to say there, Ed, is that we all know that everybody is getting into dedicated. So first of all, instead of having a bid that consists of you and Ryder or you and Penske or something or you and Hunt, it's quite a few carriers that are there. And so therefore, it's more competitive. And the pricing will become more competitive, I believe.

Now from a Covenant standpoint, something operating at [100] OR -- you know, the pricing, quite honestly, doesn't have to be at -- whatever, $3,500 a week per truck to get it to a 90. Well, I mean, I want to get to a 90, but we're not going to get to a 90 overnight. We're trying to get to a 94, 95 kind of number in there. So I think it gives us a lot of opportunity to take market share away on the competitive bid process.

Okay, but from the market's perspective, it feels like what you're saying then is the market is weakening, but you are in a good position because you don't need to be at the market, basically.

I would agree that statement.

[Ben Hartford], Robert W. Baird.

I just wanted to address a comment you had made in the press release concerning the softening used equipment market. I guess our sense is that pricing has held up, though volumes might be lower in the first quarter. Could you address that; provide some color on that? Is it specific to the type of equipment that you're selling in the market, or is it a broader softening of the market?

I think it's both. This is Joey answering that question. I think we had -- not only did we buy a lot of trucks, but we sold a lot of trucks last year. The market has softened a little bit. You are correct -- pricing is holding. Volume has slowed it. Our mix of what we're selling this year is changing from what we traditionally have. We have several Volvos that we're selling this year, and we're not traditionally known as a Volvo quote dealer. So that's -- we're in a transition period there.

So I would basically say it's a combination of both. Last year, in the first quarter, we sold just shy of 400 trucks, whereas this year, there's about 200 trucks. And I still have got inventory. So that gives you just a sneak peek at -- the volume has slowed a bit. Trailer side, we sold last year about 700, and this year, a little over 300.

So the volume has slowed, but pricing is holding. And as we move throughout this year, we feel that pricing will continue to hold, and that the volume -- actually, were getting a lot of exciting interest on the trailer side in particular, as well as some of the tractors that we have coming up in the second half of the year that we actually aren't selling yet, don't have to sell, but will be coming into the mix.

So we feel very good about what we have to sell. But volume has slowed a little bit. It slowed last September or so. We had about a six-week window where it really slowed. Then it really picked up strong for the remainder of the year, and then after the holidays, it kind of started -- it slowed again. But we're feeling pretty good about where we are right now.

Chaz Jones, Morgan Keegan.

Can you give us a sense for the actual profitability by month? It sounded like February was extremely challenging. But can you give us a sense if January or March were profitable?

March was profitable. January was okay for a January freightwise, as David already said. Profitability was pretty much as we expected. But we basically lost a little money in January. February was just horrible.

So there was a big swing factor between February and March.

Yes, and then March went to profitable. So February was just not a fun month.

That's helpful. And then -- I know you spent a lot of time talking about the equipment for sale, Joey. Can you give us a sense for how many tractors and trailers you actually have for sale right now?

We've got 358 tractors and 492 trailers and three properties.

That's what (multiple speakers)

(multiple speakers) not insurmountable. I mean, if you think about it, I'm not adding a lot to that truck count between now and the end of the second quarter, and we sold 200. So we feel that we are going to be out of tractor inventory probably by June or July, because I'm not adding anything to it again until September -- late August, September.

Trailers -- we'll take throughout the year, because we're continuing to add to that number, take away from that number. But relatively speaking, that is a much smaller -- obviously, piece price than the tractors. So we are in good shape there.

So are we on the back side of this whole process? It sounds like perhaps maybe you have topped out in terms of what you had for sale?

Yes. That's why I said -- and just to reiterate in my prepared comments, we do feel that it will be below 20 million by the end of June, and should be below 10 million by the end of the year. So we're at the peak right now.

Okay. And then one last thing -- the 26.5, that includes tractor trailers and property?

Yes.

(OPERATOR INSTRUCTIONS) John Barnes, BB&T Capital Markets.

David, on your comments about your operating ratio goal for the year, when you say that it may be difficult to reach that goal, are you thinking it may be difficult to reach even 100 basis points? Or are you thinking it may be -- are you comfortable with the lower end of that range and more worried about the top end of that range?

John, it all really comes down to the economy question. I feel much more comfortable with that number, with that goal if the economy stays where it's at today.

If the economy gets worse, then I don't know where -- I don't know what we'll -- I don't feel as comfortable about hitting the number. But based upon the way you and I feel today about the economy, which is not great, but we're not in a recession, I feel pretty comfortable about it. (multiple speakers) Does that answer your question? Do you understand what I'm --

Yes, I mean, but other than volume, if you are getting price, and you're still holding on to some price (multiple speakers), and barring -- let's say volumes kind of stay where they are today; things don't get any worse, things don't get any better (multiple speakers) you kind of continue along your path -- I just want to understand which end of that range you're more comfortable with in that scenario? Is it the 100 basis points or are you comfortable that hey, by year end, this turnaround is going to be working enough that you feel more comfortable with the top end? I'm just -- take the economy out of it; status quo for the balance of the year and you're holding on to some price, where do you think you fall out?

I think that you would see the 100 basis points, with it getting stronger in the fourth quarter.

(OPERATOR INSTRUCTIONS) At this time, sir, there are no further questions.

Okay. We want to thank everybody for joining us today. Thank you.

Thank you. This concludes today's first-quarter conference call. You may now disconnect.