Covenant Logistics Group Inc (CVLG) 2008 Q2 法說會逐字稿

Excuse me, everyone. We now have our speakers in conference. Please be aware that each of your lines is in a listen-only mode. At the conclusion of the presentation, we will open the floor for questions. At that time, instructions will be given if you would like to ask a question. I would now like to turn the conference over to Joey Hogan. Mr. Hogan, please begin.

Thank you and good morning and welcome to our second-quarter conference call. Joining me on the call this morning is our CEO, David Parker; our CFO, Richard Cribbs and various members of our senior management.

This conference call will contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 as amended and Section 21A of the Securities Act of 1934 as amended. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Please review our disclosure in our filings with the SEC.

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

In summary, we are never happy with losing money during a quarter. But we are beginning to see, in our financial results, meaningful, positive progress in our turnaround plan. Our freight revenue, which excludes fuel surcharges, grew 6.2% to $160.5 million, primarily due to a 4.6% improvement in miles per truck, a 9.6% improvement in our deadhead percentage with essentially the same length of haul as a year ago and $10 million of revenue growth from our Solutions subsidiary.

Our operating ratio improved to 100.2% from 100.7% last year and our earnings improved to a loss of $0.17 per share from a loss of $0.80 per share in the year-ago quarter. The comparisons to the year-ago quarter can be complicated because, during the second quarter of 2007, we incurred some infrequent items.

During the second quarter of 2007, we incurred $6.9 million of infrequent operating expenses and $1.7 million of infrequent tax expenses, which both total $0.45 a share. Excluding the infrequent items in the year-ago quarter, our operating ratio improved to 100.2% from 102.8% last year and our earnings improved to a loss of $0.17 versus a loss of $0.35 last year.

We are very pleased with our continued efforts to reduce costs in the Company. Excluding the effect of the infrequent items a year ago and the costs associated with our non-asset-based Solutions subsidiary, our pretax costs actually decreased by $0.026 per mile.

The largest impact on our expenses continues to be the soaring costs of diesel fuel. The US Department of Energy's national average diesel fuel price for the second quarter was $4.36 per gallon, an increase of $1.58 per gallon as compared to the second quarter of 2007.

Our net fuel costs, which we define as fuel expense less fuel surcharge revenue, increased $0.046 a mile. Operating income was negatively impacted by approximately $4.7 million or $0.21 per diluted share. We continue to focus on being more fuel efficient through decreased idle time, less nonrevenue and out-of-route miles and improving our surcharge programs with our customers.

Now I will briefly go over the highlights for the quarter. First, the positives. We were able to increase our miles per truck by 4.6%. We were able to lower our deadhead or nonrevenue miles percentage to 10% from 11.1%. We aggressively grew our non-asset based Solutions subsidiary. We lowered our dependency on broker freight sequentially from the first quarter. Even with the increase in net fuel costs, our asset base truckload operations lowered its pretax cost per mile by $0.026 versus a year ago and $0.051 sequentially from the first quarter.

We had an excellent quarter from a safety perspective. Our DOT accidents per million miles were down 20% versus the second quarter of 2007. Since June of 2007, we have been able to reduce our total on and off-balance sheet financing by $34 million. And lastly, we were able to complete a major portion of our refinancing plan with Daimler Truck Financial.

On the negative side, generally speaking, freight continued to be soft throughout the quarter. Our number one negative and I would simply summarize it in one word was fuel. I think we have said enough about that.

Our second negative was we were not able to increase our rate per loaded mile over the second quarter of 2007. Number three, although we lowered our dependency on broker freight sequentially from the first quarter, freight obtained from freight brokers was still higher in the second quarter of 2007.

Fourth, we continued to invest for the future in our Solutions subsidiary with our operating expenses being higher than expected. Five and lastly, we were not able to fully complete the refinancing plan, but we are hopeful that we will completed by the end of the third quarter.

What are our current initiatives going on during the third quarter? First, lower our dependency on broker freight; second, continue to aggressively manage our fuel enhancement program that we introduced early in the second quarter and then last, we are completing our discussions with customers on improving our reimbursement of increased fuel costs. We are proud to say that through the fuel reimbursement initiative, we have lost a minimal amount of freight and customers who, although reluctantly at times, have generally been supportive.

In August, we will begin our general rate increase initiative to be completed by the end of September with a goal of being effective by October 1. We will be focused on improving our profits and traffic lanes that are not producing acceptable margins and could result in a reduction in the overall fleet size if necessary. Matt, that is the end of our prepared comments and now we will open it up for questions.

(OPERATOR INSTRUCTIONS). Justin Yagerman, Wachovia Securities.

Good morning, gentlemen. A couple of questions here. I guess we saw you guys rightsizing the fleet a little bit and taking some tractors out in the quarter. Just kind of curious given -- having seen some strength in June, what are your thoughts as we head into the back end of the year in terms of fleet numbers and how you're going to maintain that over the next few quarters?

Justin, we are hoping, based on what you just said there, because we did see the last six weeks of the quarter, middle of May to the end of the quarter, it did tighten and it did improve very, very nicely. I think it was a pre-site of what we're going to see soon in my opinion of tightening of capacity. I think we've got a glimpse of it during that time.

Our desire is that our trucks stay where they are at, but at the end of the day, it is not a major deal from a standpoint of how many trucks should we run. We are going to allow the pricing side of the equation and all three companies dictate how many trucks should be in these fleets.

Are there more coming out than our shown by the number that we have because you said you put some into Covenant Regional OTR?

No, no. As it stands right now, the numbers you got are where the numbers are at. So only the future dictation will determine if we do and quite honestly, the fuel side of it, the customers were very, very supportive as Joey mentioned there. And if they are on the rate side of it, then we are going to keep it exactly where it is at. So we will let that determine it.

David, you have been through this a bunch of times. How one-time did June feel to you? I mean we had a few extraordinary things going on with the refund checks and the flooding that took place in the Midwest that maybe put some additional freight on trucks and took it off the rails. Were you seeing those kinds of things, were you hearing kind of, oh my God, I wasn't planning on doing this, but here we go, we are getting extra demand? What were the commentary from your customers as they were looking for more capacity and I guess the real goal of the question is how one-time did it feel?

Yes, I think it is kind of twofold, Justin. No doubt the Midwest sensed the flooding that happened up there. We absolutely sensed that in the Midwest. On top of that, as you know, we've been [enduring] the crux of the last couple of years. The Midwest has been one of the stronger loading areas of the country. So really it was just a much more enhancement of freight available, but we probably would have, in terms of Midwest, I don't know what is the percentage of our total, but it probably increased say about 30% or 40% of freight availability in the Midwest on an already region that had enough freight.

Other than that, all over the rest of the country -- of course, the Northwest is the Northwest. It's doing its typical slowdown. The East Coast has been pretty slow for the last two or three months on the East Coast. But other than that, it was really -- we can't find a truck and to say it was interesting is that it was on the brokerage division, as well as on the asset side. I mean something definitely happened and it was much greater than just the floods in the Midwest.

The South perked up for six or eight weeks. They haven't done that in two years and -- was it a one-time deal? No, it is what is going to happen because of everything your all analysts have all written about about capacity and it is absolutely going to happen what we felt is that here, today, I am not ready to say that, but I think it has given us a glimpse of what is going to take place.

Well, you said things are up a little bit in July, so that is encouraging. You had some language in your release about reviewing your divisional capital allocations as you I guess go through fleet replenishment in the next year or two. How are you thinking about the different divisions and how they are operating relative to each other? You guys have obviously retooled the model a bit over the last few years and I guess going into the next few years, how are you thinking about how you want to have this organization split up? Is it optimal the way things are now and are there massive capacity shifts from one division to another that you envision or how are you thinking about that right now?

The word is not massive, it is not where we want it at yet and quite honestly, the next three or four months, therein the break process will dictate a lot of that issue. Whether Covenant's OTR continues to reduce will 100% be dependent upon pricing. I mean just to give you one example, Justin. I mean we are looking at every lane and we have been for the last couple of years, but, quite honestly, I think there is enough capacity that has been taken out now that we can have at least some genuine discussions with our customers and to show customers certain lanes that have inappropriate operating ratios and we are going to address those. And if that means that we need to reduce the fleet, then so be it.

But we had a large account that we probably do $8 million a year with that we increased pricing about 20% and we ended up getting $6 million of business. I will take $6 million on an account that is going to now going to make money versus the account that was losing money. So that is just one example of what we will be doing in particular the OTR division that, as you know, has been weak and has been the area that we have had major concerns.

My goal is to continue to grow the refrigerated side. We are starting to see some nice uptick in that business from a cost-saving standpoint on fuel as it relates to reefer fuel. So my goal is to grow that.

Our goal is to continue to grow the brokerage side of our business and the regional side, quite honestly, of the Star business of the Southeast region, they have made some nice headway in the last three or four months. The Southeast has picked up, but it is not where it needs to be. So my question is do we have too many trucks running in that segment of the Southeast division? Is the Southeast not going to come back for two or three more years? If it is not, then we are going to have to address that. So those are where my thoughts are at as we speak right now.

That's fair. I guess one last question and I will turn it over to someone else. Joey, Richard, when you look at what is going on with the balance sheet and your ongoing refinancing, definitely not the norm necessarily to see OEM financing come in for you guys. So I am just kind of curious if you could take us through the process where you have this facility in place with Daimler now and you are looking at transition or supplement and I guess how are you thinking about the structure of your balance sheet as you move forward? And obviously, you are trying to get that done as soon as possible. So I am curious in terms of the progress thus far.

Well, I mean it's pretty straightforward just from what we are trying to do. We have a revolver in place that we anticipated having that had some covenant tightening in the second quarter moving throughout this year and through the remainder of that facility and we felt we were going to be very tight with that. In fact, technically speaking, we met those covenants, those reduced covenants from a cash flow coverage and fixed charge ratio at the end of the day, but nevertheless still the covenants were going to be very tight.

So we just decided that we had to have a longer-term solution that allowed us the time to continue to operate our plan. So we went into the market. Now the market, as we all know, is extremely difficult, especially to take -- for any financial institution to take on any new exposure. We have got a good relationship with Daimler Benz obviously through our Freightliner relationship and it was just something that, as a relationship that has developed over the last couple of years just as we have continued to kind of meet and know the new Freightliner if you will and just came to be that Daimler was willing to do that and we jumped on it frankly, especially in this market.

As far as where we go for the future, we are still in the market looking at a couple of alternatives that, as I said, we are hopeful, I think confident that we will have it all completed by the end of the third quarter. Those options may include an amended current remaining revolver. It could include a new financing possibly in the asset-based side. So there are several options that we are looking at that we have been working on diligently for the last six weeks or so, six, seven weeks or so. So I think that will happen.

The market is tough. Our banks are working with us as we sort through those scenarios and we will see kind of see how it plays out. I am not ready to say if we -- that we are 90% of the way to completion or not. Basically at the end of the day, we went out and raised $200 million financing. Yes, it is with an OEM. That process went very, very well. Daimler was extremely responsive and truly understands obviously the truck market and that side of the equation. We are very appreciative and went very, very well.

If you can't come to terms on the bank side, I mean is Daimler willing to extend that credit for a longer period of time?

Well, pretty much, other than just a little bit. I mean they pretty much have all our revenue equipment on the truck side. There are some trailers that we still have financed through leasing and various structures. I don't see Daimler going up any in size. The terms are based on the underlying term of the financing on that particular asset. So I don't see Daimler going up in size and I think should be able to finance us through '09 on any truck purchases that we have.

Okay, fair enough. Thanks, guys. I appreciate the time.

Donald Broughton, Avondale Partners.

Good morning, guys. Let's talk about some of the other kind of miscellaneous things. I was interested in brokerage. That seemed to throw off a pretty heady operating margin. My calculation is right, did you run an 81.7 OR?

For brokerage?

Yes.

No, no, no. That is just the revenue less the purchase transportation. That doesn't include agent commissions and other overhead items.

Okay. And so what line item are those items in?

They are throughout the P&L. Some of them are in salary, wages and benefits.

So what kind of an OR did you run for brokerage?

It was just below 100. It was profitable, a little better than the first quarter where we had additional investments in a company-based brokerage that we brought in, but it was still improving.

All right. What was your hit for Transplace this quarter?

We had no hit for Transplace this quarter. We book Transplace on the cost method, have, Donald, for years, so we don't have a plus or a minus on Transplace quarter-over-quarter.

Well, I know you don't do an equity method like some of the others do, but usually you see a flow-through. All right. Because obviously the other players took a hit there as a result of the ongoing troubles that Transplace is having. Joey, how many of your units now have APUs?

Right at -- just shy of 500. That hasn't changed much this year at all. We are continuing to evaluate a few other alternatives than what we have used in the past trying to help us find a way to reduce the upfront price point and get [opt] growing what we kind of work through this testing on a few of these other products.

And so I shouldn't expect that to change meaningfully in the next couple of quarters?

I would say no in the third quarter. I think it is possible in the fourth quarter we could see it growing again, but I think it is probably more likely of any size next year.

All right. Well, let's talk about the big pink elephant in the room, fuel. Again, we got -- I mean you broke under $0.30 on net fuel expenses per mile, but you are still, by my calculation, $0.2966 net expense per mile for fuel. I mean is it all fuel surcharge collection? Is that what it is going to take to get you back below $0.20 like you used to run all the time or is that ever going to happen again?

Donald, it is a collection of all those things. I mean it has continued to improve on the fuel surcharge. It is improvement on deadhead, it is improvement on idle time. That is what you saw in the second quarter and those things will continue to get better. If fuel would flatten out, it sure would help. Does it get back below $0.20? I don't know. I mean I think that we got $0.03, or $0.04 or $0.05 a mile is what I think that we can take out of this. I mean we are making great headway just at the beginning stages, but we are making great headways on just reefer fuel surcharges.

And so when you have got one segment, reefer division, that has got just a big lopsided on costs -- reefer fuel itself got up to about $0.10 a mile by itself and we're in the process of starting to recover a portion of that. And I think that we are going to continue to cover a lot of it. So is $0.20 a good number to shoot at? Where I am shooting at personally is to get it back to last year's numbers.

And Donald, a lot of our fuel initiatives really didn't go into place until early June or late May, including some of the fuel surcharge revenue improvements that we had from customers agreeing to some changes in that. And so really what you're seeing for the quarter is a blend of where we were at the end of the first quarter up to a very strong June where our cents per mile was in the low $0.20s.

So this quarter so far you have got to be feeling better about things just because fuel keeps coming down?

Slowly.

Well, I mean I know I am preaching to the choir here, guys, but I mean your gross fuel expense went up more than your surcharge went up by $4.7 million. That alone, if you had just kept pace, this had been a profitable quarter. I mean I see you making progress on all these other line items and thinking to myself, well, if they can just get fuel under control, the rest of this would -- all the other hard work is not getting noticed.

Yes, absolutely. And I think again, as Richard said there, I feel very strong that what we saw in the month of June just on the fuel side will continue onward from -- is sustainable and what we are doing internally. And the idle time numbers are just phenomenal, what is happening on that. Unaccountable miles are very big and all of that started coming out in the month of June. So we are very, very encouraged about fuel.

Tell me how I am going to be wrong about this. I'm telling clients that volume always leads price. I see deadhead come down, I see you running more miles per truck and that that always is going to show up before you actually start to see pricing. Am I --

Donald, I think there are two things. Ever since me and you have been little boys and mine is a lot longer than yours, that is exactly, exactly correct. But I am going to tell you, I think there is another issue that is going on within all industries and that is costs are going up so dramatic that whether utilization is keeping up or not, you are going to see, in all industries, people coming out with X amount percent, whether it is 5% or 8% increases just because they have to, if they are going to get back to numbers that everybody wants to operate at. Because you cannot house the tremendous increases from anywhere from fuel to tires to batteries to trucks to trailers and not think that you have got to sit around and wait on utilization to improve to get it. So I think there is two things, but you are right on your first equation. It definitely assists you tremendously.

So are you telling me, David, that when you sit down with clients and say, look, we are seeing inflationary pressure on all fronts? There is now more and more an acknowledgment by customers that yes, on everything we are buying, price is going up too, we understand?

Yes, I am saying that. Yes, so we understand. Whether that means that they sign the dotted line, I don't have that yet. But do we understand? Yes and at the end of the day, when you started changing fuel in April and stuff and the account I gave you the example on, they did it for a reason. I mean they are starting to use some sense about them. Even though there is tremendous pressure when I say sense, I don't mean that negatively. They are under tremendous pressure there selves, but now the transportation folks are starting to realize that we have got a cliff 100 yards away from us.

If we don't assist and help this industry, there ain't going to be no industry left or there is going to be about five carriers to handle whatever volume they have got and so they are at least starting to talk for the first time in multiple years because they are starting to at least acknowledge that your industry has some issues that have got to be dealt with. That is really what I am saying. So if that helps you any.

Thank you, David. I will let someone else have the table.

[Matia Pazaro], Wolfe Research.

Hey, David, Joey and Richard, this is [Tim Denauer] in for Ed Wolfe. How is it going? First, let me ask the fleet growth or contraction question a little bit differently. You mentioned that pricing was going to be a big determining factor of how you grow or shrink your fleet going forward. How much of a consideration is reducing broker freight?

Tim, this is Joey. Obviously, that is something every trucker focuses on each week is how much, if any, broker freight we had to haul. I think that there is a couple of things that determine that. Kind of anecdotally speaking, we were able to lower our dependency on broker freight at a time when we were out in the marketplace talking to our customers about our fuel, fuel surcharge improvements. We were able to reduce that at a time that arguably some people would say, Joey, you are early and you may lose some freight, which may put more pressure on needing broker freight to move your trucks. We are always looking at that.

I think that, as we move throughout these next two quarters, that it will continue I would call it to slowly reduce. I think that will depend on the strength of the underlying freight market. I know we are doing a few things with a few of our products to shrink some market focus if you will, which should help us a little bit on the density side, but we will have to see how that plays out, especially on the solo side.

But it is not -- I would agree with David. The large majority of fleet size and moving trucks among divisions and companies, pricing will be the key determinant as we go through the next two quarters. But obviously, underlying profitability and cost structure with each division is an impact too. If one piece of business is profitable, but they are not able to move pricing, but yet they have some marketshare opportunities, just because they weren't able to move pricing significantly doesn't mean we may not move trucks over there if there is volume and marketshare opportunities inside that fleet. But I would agree directionally that what we have to get accomplished in the next couple of quarters or would like to get accomplished, pricing is going to be the key determining factor on size of fleet and trucks between divisions.

Okay. On the fuel surcharge compliance, you're going out and talking to customers about that, can you give a sense of what kind of proportion of your business you have been able to improve from say $0.06 to $0.05 or how much you have gotten shippers to pay some deadhead or did that just happen in June and is that still happening? A couple questions.

I think probably the best way to answer that is that there is probably about 10% of our total base of customers that we have got to have some very direct talks with. The rest of the customers have been very good and have either changed their existing fuel surcharge program to more than allows at least a chance to cover it or they have allowed us to put it immediately into the pricing of the rates and so we have got about a 10% number, excluding brokers, that we have got to deal with. And we are going to be dealing with those 10%. And we are not taking anybody. There is not an account coming on these businesses that are not paying us a reasonable fuel surcharge.

Got you. On the brokerage business, it was a very strong grower in the quarter. What do you see as an annualized run rate for brokerage say by the end of this year? How are you thinking about that?

I think, Tim, is we had a goal to be at a $100 million run rate by the end of '08. I would probably say it is somewhere today in that $90 million range is probably more where it is today. We have a shot at hitting that, but we have added a lot of expenses and overhead in there to get us to that next level, which has slowed a little bit. We have kind of slowed our revenue growth intentionally as we --

Systems.

Kind of did some things for the next level if you will, the next leg and so ginning that revenue piece back up has taken us probably a little bit longer than we had hoped, but it is still growing and it is still growing rapidly and so the keys to the second half is to add some revenue. We have added to company stores if you will in SRT and Star, which are very young in age and I think that will help as it grows as those two businesses take off, so I think it will get there. Will it be at $100 million run rate in the fourth quarter? It's going to be close.

Okay. How many locations do you have at the moment?

Well, right now, we have four company stores and then we have agent networks basically all over the country.

On the speeds of your fleet, did you make any changes to your general miles per hour in the quarter for fuel savings and did you see much fuel benefit if you did?

Yes. I mean we have -- all three of the fleets -- SRT, Star and Covenant -- all turned down some portions of their trucks late first quarter, moving into the second quarter and so that is all still in process and at least two or three miles per hour depending on the fleet and things of that nature. The only fleet that we have not turned down is the Covenant's Team division. So it has remained at 65, but the other fleets have been turned down two or three miles per hour.

They are starting to see the impact of that.

Yes. I mean it is buried in the overall meaningful miles per gallon improvement, all the things that David mentioned, of which this is one, all of them have led to some, in the month of June, late May, June, some pretty substantial miles per gallon improvements, which we will see the full quarter effect of those in the third quarter obviously.

Great. That's all for me. Thanks for the time, guys.

Neal Deaton, Stephens Inc.

Good morning, guys. Just wanted to kind of follow on to that question. I guess just walk through why there is more emphasis on the teams and that. I know that you get more miles that way and it helps utilization, but anything else you might be overlooking?

Well, it's several things inside of our model and different people would have different points of view on this outside of Covenant. But inside our model, on the Covenant Transport piece, we see obviously better revenue per truck. Anytime you can get more revenue per truck and keep a truck full, that is big. You are typically -- your accidents are less in our team fleet, significantly less in our team fleet. And it just gives you a better opportunity to produce profits.

And so I wouldn't say it is -- everybody would say that the long-haul marketplace is dying. We don't say that. That is a marketplace that we will continue to focus on. We have had the ability to grow our teams over the last year irrespective of what the market has done and what freight has done and so we made that commitment to ourselves to reestablish some of the -- I won't say markets that we have walked away with, but some of the freight that we thought just wasn't price competitive and we found some ways to get profitable in those lanes and incent our drivers and I think our expedited fleet is in good shape.

Is it going to grow much more from where it is today? Probably not. It just really depends on the market. I think we are running around 950 teams today. That is a pretty good number. And I think if the market really takes off, we are doing some things too between our solo division and our team division as we manage drivers back and forth that if the market is there, I think we have got a good shot at growing teams and if the market is not, we may shrink teams a little bit.

But we have got a good base of teams now. Turnover is as good as we have seen it in a long, long time. Yes, some of that is the market, but some other things we are doing on the training side, which is helping us. So I think we are at a pretty good number now and I don't see it growing substantially unless the market asks us to grow it and we will just kind of address that when it comes.

Okay, that is helpful. I appreciate that. And then as far as some more cost-cutting, besides fuel, kind of what Donald alluded to, is there any other low-hanging fruit so to speak? I'm mean I know your fleet age is a little older than it has been just like a lot of your peers due to what has been going on in the environment, but like operations and maintenance, I would think that could come down a little bit as you replace units and get newer units in down the road. Like what are your replacement goals?

We are going to stay. We have extended a little bit, about three months, in some of the fleets. Some of the fleets we left where they were. For example, our Star fleet so on a four-year trade cycle and we haven't changed that at all. That is what it was when the group bought Star and it is still that today.

The other fleets we have extended a little bit, but not a lot. It is about three months. What you're seeing the age is on the trailer side and that is just due to -- we just had a huge replacement cycle back in 2002, 2003 and 2004, just huge. And so you are seeing that trailer fleet continue to age and we are going through here -- in the last year, some of it will drag into next year, tire replacements on those trailers that it is driving that operations and maintenance costs up.

So I think that you are going to continue to probably see operations and maintenance on a per mile basis around what it is today. I think as you will see, the trailer fleet costs continue to be higher than we want as we replace those tires, but on the other hand, as we start replacing the truck fleet late this year and into next year, you will see the savings there. So I think it is probably around where it is, probably more likelihood for it to go down a little bit, but I don't see it -- Richard, do you disagree? I don't see it going up much more on a per mile basis from where it is today.

No, and we are employing some sales-and-use tax strategies related to operations and maintenance that we should see some improvements from the numbers between $1 million and $2 million of savings annually based on that and that should be coming up. We just started to ramp that up in July and should see more of that go into play and be in full effect around the start of the fourth quarter.

Okay, I appreciate that. Any other areas that you are targeting specifically?

We have taken out, as you saw, a tremendous amount of costs out of this Company in the last 12 months and there is still a lot of opportunities as you all just went over on the maintenance side, but I think it is more toward next year than it is this year. But I think our biggest opportunity is still around the steel-related item. I mean I think that that is where we have got a lot of -- there is a lot of money on the table on the fuel side that, again, we just started seeing the numbers in June. So I think if you wanted to look in the next 12 months, there are some big opportunities there that if we could reduce it $0.02 or $0.03 a mile, as you know, that is a lot of money.

Yes, definitely, definitely. Hopefully, you can do that. And just one final question, could you kind of just go -- I know you've touched on this in the press release, but there are a lot of moving parts. Could you just kind of walk through your current liquidity as it stands right now?

We have got approximately -- how much cash do we have right now?

There is about $5 million of unrestricted cash and then we have about $20 million of availability remaining on our revolver that is undrawn and then for future equipment purchases, we have the Daimler funding available, another $75 million plus available there. That is really only going to be used for new equipment purchases and replacements. That is basically where we are at the current moment.

But as we kind of discussed, there is additional potential liquidity with other options that we have. We have a lot of real estate that is not being used as collateral currently. Our receivables are taking quite a bit of a haircut. We are about $98 million in receivables. We are getting $60 million of financing on that. Because we go to the commercial paper market for that to get the low rates, and so there is availability there if we do something different than the securitization facility.

Okay, that's very helpful. And then one follow-on. I know your covenants were kind of waivered I guess through August with the new agreement. So where does that stand say once September comes into play, like what needs to change to make sure you are still in compliance there?

Well, we either need an amended current facility or a new deal. It's one of the two. It's kind of that simple and I will need to amend something I said earlier. If, with cash that Richard mentioned, if we were to take any cash on the balance sheet and apply it to pay down debt, we would have been in compliance with our covenants. So I just need to clarify that. I said we were in compliance, but you have got to apply the cash that we were holding when we closed the Daimler deal.

So back to your question, so it is either an amended current facility or a new deal by the end of September and that is the path that we went down when we started this and we continue on that today. I talked earlier about this various and sundry types of options we are looking at on the remaining financing. The biggest part and the biggest key was the OEM financing from Daimler, which we did do. So we have still got a piece left that we have got to complete.

Okay. I appreciate that color. Keep up the improvement. Thanks a lot.

[Greg Olaf], [EDV&T Capital Markets].

Actually most of my questions have been answered. I just have one clarification. I don't know if I missed it. Did you guys mention any CapEx guidance or numbers for the remainder of the year?

No, we didn't give any guidance on that.

Okay, and I am guessing you are not. There has been a lot of focus around reducing the percentage of broker freight. Can you give us a percentage that you are at now or a percentage that you are fighting to get to?

It runs around 10% and our goal is to get around 7% or 8%. Because about half of our -- a little flavor -- I mean we all -- I will start with me -- want to be negative on the broker. But probably about half of our broker freight pays our fuel surcharge. About half of our broker freight is acceptable, good broker freight. So if we can get down to around a 7% or 8% kind of number instead of 10% then that is kind of where we are targeted.

Perfect. Thanks, guys. That is all I have.

Justin Yagerman, Wachovia Securities.

Just had a follow-up here. David, Joey, have you had any private equity interest in either all or part of your Company? You guys have been trading below your tangible book for quite some time.

Justin, I could have sold the Company 400 times in the last five years if people that have a desire to talk and we have talked to them -- as you know, we have talked, we have been very open, we have talked to a lot of folks, but talk is awfully cheap.

Okay. Just curious on that. I think that is all I have got right now. I appreciate that. Thanks.

(OPERATOR INSTRUCTIONS). Mr. Hogan, it seems there are no more questions at this time.

Well, Matt, thank you. And thank you everybody on the call and we will talk with you later. Thanks. Goodbye.