Covenant Logistics Group Inc (CVLG) 2011 Q1 法說會逐字稿

Ladies and gentlemen, welcome to the Covenant Transportation Group's first quarter call. (Operator Instructions.) It is now my pleasure to introduce Mr. Richard Cribbs.

Thank you, David. Good morning to everyone and welcome to our first quarter conference call. Joining me on the call this morning is our CEO, David Parker, along with various members of our management team. Just as a reminder, the conference call will contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act 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 disclosures and filings with the SEC.

Also, as a reminder to everyone, a copy of our prepared comments and additional financial information is available on our Web site at ctginvestor.com. Our prepared comments will be brief, and then we will open up the call for questions.

In summary, the key highlights of the quarter were that our asset-based division's revenue decreased 1%, mainly due to a 1% decrease in revenue per truck, versus the year-ago period, our miles per truck were down 5.8% while rates per total mile were up 5.1%.

Rates were up considerably by approximately 6.5 cents per mile, especially given the 3.1% increase in our average length of haul. The combination of a reduction of loads originating on the West Coast with the overall weakness of freight in that region, plus the overall harsh winter weather, negatively impacted our utilization. Compared to the first quarter of 2010, the asset-based division's after-tax cost per mile, net of surcharge revenue, were up approximately 7.1 cents per mile, mainly due to higher driver wages and casualty insurance expense.

The asset-based operating ratio deteriorated 140 basis points to 100.2%. Our Solutions logistics subsidiary had a really strong quarter. While its overall revenue declined by 36.5%, its operating ratio improved by 490 basis points to a 91.1 OR. Since year-end 2010, total indebtedness, net of cash and including the present value of off-balance sheet lease obligations, increased by $7.5 million to $266 million.

Over the last year, the age of our tractor fleet has decreased from two years to 1.7 years. We were in compliance with our financial covenant at the end of the quarter, versus year-ago, our consolidated operating ratio deteriorated by 120 basis points to a 99.8% and, after tax, we lost $2.5 million compared to a loss of only $2.2 million last year.

The results for this quarter can be summed up with five areas of impact, some positive and some negative. From a positive standpoint, first, as we said in the release, we were encouraged by an approximately 5.1% increase in average freight revenue per total mile, which we attribute to improvements in our freight mix and customers' recognition of the combination of service and capacity that the Covenant Transportation Group companies offer.

Second, our Solutions logistics subsidiary had a very strong quarter, helped greatly by the solid management of a holiday seasonal project in January and a major national product launch within the over-the-counter healthcare industry in March.

Project management for customers will continue to be a growing part of the Solutions portfolio, allowing it to offer capacity, utilizing our three asset-based subsidiaries as well as our growing list of approved outside carriers. And third, our fixed costs were down slightly, due principally to taking advantage of the strength of the used equipment market.

From a negative standpoint, first, we achieved poor utilization as compared to the first quarter of 2010, primarily as the result of two factors -- more severe winter weather across the nation than we have had in several years. And as an example of this, we had 43% more fleet shutdowns than we did a year ago and abnormally weak West Coast freight demand. As an example of this, our Expedited Covenant division experienced 24% less loads originating off the West Coast than a year ago. However, we have seen the West Coast freight demands steadily improve over the last few weeks.

Second, we experienced additional insurance claims reserves, while new information or settlements led to increased expenses on past claims as well as having increased frequency of accidents related to the more severe weather that we already discussed.

In summary, we remain focused and resolved that our fiscal 2011 plan will produce increased profits when compared to 2010. It does appear that the economy may be slowing down a bit. When combining that with the high fuel prices, it gives us pause. However, we believe the continuous improvement plans we've put in place better prepare us to move forward despite these challenges.

Pricing in the marketplace has to continue to increase in order to compensate us for rising cost pressures such as driver wages, safety regulatory changes and higher truck prices, not to mention the portion of higher fuel costs not currently covered by customer fuel surcharges.

We believe that West Coast freight demand is slowly righting itself, and thank goodness we are past the winter weather, therefore normalizing the network. We are excited about the remainder of 2011.

Thank you, and we will now open up the call for any questions, David.

Thank you. Ladies and gentlemen, at this time, the floor is now open for your questions. (Operator instructions.) Scott Group with Wolfe Trahan.

Helpful commentary on the West Coast loads being down 17% year-over-year. I was wondering if you can give us the progression of how that was throughout the quarter and what you're seeing so far into April on that metric?

Scott, it is really -- as soon as January got here, it just stopped. I mean, it was not good. We were laying over multiple trucks a day out on the West Coast, really up and down -- not just California but up and down the West Coast. It really did that the entire first six weeks of the year. No, the first eight weeks of the year, Scott. We really didn't see any strength up until March out of California.

And then, in March, when Japan hit, we did have a couple of our Japanese customers that were affected that just added to it. So, it was really -- I don't have any bright spots about the West Coast. We were laying trucks over about 48 hours, every truck that emptied out on the West Coast. So, that gives you an idea of the first quarter. There's nothing I can make prettier. It didn't build until starting the middle of March. We did sense and did feel the end of the quarter push that you and I both would -- expected to have happened, so we did sense that.

In the month of April, I want to say it continued not to build, but it continued to do the -- like, the last two weeks of March. We basically are -- will lay a truck over either -- we're loading our trucks on a daily basis or we're loading them the next morning is kind of what's been happening since the end of March. So, that is something that is satisfactory. It's not -- again, it's not like it was 12 months ago. And quite honestly, it's not like it's been for the last 10 years out there, but it is better than it was for the first, whatever, 10 weeks of the quarter.

[Fair enough] (inaudible). Do you have the number where loads are tracking for April on West Coast?

I do not have that, but if it was down, like, 17% in the first quarter, it's probably down 5% numbers. But, I don't have April numbers here with me.

Okay. That's helpful. Wondering if we can go through the same progression on utilization down 5.5% in the quarter. How did that track in January, February when weather was worse? What did you see in March and into April? And maybe just adding to that, when do you think it can turn positive?

Yes. The utilization tracks was basically the same thing that I said above. It is really the last couple of weeks of March before I was even halfway satisfied with some of the utilization numbers.

At the end of the day, what ends up happening out there that really hurts is that we put a team or a truck -- in particular, teams, that run the West Coast. We need to be able to turn those trucks the day of, or definitely in the first 24 hours, to be able to get them back to a destination, whether it's in Atlanta, Chicago or Dallas or New York. We need to get them so that when those trucks return, they're emptying during the week, and you get a full turn for the entire week on the transcontinental lanes.

That's what caused the utilization to suffer mostly. I would say 70% of it was that right there. Again, that number has decreased to better. It's still not where it was last year for the entire month of April. It's still a negative number because those teams just have not been able to turn like we need them to. It has gotten better, but it's not where it needs to be.

When do I think it's going to turn positive? I hope that we're not back to the magic days of 20 years ago and 10 -- up 'til about the last eight or 10 years. If you remember, there's basically -- in trucking and especially as it relates to transcontinental, there's three magic dates that we've always had in the past. The last three or four years, we've been wondering if those dates mean anything anymore.

One is May 15th. May 15th, produce is running strong off the West Coast. It's running now. We got a bunch of reefers ourself. Produce is already running, but it builds. And May 15th is a magic day that we've always used that it is really trucking out there from a produce standpoint, and it just builds all the way through September. So, that's a magic day.

August 15th is another magic day that until three or four years ago, it's when the Christmas season would start. We only have to see if that has changed. We all believe, in the last two or three years, that probably has changed somewhat, and I hope that it has changed.

But, produce itself is going to cause a tightening of capacity out on the West Coast. So, if I had to tell you when do I think it's going to turn positive, I think it's going to be the end of the -- May up through June, and it'll stay positive for four or five months, depending on this -- Christmas is a magic date or not.

That's great color. Thanks. Also, just on driver pay, how much is it up per mile? And are you budgeting for another increase in driver pay this year?

It was -- let's see. It was up about 1.5 cents a mile for the quarter versus quarter last year. We have -- for budgeting purposes, we are looking at the possibility that we would have to have a small increase some other time in the year, depending on how well we can get drivers into the trucks. We have seen a slight improvement in being able to seat our trucks over the last, probably, five weeks. We're starting to seat more than we're losing to turnover, and so we're happy with where we are right now. We feel like there's a fair pay scale, and -- but, we have had some increases, mostly due to, like, retention bonuses and type things like that.

Great --.

[Yes], we're just monitoring it as we go forward. I -- like you said, our internal budget has a pay increase in there. At the end of the day, whether it's this year, next year, we all know the driver pay's got to go up, and so we're just going to be monitoring it and doing it when we feel like we have to.

Just last thing. Richard, your comment about the economy slowing a little, is that just based on what you're seeing on the West Coast? Or where else are you seeing signs of that?

I'll answer it. This is David. The -- yes, the West Coast, to answer your question. The West Coast, which had increase. The rest of the country is okay. The rest of the country's freight is -- basically, we're loading our trucks every day throughout the United States. The -- maybe the Southeast has slowed just a little bit. I mean, the Southeast was very strong in the first quarter. I think that it slowed a little bit.

One of the things, though, I think that's hurt the Southeast is Japan -- the earthquake over there, because some of the automotive, in particular, who we haul for, a couple of large Japanese automotive companies, I mean one, for instance, was shut down for the last 10 days. They told us that they are back up now, and they are back up. And they've said they have -- that their parts have been put back in place, and the supply chain is back restored, and there will not be anymore shutdowns. But, I'm going to tell you, we had a large account in the South that was shut down for 10 days that hurt.

That's kind of our take on it. At the end of the day, I think we all debate that says -- does gasoline hurt? I just got finished talking to every employee at CTG, so about 600 people that I've talked to in the last three weeks. If you asked a question that said -- is the price of gasoline starting to affect your spending habits, the percentage is running 60% to 70% that says yes it is. Well, if it is, that has to affect unless we are building a lot more jobs. If we are, maybe the creation of jobs, more people working will take care of the reduction of people-individual spending. But, I got to believe the economy will have a little slowdown.

Got you. All right, thanks so much for the time. I'll let someone else have at it.

Thanks, Scott --.

Okay, thanks.

Jack Waldo with Stephens.

This is actually [Tyler] with [Enscan] for Jack. Thanks for taking my questions. I was wondering if you would -- maybe can you talk a bit about how the OR progressed throughout the quarter? Or any color you can kind of give on the quarterly trends that we saw on the OR?

Well, January and February basically mostly affected by the utilization, and we had rates increasing as the quarter went through. So, January and February were lower, and then we actually made a good amount of money in March. So, we lost money in January and February, and then we made a substantial amount in the month of March.

And I think it's also true that we were -- even though it was a loss, our January we were pretty satisfied with -- in the month of January as it pertained to our expectations. February was horrible. February was nowhere -- it was not -- it was worse than what we expected. I mean, the weather just killed us in the month of February, and the results showed in the loss being greater. March was much, much greater than what we expected.

Okay, great. Maybe could you talk to what you're currently seeing in terms of bid rates? And also any color on refrigerated trends currently out there?

Okay. Let me talk a little bit on the refrigerated side of the business, continue to get increases in pricing. I think that we've got a good opportunity for rates to go up very nicely, better than what we are budgeting for, better than what we are anticipating is what my gut is telling me.

We have seen a nice increase in the rates on the refrigerated side, but I just think we still have four or five of our largest accounts on the reefer side that we are presently in negotiations. Most of those expire in the month of May and in June, but the meetings are going extremely well, and the expectations are that we'll get a very nice rate increase out of those customers.

Capacity on the reefer side has -- again, it's not been hit as hard as on the dry van side, even though one of the things that's hurting them is that for the first time in two or three years, they are experiencing -- we are experiencing a driver issue, and so we do have more open trucks there than we've had in three years. And so, that is hurting utilization from that standpoint that we've got 50 or so open trucks sitting there versus the last two or three years of virtually having none. We [didn't] have any. Matter of fact, we were growing the Company during that time.

So, that's had an effect on their utilization but business there is good. Reefer business off the West Coast had also been affected, similar to the dry van. Don't ask me why. I mean, I don't really understand that, but it had been affected in the first quarter, and it's picking up very nicely as we speak.

From a bid standpoint, we do have about two or three large pieces that are being done currently, and most of those are potential future customer bids more than they are existing bids that we could lose. We see potential coming out of the present bids that we've got going on presently.

Most of the large -- on the dry van side, most of the large bids for the year have -- we have about two left. Most -- a lot of them [say I have a] top 10 -- about six of the top 10 have already been completed, and those rates went into effect in March and in April of which we've seen the increases -- some of the increases we got. But, hopefully that gives you a little bit of data on that.

Yes, that's great color. I appreciate it. On the insurance and claims, you all kind of called out the tick up a little bit around 9.8 cents per mile. Should we expect that to be consistent this year? Or are we going to -- maybe hope to see it go down a bit?

I think the -- you'll still see some of that in the second quarter. We're continuing to see some older claims have some reserve increases as we move through this quarter already. As we progress through the year, I do expect that to continue to decrease and get back down to a normalized level.

Up until the last two quarters, our safety record had been steadily improving, improving, improving from a standpoint of frequency of accidents. Our severity is down, and we're real happy with that, and we continue to see our CSA scores improve as well.

I appreciate it. Thanks again.

Chaz Jones with Morgan Keegan.

One thing I wanted to get back to. David, the commentary on pricing -- I know at the beginning of the year, the expectation was 3% to 6% I think you had stated before. Has anything changed there? I mean, either positively, negatively? Are you still kind of holding that range?

Yes. Yes, I do. Yes, I will continue to believe that it's there. If nothing else, Chaz, I think it could be -- I could get a little bit more excited than what I am on the pricing. I think it has potential. But, for right now, I'll stay in that 4% to 6% kind of number. I was in that 3% to 5%. Right now, I'll say 4% to 6%, and I think that it could go a little bit stronger than that.

Okay. Okay, that's helpful. And then, one thing I wanted to ask about that seems to have come out from a few carriers. And maybe I wasn't cognizant of this as much during the downturn -- is that some shippers took the downturn, the -- to beat up carriers on fuel surcharge programs. As that tide has turned, a lot of carriers are talking, about in the process of bids, improving those fuel surcharge mechanisms.

I was just wondering if you guys could speak to that. Are you happy with the fuel surcharge mechanisms you have in place? Is that an area of improvement as we go through the bid season?

Chaz, first of all, I think one thing that we've said for the last four years is that we felt like that we gave in on that a little earlier than some of our competitors, and so we had already had some reduced fuel surcharge programs. I don't feel like we really took any additional hit during the last couple of years of economic downturn. I'll let David address going forward.

Yes, I agree with your statements there that customers did take advantage of the opportunity. I do think it's in the process of changing. Our recovery rate is increasing, and I think it's going to continue to increase. I mean, there's no doubt there's pressure as it shoots up. If it just stays at a high rate and it stays kind of flat, it assists us, as you know, but yes we are. I mean, we've identified customers that we are having serious talks with because whether it's at $3.50 or $4 or $4.50 a gallon, this industry has got to get to a point that at some number that fuel is taken off the table.

If they don't want to give you the freight, then that's one thing, but we got to get to the point where, if stuff goes to $5 and $6 a gallon, that this industry is not going to hemorrhage the way in which it hemorrhages. We are having those talks, and I've had talks in the last week with large accounts that we're all familiar with, and those accounts are open for discussions about that. Because at the end of the day, it just depends whether, in a year from now or two years from now or three years from now, do they want a trucking company to haul their freight?

Right.

If they do, then they're going to have to come to the table on eliminating fuel at some number. So, yes, to answer your question, we are having those talks, and I do expect that we're going to get better on even where we're at.

Okay. And then, I had two more. The first one -- can you talk a little bit about operation and maintenance expense trends? They seem to be moving higher. I know some fleets are experiencing pressure just because their fleets have aged, but that doesn't seem like it's necessarily the case at Covenant. Your fleet's still fairly young. It's actually younger year-over-year, but yet, that line item has gone up significantly year-over-year.

Is there something else in there that, whether it's fixing used equipment in order to sell it or something of that nature, that's driving pressure there?

Well, we have a couple of things. The fleet is young, and so we're not having the same issues that some of our peer companies are. We are having some inflation in that area. You have -- tire prices have increased substantially. I think you saw where Michelin and Bridgestone both came out publicly and said that they are raising prices. I don't know what numbers they used. I think they were in the 20% range, and they were quite high to us as well.

So, we're seeing inflationary pressures there as well as what we're finding is some of the parts on the new tractors with the new engines -- the parts to replace are more expensive than they were previously. We have had quite a bit of the charges related to fixing trucks that are getting ready to be disposed of or traded in or sold. Most of that, actually, is in our insurance expense rather than our maintenance expense, though.

Okay, okay. Yes, I wasn't sure, off the top of my head, exactly where that [flowed through]. And lastly, I know you guys don't give specific EPS guidance, but you did mention in the prepared statements that your target is still to be more profitable this year than last year. Obviously, Q2 is your toughest comp. In your prepared statements, it seems like, out of the gates, even though things are getting better, there's still some, maybe, patches of weakness.

Should we kind of take it to mean if your targets are realized, that that's probably more second-half loaded as opposed to the first half of the year?

Yes, that's correct. As we continue to see the rising rates and we still like -- it depends -- a lot of it depends on fuel. But, as insurance seems like it should improve in the back half of the year and if fuel just levels out, then with rate increases being in place throughout the last half of the year, we feel like that'll be the better part of the year for us.

Okay, great. That's all I had, guys. Thanks for your time.

Thanks, Chaz.

Donald Broughton with Avondale Partners.

Good morning, gentlemen. I'm trying to sort out the sinners and the saints here. In order of your asset businesses, what was the percentage increase in rate per loaded mile? So, reefer versus regional versus team, where'd you see the most pricing power versus the least?

Okay. Where we really saw that was we had -- actually, the regional -- small regional subsidiaries -- Star had close to a 7% increase, and the Covenant division had a little over a 5% -- 5.3% rate increase, and the SRT subsidiary was a little smaller, at 3.5% increases.

But, their business that bidded out was later in the quarter than the other two, and their -- they actually are seeing some pretty nice rate increases, as they should, because of where capacity -- David mentioned earlier that the capacity -- they weren't seeing the additional shortages that the dry van had seen in capacity, but they were already there. So, it hasn't big as -- been as big a swing, but because there is capacity tightness there, we are starting to see some nice rate increases, as we should.

Good. I know it's hard to determine, but is it your sense that the drop-off in loads out of the West was more results of the drop-off in Long Beach/LA port volume as we are trying to eclipse the -- our artificial surge we got last year on the cancelation -- due to the cancelation of the Chinese VAT tax refund? Or is it a drop-off in loads available to you -- more results of just the higher price of diesel and just more conversion to intermodal? What's your sense there --?

Donald, your first statement's exactly correct, and that is it is hard. It's hard for you, it's hard for me. We all -- we talk to customers, and those kind of things, but it is very difficult to determine what has happened to the West Coast. I mean, I go anywhere from -- did one year later on the Chinese, one week later on the Chinese New Year -- did that have an effect? I don't really think so, personally, but maybe it did.

Did inventories port -- inbound on the port business? Well, that definitely had an impact. I do know at the end of the quarter and in April, Japan definitely has had an impact, because we've had our customers -- a couple of large customers tell us that -- A, they told us, but, B, their freight showed it, that it was not there.

Another thing. I do believe that the last Easter -- I think this does have some of it is that Easter was so late that you didn't sense Easter in February -- latter part of February and first part of March like we typically do. It's probably why the last of March -- and then it kind of hung -- build, and then it's -- hung there. Maybe that is because of Easter. I don't know. We'll see if it slows down again, but I think that that's -- probably did have an effect.

I do believe that customers in the first quarter -- I do believe that they have not done like this in the last two to three years, but I do believe that they looked at any possible way that they could ship a load cheaper and still get the service there. They looked it. I think we'd be stupid not to think that they didn't. And I do think that that took it, whether it was to lower down -- I mean, you know, less carriers from a standpoint of capacity and those kind of things. Or brokerage -- I know our brokerage division had more opportunities out of LA than they normally have in the first quarter. And so, I think that was part of it.

Did some of it go intermodal? I think it probably did. Then, I step back and I look at some of our peers that are involved in intermodal, and they'll tell you that - - we didn't see no big uptick in our business at a -- off the West Coast, A. B, as I look at the regional guides, A, talk to them, but, B, look at their numbers and look at their comments. The regional carriers off the West Coast -- the short haul guys hurt as much as the long haul guys.

There just wasn't the freight out on the West Coast for the first three months as there normally was. And I think, at the end of the day, that was the answer, but I don't know why, Donald.

Right. Well, help me think -- help me understand how you think about your team-based model --.

Right.

David and the price of diesel. Is there a point -- is there a price in diesel, $6 a gallon, $8 a gallon, $10 a gallon, that you decide to convert an ever-larger part of your team assets into a different business model, be it intermodal or regional or something else?

I think the key to it, Donald, is depending upon what inventory levels do. I mean, I think -- this is a positive side for the team side is that I think in the last -- since 2008, I think that the supply chain and shippers have learned that they're not going to have hundreds of millions of dollars tied up in inventory and that you take some of these electronics -- because keep in mind, that's what -- the teams are hauling toilet paper. Even though they do, they're not hauling toilet paper out here. They're hauling high, expensive air freights.

And so, you take the air freight business, whether we're paying $6 and the air freight is paying $14 for jet fuel, that same answer will answer remain the same. And that is, they want to get it off of their plane to get it on our trucks. And so, that's relatively speaking that that's going to continue there.

And in my opinion, as long -- the lesson that they learn on inventory controls -- as long as they are saying that inventories are going to remain low, then I think that there -- has to go by teams. If they determine, which they attempted to, prior to 2008, that - - hey, let's build inventory, and let's put warehouses up and distribution centers up, they did that until nobody was walking in the door.

To me, I look at inventory levels more than I do anything. And as long as inventory levels are low, then I think these teams are going to be much -- in much demand, if in fact we --.

Let --.

(Multiple speakers) the economy --.

Me paraphrase what I think I just heard you say, David, to make sure I really understand the way you're thinking about this.

Okay.

Because that's an interesting point. What I think I just heard you say was -- is low as inventory sales ratios are for retailers in particular --.

Yes.

That it doesn't really matter what the price of diesel is, because your competition is not intermodal. Your competitor is air freight on all of the very high value very low density type goods. So, the iPads and the flat screen TVs. That's essentially what you just said. Is that right? Or was I misunderstanding --?

[Constant to the] freights. [They'll] --.

[That's correct].

[Going to] move on trucks because it just can't move fast enough and be there on time enough in intermodal right now.

And so, your competitor really is air freight, not -- your competitor really is FedEx, not JB Hunt?

That's correct.

Okay --.

A competitor and customer at times.

Well, no, I understand. I understand.

That's the way I look at it, yes.

Well, no, that makes some sense. That makes some sense, and it is insightful on how you think about your business. EOBRs -- can you give us an update on where you and what you're seeing?

Donald, we've got about -- of all three asset companies, we're up to -- about 50% of all the trucks are running them. We'll probably be -- is that number different?

It's just a little over that right now, and we'll be -- we should be close to 100% on our Company on trucks --.

By the end --.

By the end of the year.

I know it doesn't affect team as much, but what, if any part of the drop-off in miles is a result of EOBRs?

I would like to say that some of it is, but I can't say that. Really, what we have seen, Donald, is the high-achieving utilization single drivers. We have seen the computers -- cut them back --.

Right.

A, but we have seen the inexperienced drivers. We've actually seen it where it has helped them. Because, quite honestly, they don't know how to log as well as they should from a standpoint. They hurt theirself, not help. They don't -- they hurt theirself. They got more available time, and so we're continuously having to work with them. And now, with the computer, it's actually showing them - - you've got some more hours here you can run.

Okay.

What so, we've seen is flat on teams, high good -- what me and you would think are good singles, a slow -- what we think is our inexperienced singles, an increase. I think it's going to have -- if [I just had to say it], it's going to have a negative effect. If I was going to throw a number on it, it's probably 1%, 1.5% kind of number. We --.

Okay. Well, that would be --.

[That'll work.]

(Multiple speakers.)

That'd be low for industry. And I understand the teams. I mean, the teams have got 22 hours of drive time a day, so they're not really going to bump into the --.

Right.

Constraints as much. That's just common sense. But, obviously [the solo's] a different story.

Well, one of the things we're really seeing -- Donald, you probably have seen this or heard about it, but just -- we've had this discussion internally in the last couple of weeks that we're really starting to see some examples. And that is -- one of the things that that is hurting is getting to a destination and the shipper/receiver taking three or four hours. And you don't know how long they're going to take, so you go off duty --.

[Unload.]

To unload, and the next thing you know, three or four hours later, they demand that you move that truck and get it off of that yard. And so, you may be literally moving the truck 30 miles down the road to a truck stop, then you got to take 10 hours more off.

Yes. Yes, no --.

But, we're finding the ways around it that you can work with that that -- the way it's set up is there's some waivers for that. It's kind of a convenient hour that you get to utilize, and we're still trying to figure out how to maximize that. So, we did see a little deceleration or a little hurt --.

[Yes.]

On our utilization from that in the first quarter as we're figuring that out. But, we're very close to figuring that out and being able to not let that impact us negatively anymore.

This definitely is going to have to be some help from the -- your customer and helping --.

Yes.

Manage this.

Well -- and the FMCSA is actually allowed for -- is giving an allowance for that, and we're just having to figure out how to utilize that.

One last thing, and I'll let someone else have the floor. Trade expectations for the year. Can you update us? How many trucks? How many trailers? From whom are you buying and trading that equipment? And a color of timing throughout the year?

Okay. In the first quarter, we disposed of about 121 tractors and 240 trailers. We added about 175 tractors during that period. Right now, as we said, we're looking at about 950 total trades and additions in the year. And so, we got a portion of those done, and we still have quite a bit to go.

Some of those additions are actually coming on off-balance sheet. I think it was close to 20 to -- well, for the full year, it'll be about -- 200 will go on leases, but about 20 to 40 were on leases in the first quarter. So, about 40 were leases in the first quarter, and about 200 will be that for the year. So, you won't see those come on balance sheet.

Okay. And trailers?

Just reefers?

500 reefers.

500 reefers we'll be reducing or bringing on. I'm sorry, bringing on.

Trades --.

Trades.

Trade on [one-on-one] (inaudible).

Yes, yes. So --.

And whose trucks and whose trailers?

Freightliner, of course, is this year. They weren't last year, but this year a major provider, and then [Cedar Build], Kenworth.

And the trailers?

We had not -- the trailers are Great Dane on the reefer side.

Okay.

Yes.

And --.

[100 Cedar Build] and 100 Kenworth and then the remainder is Freightliner orders right now.

And those are -- are those all 15 liter? Or are there any 13 liter in it?

No, it's all --.

[All] --.

Fifteen.

All right, great. Like to thank you very much for taking my questions and the insight, and I'll let someone else have the floor.

Thank you, Donald.

Scott Wolfe (sic), Group (sic) Trahan.

Hey, guys. It's Scott again. Scott Group. Just a couple of just real quick follow-ups for Richard. Just -- can you give CapEx and cash from ops in the quarter?

We had CapEx -- net CapEx of about $11.5 million, and cash flow from operating was only about $700,000.

Okay. And for the year, net CapEx, what are you thinking?

We haven't given guidance on that. We're still kind of finalizing our plan, and so I don't have a number for you there. It will be -- it should be less than -- a good bit less than last year.

Okay. Just two last numbers questions. Do you have the -- within the fleet, the order operators?

Yes. We had about -- we averaged about 145 [owner] operators in the first quarter of 2011 versus 106 in 2010. And that's up from 131 fourth quarter of 2010.

Okay. And then, any change in how you're thinking about tax rate for the year?

No. We did have -- and it -- we didn't spell it out a whole lot there, but we did have a few hundred thousand dollars of some improvement in our taxes in the first quarter related to a change in our effective state tax rate. That was about $300,000 or so. But, otherwise --.

[Is that beyond day] --?

We calculate it the same.

So, that $300,000 recurring going forward?

No.

Okay. Great. Thanks, guys.

Thank you.

At this time, there are no further questions in the queue.

All right. Well, guys, thank you very much for listening to our call and the good questions, and we look forward to talking to you again next quarter.