Covenant Logistics Group Inc (CVLG) 2011 Q2 法說會逐字稿

Excuse me, everyone, and welcome to the Covenant Transport Group Second Quarter 2011 Conference Call. We now have our speakers in conference. (Operator Instructions) 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 Richard Cribbs. Mr. Cribbs, please begin.

Thank you, Lindsay. Good morning and welcome to our second quarter conference call. Joining me on the call this morning are David Parker and Joey Hogan along with various members of our management team.

As a reminder, this conference call will contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, and Section 21E of the 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 disclosures in filings with the SEC.

As a reminder to everyone, a copy of our prepared comments and additional financial information is available on our website at www.ctginvestor.com. I apologize for that being down earlier today, but it's back up now. 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 divisions' revenue, excluding fuel, decreased 3.3% due to a 1.9% decrease in revenue per truck and a 1.4% decrease in average truck count. Versus the year-ago period, our miles per truck were down 7.5% while rates were up 7.8 cents a mile, or 6%.

When compared to the year-ago period, all asset divisions experienced a utilization decline of at least 4%, but the Covenant division experienced the largest decline because of a more normalized second quarter in 2011 compared with the large inventory restocking surge in the 2010 quarter and an increase in the percentage of its open trucks.

Compared to the second quarter of 2010, the asset-based divisions after tax cost per mile net of surcharge revenue was up approximately $0.09 per mile mainly due to higher driver wages and insurance expense. The asset-based operating ratio deteriorated 190 basis points to 94.5%.

Our Solutions logistic subsidiary had a strong quarter. As expected, overall revenue declined by 32% due to our previously discussed culling of unprofitable agency partners during 2010 while Solutions operating ratio improved by 70 basis points to 96.6.

Since year-end 2010 total indebtedness, net of cash and including the present value of off balance sheet lease obligations, increased by approximately $1.9 million to $265 million. Over the last year, the age of our tractor fleet has decreased from 1.8 years to 1.7 years. We were in compliance with our financial covenant at the end of the quarter, and versus year-ago, our consolidated operating ratio deteriorated by 170 basis points to 94.6.

After tax, we earned income of $1.7 million compared to earning income of $2.9 million last year.

Generally speaking, while there were some positives within our quarter, we were overall disappointed with the results. In summary, the major impact items were softer-than-expected freight in the early part of the quarter, a very tough driver market that resulted in increasing the number of our unseated trucks, a larger-than-expected movement in prior-period insurance claims, and better-than-expected increase in freight rates, and favorable increases in gain-on-sale of our used equipment.

The results of the quarter have to begin with a comment about freight trends. Although freight demand improved through the quarter, our shortfall versus year-ago was pretty consistent throughout it. Besides comparing to a very strong second quarter last year, we have been very diligent in refining our network through focusing our reduced non-revenue miles and through achieving a higher rate per month.

Additionally, as the driver market continues to tighten, we do have more unseated trucks than we did a year ago that negatively affected utilization.

Freight rates continue to move up sequentially through the quarter. Our rates improved sequentially from the first quarter by approximately $0.05 per mile, one of the largest Q1 to Q2 moves in our history. We have been diligent to address all customers while respecting contracts that are in place but asking for concessions where profitability on the account or lanes is not commensurate for the services that we provide. We do expect our pricing to continue to improve throughout the remainder of the year.

On the cost side, we experienced about a 7.2 cent-per-mile increase in operating cost. This increase can be summarized within three key areas. Driver pay increased about $0.02 per mile, net fuel cost increased about 2.3 cents per mile, and significant development in prior period workers' comp and liability claims produced a 6.2 cent per mile increase in cost.

On the favorable side, we recognized a $3.2 million gain on sale of equipment versus about a $0.7 million gain last year. For the remainder of the year, we expect drivers' wages to continue to increase but do not expect such significant movement on prior-period insurance claims.

A couple of other items of note include that beginning of January of 2010, CTG launched a multi-year technology improvement initiative that addresses not only hardware design but also operating and financial reporting systems. During 2010, we transitioned our Star and Solutions subsidiaries to the new systems. Effective July 5th of this year, we transitioned our Covenant subsidiary to the new system platform. The project will be complete upon the estimated transition of our SRT subsidiary at some date during the early part of 2012.

Thus far, the Covenant subsidiary's transition has gone well, and there has not been any major disruption of freight or drivers. We do appreciate all of our stakeholders' patience as we move our technology platform into the 21st century.

Additionally, our small 49% equity investment in Transport Enterprise Leasing that we completed late in the second quarter of 2011 is going well and is contributing earnings -- and did contribute the earnings during the quarter. We strongly believe that merging the knowledge, competency, and experiences of our two companies will continue to provide accretive results for the future.

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

Thank you very much. (Operator Instructions) Scott Group, Wolfe Trahan.

Can we start just looking at the monthly utilization trends and what you're seeing into July?

Scott, hi, this is Joey. I would say I'd characterize it right now for the group as a normal July. July, in our model across the companies is one of the (inaudible) of three as far as utilization is concerned -- February, January, and July. And so I would consider it normal right now.

If we think about just on a year-over-year basis, (inaudible) that down 7% in second quarter trend by month, and are you still negative in July?

We are. Richard said in his comments that each of the declines versus -- I mean, the declines versus a year ago in each of the months were about the same. So we pretty much saw it in April. Because, really, if you look at our utilization last year, it really started moving dramatically into February, early March, of 2010. So by the time we got to April, we were screaming, I call it, across the companies.

And so each month difference versus a year ago was around the same, and July is still down versus a year ago. But we do think the comps will start getting easier -- just our opinion -- as we get into August and September.

So based on just normal seasonality and the comps getting easier, when do you think it's realistic to think that utilization turns back positive year-over-year?

Well, I mean, I think, I mean, we have goals in place. I would hope by the fourth quarter but, really, it depends on how we do with seated trucks between now and then and, obviously, whatever the economy does. But basically what we see today we have a goal and a plan in place that we think gets us there and starts turning that towards the fourth quarter.

Chaz Jones, Morgan Keegan.

Just a quick question on the stock, actually. Since it's been hit so hard since the beginning of June, I was kind of curious -- do you guys have any flexibility to buy the stock back?

No. Our restricted payments basket precludes share repurchases at this point.

We would have to request a waiver for that.

Yes, that's kind of what I was getting at. I couldn't remember. I knew there were certain covenants in place and -- okay. And then, moving on, just was curious on the gains with the fairly decent-size trade package over the course of the year and the strong used equipment market, is that the general vicinity that we saw in Q2? What we might expect in the back half of the year?

I don't think it will be quite that large, Chaz. What we had -- what we were selling in the first half of the year were some equipment that had been depreciated pretty strongly or had even possibly been part of the charge we took in late December of 2008. And so they were fairly -- somewhat below market because of where we had to depreciate those down to previously. And it's not quite that favorable in the second half of the year, but it will still be strong. I mean, it's still a really strong used equipment market. We still have quite a bit of equipment to dispose of during the last half of the year.

Now, going into 2012, we will not be -- we do not -- we currently have plan to trade as much equipment where we're still saying around 950 this year, we're looking at more -- a pretty wide range, but 450 to750 next year. And so as you're looking at 2012, we won't have the volume of sales, so they should not be quite as high of gains in fiscal 2012.

Okay. And then the key lanes that you're targeting -- I don't know if you can share this with us but just was curious -- is there a specific number of lanes you're targeting? And what percentage of your freight would you like to see in those targeted lanes and maybe where we're at in that process?

I think, Chaz, is that -- in that various (inaudible) of the three companies --

Sure.

Right now I think we would like to see at least 70% of our loads picking up and originating inside of our prime lanes or prime network. That's something that we watch.

We're not there yet as a group, I don't think, but we're moving it pretty rapidly. And I think -- that's one answer is that. And, again, each of the models are different. The long haul dedicated fleet at Transport, a reefer fleet in SRT, and a regional model in Star. So each of the three companies have different -- where they are along that process.

Second, as far as defining the lanes and maybe going down the path of which customers, if you will. I mean, we're not -- just because of a customer may or may not or their loads may or may not be (inaudible) are not inside the network doesn't mean we just leave them high and dry tomorrow. It's a transition of that. And so one side of the leg is in network, that's better than neither sides, either the origin or the delivery in the networks. So both are in the networks, that's good. And then the main thing that drives any of those three, are they paying you enough to go outside of the network to then head back into the network.

And then density is obviously always a big question when it comes to moving truckload freight. So taking one load way out of your network, even though you might get paid to dead head back in, and if you have a problem with that load, you're toast as far as truck service is concerned. So you've got to have density in order to justify moving outside of a lane as well.

So, anyway, we're in a progress. I think we're pleased with where we are, but I think we've still got some neat opportunities to move the group forward further.

Jack Waldo, Stephens, Inc.

I wanted to understand, Richard, on the insurance issue. [ If I just told] insurance flat with a year ago, it would have impacted EPS by about $0.10. And your earnings for the second quarter would have been higher than your earnings for the second quarter a year ago despite what we've seen on the utilization front. Am I thinking about that right?

Yes, that's correct. It's probably about $2.5 million of operating income increase if we had not had the change that we did. We did have those, and if you recall, during the first quarter call there was a question as to whether or not we felt like insurance was going to get back to normalized numbers in the second quarter, and my response at that time was "No." And the reasoning for that was that there were still a larger number than usual of claims sitting out there ready to be settled during the second quarter as well as a couple of claims that were from prior to us making our deductible change to $1 million in April of 2010.

And so as we approached the second quarter, we knew it was going to be a little high. It is actually a little bit worse, still, than we thought it would be. There were some things that came up during settlements that -- some information that we were made light of that we did not know prior to that. And that caused us to need to increase the amount of the reserve and settle for a higher amount than we expected.

Now looking into the rest of the year, I'll say that anything can happen. You never know when you're going to have a multitude of bad accidents, et cetera, but going into this quarter we are back down to a normalized number of larger claims, say, over $250,000 that are outstanding that need to be settled or go to court or what have you over the next year and a half or so.

And so I feel like we're kind of back to a normal time period or where we're sitting is the same number of claims outstanding that we normally would have. And so that makes me feel a lot better about going into this second half of the year.

So you're saying essentially that unless there's some abnormally high amount of accident occurrence and more severity in those accident occurrence, you would expect the number to translate back to where it has been the last couple of quarters?

Well, there's wasn't -- actually, we had a pretty good frequency quarter in the second quarter. It wasn't that we had a large number of accidents. In fact, we had a low number of accidents. The first quarter we were a little higher because of the bad weather that we had -- we had a higher frequency. But the second quarter was actually a really good frequency quarter. It doesn't show up in the numbers here because of, like I said, it was really the past incurred claims reserve changes that cost us the additional monies in the second quarter.

Got you, got you. And then on the utilization piece, just looking at the miles per tractor, it's at a level that we haven't seen for quite a while for a second quarter. And that's kind of consistent across the space. I'd be interested, Joey, to get your thoughts. Is there something, be it driver availability, or electronic onboard recorders, or something that is causing utilization across the industry to be artificially lower than maybe what we've seen in past periods, i.e., it's not just a function of the economy?

No, we are seeing them. I think it is affecting everybody. You know, if you saw the roadside inspection results that CBSA had 70,000 inspections. One of the things that they were surveying was how many of the trucks were actually on paperless logs and actually could look at that, and that's a pretty good sample -- 70,000 inspections within a three-week period of time. Only 14% of the trucks had paperless logs. But if you back up and say it's sort of the larger carriers, what percentage of them have paperless logs, and I think you'll see a pretty -- either they're well on their way to being paperless. If not, some of the companies are there. I think we're about 60 to --

-- close to 70 --

-- 70% of the fleet, CTG-wide, is paperless. So I think what you're seeing in the public companies is a much larger impact of that change.

Now, what I'm arguing, then, is that change is impactful to utilization. And I think it is. It's been hard to quantify. That would be something I would love to know, and we beat it to death trying to figure out exactly -- exactly -- within a range. I know, from our drivers' standpoint, it's impacted them. I just -- you know, just go ahead and say that. Some of them positively, all the positives you know about paperless -- all the admin changes, you know, things you don't have to worry about it, anymore, things of that nature. But -- especially in solo operations. We're seeing it across the company, because we have teams and solo loads, obviously, and it's impacting the solos.

The velocity is always a key with solo operations, and this attacks velocity in a big way. And if you don't have things working in the right sequence between your pre-plans, the consignees' delivery times, when you pick up those loads, how much time is left? If that's not perfectly synched across the entire system from which our planners see as available hours, is the truck communicating accurately what their labor hours are or does your system automatically capture that? Does the fleet manager see it? If there are any issues there -- all had a breakdown -- well, you're still on duty.

And so, you know, everything has got a backing up because once that 14 starts, it starts. And, of course, a team, with two drivers, is less impactful. So I would say the short -- the long answer to a short question, yes. Can I tell you how much? No. Do I think it's impacted us more than other people? You know, if I look at our solo operations versus some of our public competitors that have released, I would say it appears it is.

But I think some of that is our, you know, everybody is having -- is fighting the driver battle right now as well. And so I know, as a group, we're not happy where that is. And the Transport piece of this is probably the most dragging to the results is on the Transport side, whereas, SRT and Star have done a better job of keeping more of their trucks filled than Transport has.

So it's two things -- actually, it's three things -- and then freight. Freight was a little bit softer, early part, but, again, when you compare across the group, it's impacted everybody.

So I don't know if I've answered your questions. It's a -- hours of service is impactful. I can't tell you how much. The driver market is impacting utilization, I know how much. And freight was softer than a year ago and is very dominant on the transport side, especially in expedited a piece of that pie.

But, of course, that turns into, again, as that 14% that was done in the survey is that DOBR gets up to 50% and 60% and 70% as the smaller carriers, the privately held carriers, get on board with that, you know, that's going to be additional capacity reduction in the market. And so, overall, I see that as a net positive as we looking at continuing to make the rates fair between shippers and carriers.

Tom Albrecht, BB&T.

I wanted to just delve into a couple of expenses. On the operations and maintenance, is it fair to assume that a lot of that increase was just prepping the equipment given the large gain on sale that you had?

Well, it really isn't there. We actually move our trade prep charges. We classify them as part of the gain/loss.

Okay.

That nets against the gain/loss already. So that increase -- there's probably quite a few number of reasons. One of them, you've got, for one thing, tires. Everybody got a large increase on the cost of tires as well as we have CSA issues related to -- the CSA issues where drivers are much more careful to make sure that the trucks are maintained so they don't get hit on their CSA scores. Joey had another one.

Driver recruiting costs. Driver recruiting, new hire costs, you know, that is a -- some of that is part of the bubble of the tightening driver market where the companies are spending more money to recruit drivers.

Okay. And then what about on general supplies? That has really trended nicely lower the last two to three quarters. It used to be closer to 3% of revenues or even much higher. But it seems to be settling into around 2.5%. Is that a good way to look at that? And has there been any particular success stories on the expense front in that category?

That's not a bad way to look at it. You know, we do look at that as fixed cost, and so we're looking at it on a total dollar value amount.

One of the big pieces of that is that we, if you recall, the last couple of years we had consultants in to do some work for us, and those consulting charges were down in that area. We just had a little bit left -- I guess the first five months of this year we were still amortizing the cost of that for the Star subsidiary, which was a smaller amount, and now those are completely gone.

So year-over-year that's a big piece of the improvement that you're seeing. And so it is sustainable from that standpoint.

Okay. And then, David, I know in the past I've talked to you about West Coast load origination. You've talked about that. It's a little different way to look at utilization, but how has that trended either in the quarter or just even in recent weeks?

Tom, I would say that California is just now getting back to where you would expect California to be at for this time of the year. So for the first six months of the year -- I mean, the last three or four weeks of June, California was in pretty good shape. But, other than that, it has been below standards for many years. Probably, in my opinion, for the last 10 years it's been below standards. And July started to pick up. It does look like -- I remember, 12 months ago we all saw that the supply chain had started doing something different, and I was in that camp, personally. But it seems like that we can probably expect the more typical seasonal out of California.

I'm out here today on the conference call, but I'm out here speaking to the LA Traffic Club about a week ago, and it's just very interesting. There's no answers. I mean, the same thing we all, on this conference call in the first quarter, trying to figure out what was going on in the state of California. Every shipper that was in the room that I spoke to were having the same issues on trying to figure out what happened to California for the first five or six months.

So it's been hard to answer that. But in the month of July, California is starting to get back to the way that a July should be. And so I do expect California to continue to pick up. I expect August and September and look forward to get strong for the rest of the year, which definitely has a very positive aspect if, in case, that does happen. And that's what we're expecting to happen.

So if -- loads were down, I think, 17% in the first quarter out there, would they have been down an amount comparable to your utilization decline in the second quarter?

Yes.

And then, I guess, to Scott's point earlier, you know, we do see easier comps coming, but is that -- whether it's utilization or West Coast load, is that likely to occur and turn positive in the third quarter or should we think about that more about the fourth quarter? (multiple speakers).

(inaudible)

Go ahead, I'm sorry.

That's okay. I do expect probably -- if we are back to what it used to be, Tom, you know, there's three or four magical dates, and one of those magical dates is around August the 15th. So, you know, we used to start prepping for the Christmas season around August 15th. Well, if we are back into that situation, then the end of August is going to start becoming a more powerful month for us. So that's kind of what I'm thinking is that we're kind of holding our heads above water, as we speak right now, out on the West Coast. We're moving our trucks every day. And then it will start getting stronger toward the last couple of weeks of August and will continue into September and just build is what I think will happen.

Okay.

And I agree with that. I think it is an opportunity -- opportunity -- I think this is probably the first time in several years we may have, what I call, an "old peak season." I don't know how big, but I think it will be a little bit bigger than it's been for the last three or four years after the recession. Even seasonality, I mean, it just hasn't been the same for a while. And I think that there is going to be a peak.

Yes. No, I think there is going to be at least a compressed peak, if nothing else. On the rate-per-loaded mile, it improved about $0.05 from the March quarter. So you were just under $1.52. Is it realistic to think that the September quarter would see another $0.05 improvement, or I would assume that a lot of the freight rate work has been accomplished for now.

Another $0.05 would be strong.

That would be real strong, yes.

We're not looking at it growing quite that large, Tom.

Okay. And then, lastly, what was that little equity income piece of about $125,000?

We purchased a small company, Transport Enterprise Leasing, really late in the quarter. That was about a month's worth of income that they provided to the group as our 49% ownership. And that company does -- they lease equipment to owner/operator groups primarily. So they'll buy used equipment and lease it out, generally, to firms that have between five and 50 trucks. And as well as they also sell used equipment -- they're kind of an equipment -- used equipment agent -- for other trucking companies that are looking for a way to sell their equipment for a better value than trading it in or even what they could sell it for themselves, because this company has really good contacts. And so that's really the two primary areas of businesses they have.

So modeling $300,000 to $400,000 sounds like a decent venue? And then, I guess, would you expect that you would have greater owner/operator recruiting success with that, too?

Yes. That is.

I mean, we hope -- we have a small developing lease/purchase program. So they will manage that for the group and extending into companies. I mean, they've just got that expertise, and they're used to dealing with smaller owner/operators, and they have the equipment. And so they'll be doing that as well.

Marc Lebensfeld, Newland Capital.

This is really a question for Dave. The stock is down 40% in the last five weeks. You guys have done a good job over the last few years getting fuel costs per -- total costs, ex fuel, per mile down. And you're starting to become sustainably profitable and yet the market gives you no credit. So the question becomes is why not go private? What's the point of being public if this is a sustainable stock price?

You know, Marc, that's a board discussion. You and I have had both discussions with the board, but that's not a discussion for here. That's a board discussion.

Is it something that would come up at a board meeting? Is it something that you guys would bring up or -- ?

Let's say does it come up in my mind? Oh, about 122 times a day.

Right.

So whatever (inaudible).

John Barnes, RBC Capital Markets.

A couple of quick questions for you. Just on your comments about the freight mix and kind of moving through with an improved freight mix. I'm just curious as to how far through that process do you think you are? Have you really, at this point, do you feel like you've culled out the stuff that you needed to cull out? And I'll leave it at that for that question.

I think, John, if you're related managing the network and refining the network and defining, refining the network, you know, I think that of the three companies, there are some that are further along with that. It's just a philosophy, first of all. And I think that all three are focused on that, and that there is still some opportunity.

Just look at the largest of them, the Transport company is (audio break) down the path. I think the main thing where Transport is, is we know where freight that we're moving out of network, we know what the profitability on that is, and, frankly, it holds true. I mean, if you're moving outside the network, you're less profitable. The few lanes that you customers will pay us to move outside of network, but basically it's holding out what we knew would happen.

And so, at the end of the day, we still need freight, and it's a process. It's taking steps forward. I think that we just refined the little solo network that Covenant is running, the Transport company is running again. And we just said it's not right. And so we're refined it again. So I think it's something that we're always going to be doing. The main thing that is driving that is are we making any money or not? Are we making money or not in total, are we making any money with the customer, are we making any money or not on the lane? And still that's what's driving where are we making money and trying to maximize that.

And, again, talking on the transport piece, we have a very precious group of trucks, HAZMAT teams, that we should be getting still, to this day, I would argue, paying more for that service. And it's a process and, you know, I'd like to raise our pricing significantly versus the cost that we have then to offer that service. But we've got to do it in a process. And so I'm really tickled on where we are. Star and SRT are jumping on and really trying to understand their network and where they are with that and are moving that. And, again, but it's different models -- that regional market versus the reefer market. And so it's neat in how they're starting to see some things. David is really pushing that for all the companies, and I think it's something that's going to continue to give us some opportunity as we move forward.

Okay. My second question is, if I look at your expenses this quarter, you take up a little bit of the -- the pop on the insurance line. You guys have done a nice job of getting the OR back down. I'm curious, though, as to with your comments around driver recruitment cost, driver retention cost, that type of thing? How much of a headwind does that present? And how many more pricing cycles do you have to get through before you're completely absorbing those costs and getting to a stairstep function in the OR another level down?

I think we need -- here's what -- the big headwinds that are out there that I see is the driver market, one; two, is just raw inflation. If you kind of look at the underlying costs to operate a truck, the truck itself, between tires, parts, OEM pricing on those trucks, there's a ton of inflation in all of that. Tire guys are just -- it's just amazing what the tire OEMs are pushing through right now.

What that says -- and forget regulatory for a second. Just leave regulatory over here on the side for a second -- just variable costs to run that truck each day, there's cost movement with that. And we've got to keep providing a great service to the industry. Everybody's got to keep providing a great service and keep pushing the needle on the pricing, because it's not. If we've seen some of the non-asset -- finally -- some of the non-asset providers say we have got to move pricing because the carriers -- I don't care if I have a load or not, I've got to make money on it. I'm only moving it for this price. And so that helps the whole situation.

But I think, John, frankly, to the point, I think we need to get -- our goal, obviously, is to move that OR performance kind of mid-90s to low-90s, and I think it could take us well into a good 2% plus GDP market for another year or two. It's just my opinion. I mean, it's a process, and I don't think it's going to go from 94.5 to 90 in six months. It's going to continue to be a process of working with our customers, continues to service their freight, honor as much of the contracts that we can. By the end of the day, some of those contracts were a year ago. We have very few multi-year contracts. But even those that we do, we're still asking for help, and we've got to keep pushing the needle as long as we continue to provide the service and capacity stays somewhat calm, or sane. And I think it will.

Okay, all right. My last question on the operations is just -- I was a little bit surprised at your brokerage results that your purchase transportation cost -- that I want to get right -- your purchase transportation costs were actually down. And just how does that [marry] up against -- you know, how does that [marry] up against the rising trucking pricing that we've been hearing about?

I think a couple of things. You're seeing that unit, besides the rationalization that Richard spoke of, we've been doing that for about two years now. That's been calm. The rationalization has been calm. The network has been pretty stable for a good (inaudible) months or so. What they are trying to capitalize on is what I would call project work that the three asset companies kind of inside of their network might provide where the customer may allow -- a special project, a need or a surge or something, and they allow us to do -- (inaudible) our third party providers. And what we're doing inside the group is letting our Solutions attain, take a lead on those, where there's opportunities that all three of the asset companies need to participate and work to provide that service for the customer and/or we have to tap outside capacity to pull the project off.

And so, anyway, that being said, our Solutions team had a very large project that it did for, actually, a customer and then a large project late first quarter that dribbled into the early part of the second quarter, and then we did have a nice, smaller project for another customer late in the quarter that we were able to provide.

So -- the margin, overall, the ongoing day-to-day purchase transportation cost is -- we've been very pleased with that throughout the quarter. Now, it's [80 no]. So then you add on top of that the project work that was done. That produced the, as you see there, the improved margin.

(Operator Instructions) Scott Group, Wolfe Trahan.

I just want to make sure we're on the same page when you talk about insurance getting back to a normalized level. Are you talking about $10 million-ish a quarter, $0.10 a mile? What are you thinking when you say normal?

Well, we look at that on a per-mile basis. So if you go back and look at our historical trends, I'll just ask you to go back and do an analysis of that and see where we've been on a quarterly basis up to the last two quarters and see what that shows you.

Okay, so if we were at $0.10 a mile in third and fourth quarter last year, that's a good placeholder for third and fourth quarter this year?

Like I said, I'd take an average of four to six quarters and see where that falls.

Okay, that's helpful. And then just a couple of quick ones on the balance sheet cash flow. If I missed it, I'm sorry, but did you give cash at the end of the quarter and then total liquidity at the end of the quarter?

Cash at the end of the quarter, I don't mind giving that. We didn't put that on anything yet. It will be on the Q. The cash at the end of the quarter was $2.3 million. And then our operating cash flow was -- or from operating activities on the cash flow statement -- was $12.0 million.

And how about liquidity if you add back any borrowing capacity looks like?

We had -- our availability at the end of the quarter was $30.2 million and our loan balance on our line of credit was $14.1 million, that's down from $19 million at the end of the first quarter, and our letters of credit that are outstanding on that line of credit is still at $40.7 million, which was equal to the end of March 31st.

Okay, that's helpful. And just last one, Richard, if you can give us kind of where you stand today on the fixed coverage ratio relative to the 1 times covenant?

Well, again, we met the covenant, and that's not high on our radar of things that we worry about. We have a decent amount of cushion available from the 1.0 level. We don't give out that number specifically. I don't want to get in a trend of giving that out every quarter or every month or anything. But we do have plenty of room to operate under that and feel comfortable with where we are, going forward.

If you had -- if we really -- one thing that I would point you guys to is each time when a 10Q is filed, if you're looking at a section about liquidity, and it starts discussing if we were to miss our covenant, and we were unable to obtain additional financing, then this could be a risk and those kind of things. I'd point you to that to see if that's really a concern or not. And when we file our Q, I don't believe you'll see that.

(Operator Instructions) I am showing no further questions at this time.

All right, well, thank you guys for calling in, and we look forward to talking to you again next quarter.

Thank you, ladies and gentlemen. This concludes today's teleconference. You may now disconnect.