Covenant Logistics Group Inc (CVLG) 2015 Q3 法說會逐字稿

The following is the recording for Richard Cribbs with Covenant Transport on Friday, October 16, 2015, at 9:30 AM Central Time. Excuse me, everyone. We now have all of our speakers in conference. (Operator Instructions).

I would now like to turn the conference over to Richard Cribbs. Sir, you may begin.

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

This conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. 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, including, without limitation, the risk factors section in our most recent Form 10-K and Form 10-Q. We undertake no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances.

As a reminder, a copy of our prepared comments and additional financial information is available on our website at ctgcompanies.com, under our Investor Relations tab. 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: our asset-based division's revenue, excluding fuel, increased 6.4% to $139.6 million due to a 5.2% increase in average tractors, a 0.4% increase in average freight revenue per truck, and an increase in our refrigerated intermodal freight revenues. Versus the year ago period, average freight revenue per loaded mile was up $0.057 per mile or 3.3%, and our miles per truck were down 2.5%.

Freight revenue per tractor at our Covenant Transport subsidiary was flat versus the prior-year quarter, while our refrigerated subsidiary, SRT, experienced an increase of 2.4%, and our Star Transportation subsidiary experienced a decrease of 1.4%.

Compared to the year-ago period, the asset-based division's operating cost per mile, net of surcharge revenues, were down approximately $0.04 per mile, mainly due to lower casualty insurance and a favorable reversal of deferred rent expense related to our Chattanooga building purchase. These decreases were partially offset by higher employee wages and net fuel costs.

Gain on disposal of equipment was only $100,000 in the third quarter of 2015 versus $1.4 million in the third quarter of 2014. The asset-based operating ratio was 90.2% in the third quarter of 2015 compared with 96.1% in the second quarter of 2014 -- that was actually the third quarter of 2014.

The 2014 quarter included a $7.5 million reserve for an out-of-period cargo claim. And the 2015 period included a $3.1 million increase in fuel hedging losses compared with the 2014 quarter. Adjusting for those two items, our operational progress produced approximately 320 basis points of operating margin expansion.

Our solutions logistics subsidiary increased revenue by 29.4% versus the year-ago quarter. Purchased transportation and other operating expenses decreased as a percentage of revenue, resulting in OR improvement of 210 basis points, to 93.4% from 95.5% in the year-ago quarter. The result being an increase of operating income contribution from $0.5 million in the prior-year quarter to $0.9 million in the current quarter. Our minority investment in Transport Enterprise Leasing contributed $1 million to pre-tax earnings, or $0.03 per share.

The average age of our tractor fleet continues to be very young, at 1.7 years as of the end of the quarter, equal to a year ago.

Since December 31, 2014, total indebtedness, net of cash, and including present value of off-balance-sheet lease obligations, has increased by approximately $17 million to $244 million. In August, we purchased our headquarters building and surrounding property, which was previously financed under an operating lease. The purchase price of approximately $35.5 million exceeded the $17.1 million present value of the remaining lease stream, which would have matured in April 2026.

At the end of that lease period, we would have had to renew the lease, buy the facility at a potentially higher price and higher interest rate, or relocate. In addition, the interest rate on the new financing is effectively fixed at 4.2% versus an implied interest rate of 8.2% on the previous operating lease. Our capital allocation committee determined this to be a straightforward choice.

We completed the purchase of 216,372 shares of our Class A common stock for $5 million. And with available borrowing capacity of $61.6 million under our revolving credit facility, we do not expect to be required to test our fixed charge covenant in the foreseeable future.

The main positives in the third quarter were, one, a 3.3% increase in average freight revenue per loaded mile; two, a year-over-year increase in our professional driver employee headcount; three, decreased operating costs on a per-mile basis; four, a 5% year-over-year reduction in chargeable accidents per million miles, as measured by the Department of Transportation; and, five, improved operating profitability from our Covenant Transport and Solutions subsidiaries.

The main negatives in the quarter were a 2.5% decrease in utilization versus last year; the deterioration of operating profitability from our SRT subsidiary; and, three, the unfavorable fuel hedge position.

Our fleet experienced an increase to 2,721 trucks by the end of September, a 23-truck increase from our reported fleet size of 2,698 trucks at the end of June. Our fleet of team-driven trucks averaged 966 teams in the third quarter of 2015, which was a 1.6% sequential increase over 951 teams in the second quarter of 2015. Therefore, we actually increased our overall driver count by approximately 40 drivers during the third quarter of 2015.

Availability of team-driven trucks is especially important in order to help meet our expedited shippers' stronger fourth-quarter demand for their time-sensitive freight.

Similar to August and September, utilization for the first two weeks of October has underperformed the prior year. Fourth-quarter performance will depend, to a significant extent, on the level of involvement of our asset-based and Solutions subsidiaries in the supply chains of our LTL, e-commerce, parcel, and omni-channel shipping customers during the 2015 peak freight season, and the associated pricing for our services.

In general, we expect a solid fourth quarter. The combination of our major peak season shippers have contracted for a higher volume of committed capacity than last year, but at lower contractual rates on average than last year.

The combination of volumes, routes, and pricing is expected to be efficient and attractively profitable, perhaps generating more income on the contractual side than last year's contractual freight. However, this will leave a lower percentage of our fleet available for seasonal spot market business, which was extremely profitable last year, but might be less so this year.

We are not yet prepared to forecast whether our net income will improve versus the fourth quarter of 2014. Regardless, absent unexpectedly high peak freight market demand, earnings per share may decrease compared to the 2014 quarter, given current market conditions, our fuel hedging position at current fuel prices, and the headwind of the 11% to 12% higher estimated quarterly weighted average diluted share count for the fourth quarter of 2015.

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

(Operator Instructions). Jason Seidl, Cowen.

I want to focus on a few things: one, I know you guys picked up a very large e-commerce shipper recently to start running direct. How should we look at that as impacting the overall level of profitability, now that you are running direct for that customer? And is there going to be any additional investment in teams needed for them?

Jason, this is David. From a profitability standpoint as it compares to our other e-commerce customers, the margins are about the same. So, we make them -- and you know we are not shy -- [they] would make some good money on that, because the requirements on that stuff is so, so tough -- to the minute, on delivery times; and weekly or daily meetings, depending upon how the week or day is going. So, the service is just a very, very stringent.

So, no. Just because we bring on another large e-commerce does not mean that it's any more profitable than the other ones. There's no doubt that over time, as we grow it, [to your] less deadhead -- there's all kinds of things here that go into profitability and OR by lanes, and those kind of things. But in general, it will be basically the same as we have.

Now, if we are able to take the trucks away from -- not from our current, quote, e-commerce customers -- and we take them away from the bottom [fitchings] camp, and weed and feed and grow that, then yes, it does become more profitable for the organization.

And that is the second part, is what we will -- in the vast majority will happen, is that -- take and produce some weeding, feeding, and take it away from other pieces of business that are not as profitable.

As well as continuing to add trucks, as we can, to increase overall freight.

Okay. No, thank you for that color. And I guess -- look, I understand 4Q has difficult comparisons in terms of that sort of e-commerce spot market business that you had last year at exceptionally good pricing. Can you talk a little bit more about the outlook for overall truckload pricing as we head into 2016? We've talked to a few people. It seems to have slipped a little bit. Still going to be up at least -- but it's not as strong as it was, I guess, six months ago. What are you seeing out there in the marketplace from your customers?

Well, it's interesting, Jason. I serve on the Atlanta Federal Reserve Transportation Committee, and we just had a meeting this month, October 6; a couple of weeks ago. And it's been one of a tale of two cities out there, that this savings on gasoline -- all of us, you, and all the write-ups that we all do, and trying to figure out what the economy is doing. And the consumers never spent the $25 a week on gasoline, et cetera, that we've lived with so far this year.

But it was the only positive thing that we really had discussions about, is that the consumer did -- savings did drop a little bit, and the -- to them, the consumer is starting to spend some money. So, if, in fact, that's the case, then it becomes very encouraging that the consumer is going to start doing something and helping us.

That said, aside from that, everything else was not bad. Freight is not bad. And as I think about the other transportation folks on the Reserve with me, on the Committee, everybody is basically saying the same thing: and that is, freight is not bad. It's not 2014. And we all know this. We're fooling ourself when we think it is. That's more 2013 than it is 2014.

So, that said, the wild card is that the -- does the consumer start doing something? Does the ELD mandate really start happening, like we all believe, and 95% sure that they will? But it hasn't yet. Does that truly start happening?

So, to answer your question, if consumer spends and ELDs come about, I think that next year is 4% to 5%. I think if those two things don't happen, I think it's 3%-ish. That's what my gut is telling me right now.

But even in an environment that is 3%-ish, and still showing some underlying economic growth, you guys should still be able to grow the Company, correct?

Yes.

Okay. Perfect. Gentlemen, thank you for your time, as always. It's appreciated.

Brad Delco, Stephens.

David, I wanted to ask on this contracted or committed peak season volumes that you have, that you say is greater than last year. What sort of visibility do you have on that? Is that kind of a take-or-pay contract? How much of that anticipated volume do you have clear line of sight or expected demand on?

I would say that it goes probably -- and I'm going off the top of my head right now, Brad; that's a great question -- but I would say that it's 60% to 70%, [Joey]. It's firm, solid. We know it's going to start basically on this date, and we're going to get paid X. I would say that 30% of it would be ones that, if they run the trucks the way they think they are going to run the trucks, then we get what we want out of it. So I would say in about 60% to 70% of it is pretty solid.

And to be honest with you, the other, say, 30% -- 30% or 40% -- the other 30% to 40%, if it's a miss, it's not like it goes from, hey, you got it all to you don't have any of it. If they miss it -- let's just use a number: 35%. That 35%, if it's a miss, is missed by 20%. It's not like it goes to zero.

Yes, got you. No, that's good color. So I can read that as if there are a certain number of days where you are basically selling the truck and the driver, not necessarily miles and utilization of the track?

That's right. That's correct.

Okay, good.

Brad, by this time of the year, historically speaking, the number is pretty good. So if we're forecasting X for peak, it's plus or minus. And it can be plus. It's a plus or minus around that. It's a pretty good number. So, if you had asked us two months ago, it would be different; a month ago, different. But today it's a pretty good number.

I think it's just a matter of -- if it's supposed to start on Tuesday for this account, does it start Monday? Does it get pushed a week? Does it start a week early? So you are pretty much there at this time of the year.

So, what's your overall view on peak, then, Joey, based on what these customers are saying or how they are prepared to move freight?

I think Richard did a good job, in the script and the release, talking about it from a standpoint of volume. We feel very good about volume. Last year, we all know it was a really strong year. I think the volume, as I sit here today, it's going to be up significantly versus last year. I think a lot of that or a good portion of that is -- we have added -- Jason asked the question -- a new customer that's pretty large in the e-commerce space. And so, that -- we've done a good job with a growing that customer and servicing that customer.

So the volume is up nicely. Pricing -- I agree with the pricing. Pricing overall is -- it's going to be down. It's a shot; it could get close to last year. Mix is -- it's only related to mix and length of haul, but I think it's too early to say that.

Remember, as we talk about peak, we've been very consistent now for a year, as we talk about peak. When we started combing through the first quarter, we pointed to this quarter being -- could we duplicate fourth-quarter 2014? And so, as we've moved throughout the year, we've tried to give a very transparent update throughout the year.

And the thing that has changed, if you go back and look the last two or three quarters, is the volume part of that. And so, with this update, we have said volume will be greater. But we're still pretty much saying the same thing on pricing.

David has already said that freight, right now, is okay. I agree with that. I would say it's okay. Could the peak, instead of being plus or minus, is it maybe a little bit more minus on volume than plus? I think it is, again, too early to say right now. But peak has already started for us. We've had two customers that we've already started moving through peak four -- or what volume that we would call peak.

And that's a more -- starts pretty heavy next week, and then we're going to just start building it between now and Thanksgiving. So we feel pretty right now.

And [Ken and I], we're thankful we have 100 to 120 more team trucks going into the fourth quarter this year than we had last year.

Yes, but when we look at -- and I know I don't want to bring up this can of worms -- but if we look at spot rates, you would expect peak-ish supply/demand dynamics to be that week before Thanksgiving?

Yes. Yes.

And then, Richard, I did want to ask just -- this will be my last one -- a question on this fuel hedge. If fuel prices stay flat at current levels, let's say throughout 2016, what would the change in dollars or earnings be with the fuel hedge next year, versus 2015? Because I know it's been a pretty meaningful headwind for you, all year.

Yes, at this point, it would be a little over $3 million annually in fuel cost savings, which is about $2 million after tax. So you are talking about between $0.08 and $0.10 a share benefit for us.

For next year versus this year?

Yes, that's 2016 versus 2015.

Okay.

Yes, sir.

All right. Well, that's it for me. Thanks, guys.

Aaron Reames, BB&T Capital Markets.

I just wanted to ask first about utilization. I know that came in a little bit lower than what we were thinking. But I guess my question is, how has that started to trend now that we've gotten into October? I wonder if by your guidance and commentary about volume, could we maybe expect some up utilization year-over-year in Q4?

Aaron, that's an interesting question. Number one, October has been similar to September and August. It's down. Some of that, a little bit, most -- some of that -- not a lot of it, though; that's not true. I was going to say, we swapped out some on the dedicated piece of business with some long-haul into short-haul, but it's not material from that standpoint. So it's mostly on the team and on the SRT side. But it's showing the same trends.

I would probably say that it will not. I would say that it's going to be down for the quarter; only because, when you heard me talking that 65% of that that I said is fixed, there's a lot of that on the team side and on the solo side, both, that are 250-mile-a-day trips. Some are on this peak. Some of them are 700-mile-a-day team, so it's not like these teams are going to be just scorching. They are going to get -- the pricing is wonderful, but they are going to -- as it pertains to utilization. There's going to be downward pressure on a lot of that.

So, the fourth quarter will have to be down over 2014. Because if you remember in 2014, you had a lot of -- two or three of the parcel companies that came out hurting and 2013 just absolutely bought capacity and guaranteed miles, whether they utilized them or not. And so that had a big -- what's the word? -- tailwind to it.

So I would, just sitting here, it's got to continue what you're seeing so far in the third quarter.

Aaron, just a little more color. Looking at how we trended through the third quarter, we were -- ended up being down about 1% in July. And then August and September were down closer to 3% utilization, to come out with the 2.5% we were down for the quarter. And the first couple of weeks of October were very similar to August and September, more down 3-ish kind of numbers. But we do have some pickup in some other months; at least we believe we do. And so, we're thinking it's utilization down, but probably no more than 1.5% at worst.

Okay. All right, guys. That's a lot of good information. I appreciate it.

Scott Group, Wolfe Research.

Can you talk about the -- so the pricing around the stuff during peak, why is it down year-over-year?

It's because that's -- when people start giving you opportunities in July and August and September, the market is not as strong as it was in 2014. And so, they negotiate a little bit harder. And that's really what it boils down to. I'd like to say it's something different, but it's not.

Yes, I think also, Scott, you keep in mind that what David said earlier, 2013 was such a tough year for the parcel carriers, and not needing service, that I think you saw in the commentary from those larger guys that they maybe overbought capacity in 2014 to make sure they could hit service numbers. Because frankly, they weren't able to raise rates from 2013 to 2014 because they hadn't served so well in 2013.

So they made sure in 2014 that they would hit service targets so that they could raise rates in 2015, which is my understanding they've been able to do that, because they did hit service numbers.

But they also said, we probably overshot, and so we overcommitted on 2014. So, if you think about that, the supply/demand dynamics, they didn't need as much this year as they needed last year. Now, that has somewhat been replaced -- or more than replaced -- by some additional freight with new customers that we have in peak to get our volumes up.

But that first piece of that was a little lower than what we got last year on the contract pricing. But we still expect good spot pricing, and then the new customer also has good rates.

So, is that the difference of why this is specific to you -- you'll see that pricing down a little bit? But overall pricing for next year, you still think is up 3% to 5%?

Yes. Yes, that's correct.

Okay.

Again, Scott, I would encourage you, and everybody, to -- whether or not people believe this or not, because we had such a frothy fourth quarter last year -- we saw this starting coming out of peak last year, and we were very transparent in January. Because what we are hearing from our customers, how frothy it was, pricing-wise, and as we were looking throughout our planning for this year, we were very consistent -- and have been -- that the pricing in the fourth quarter is going to be very, very, very difficult to duplicate.

And that's just because of, again, how -- as Richard said -- how busy it was, and how much capacity was bought, and the pricing around that. So, I think it's playing out as we expected. And then -- and I agree, too -- the freight market is softer than we had expected, coming into peak.

No, I think you guys have been very transparent about that, all year. I think we just want to get comfort that it's a fourth-quarter issue and doesn't become a 2016 issue, as well.

So, in terms of peak, I know you've talked a lot about this. Can you try and parse out the more traditional peak, the non-e-commerce stuff? And how is that peak business shaping up for you?

That's a good question. As you think about, quote, peak business, non-e-commerce and that kind of stuff, we really get into retail. That's really the turkeys and retail. And now I'm talking about refrigerated from turkeys, Thanksgiving, and those kind of things. I want to say that that is probably down, Scott.

We don't have -- even if there's a lot -- a lot of our retail customers are. But I would say that it's not as solid as it was a year ago on the, quote, non-peak. Whereas where they are tying up capacity, and I want that, versus can you help me this week, and those kind of things; I want to add four more loads a week to your business. That part is not as solid as it was 12 months ago.

So, I don't know if that helps you or not about that -- but that opinion goes hand-in-hand with what we've experienced in September and October on the non-e-commerce. Which leads me to believe that e-commerce is probably going to be unbelievable in the fourth quarter, and everybody is going to keep getting on their computers and buying something versus running to the mall and purchasing something, is what that is kind of leading me to believe.

Yes. No, that seems fair. And then just lastly, just two quick things. One, do you have an update, just timing-wise, what you are expecting for ELDs? And then do you have any preliminary expectation for your fleet growth next year?

Well, on ELDs, I was glad to see that the -- I guess it was FMCSA -- did not change -- or the government didn't change the date when they came out yesterday. And so it is still set to report on October 30. That's the first time they hadn't changed it or pushed it back in a while. And it's only 15 days away. So if they weren't going to be able to do it, I would have thought they would have pushed it to November. So, anyway, that's kind of exciting, from my standpoint, that that ELD mandate could come into play as soon as two weeks from now.

On the truck growth, it's -- we're still projecting some truck growth. We have more trucks today than we did going into fourth quarter last year. So the expectation is that we're still going to be able to grow the trucks some. I think, right now, we are seeing 2% to 3.5%. It's not a big number. But hopefully that is converting more of those -- higher percentage into team trucks, where we are picking up the most new freight.

Okay, great. Take you for the time, guys. See you next week in Philly.

Barry Haimes, Sage Asset Management.

Good quarter. One question on your comments on the contract pricing for next year, that 3% to 5% range. Do you see that varying much by line of business, because you guys do several different things? And I know a lot of that contract pricing gets done early in the year or spring, but once in a while you see some things happen in the fall, too. Are there any markets you have so far where, in the last month or so, someone has renegotiated price or done a bid for next year? Thanks.

The vast majority of ours is in that April to June 30 time frame, is where we get a sense for what the year is going to hold during that time. Because we just got a lot of top customers are there. I will say that we got a few -- a few, a handful -- of customers that are January kind of time frame -- two or three. There's not many, but a couple of large ones.

And again, we take every customer, by lane, with an operating ratio by lane. So, whether it is hauling exempt commodities on the bottom to hauling e-commerce at the top, every lane is priced out according to the OR that we're doing with that customer.

And we may go to a customer and say, matter of fact, I don't want to increase this lane. I want you to give me two of these, going to that particular lane, because it's operating so nicely. So that's the way what your negotiations go. So there will be differences in those.

And it's hard to break out that this section here going to be 5%; this one here is going to be 2%. Because we got so much discipline, four or five years ago, that we truly look at it customer by lane, and we deal with it. And just because it's a customer that is hauling paper, if they got 105 OR, we're not going to haul it. Either that rate is going to go up -- we're not just going to say it's the paper industry, and, therefore, it's okay to haul it for 105 OR. We don't do that.

There's no doubt that service requirements definitely dictate pricing. You got some customers that say, get it there within a week. And that's filler freight and dropping at terminals, and that carries one rate, versus some customers say is -- you got 48 hours to be in Seattle, Washington. That's another rate.

So, all of that goes into it, Barry. So I think, at the end of the day, all of it's going to be in that 3% to 5% range for all of it.

Okay, great. Thanks. Appreciate the color.

Jason Seidl, Cowen.

Richard, I think you made some commentary about the ELDs. And yes, I agree, it's nice to see it doesn't look like they are going to push it back. But two questions: one, what have you seen thus far with some of the smaller carriers actually doing it ahead of time, trying to catch up, if you will? And two, what sort of expectations do you have for the ELD mandate? How do you think it's going to kick in? How do you think it's going to evolve throughout 2016?

Well, my take -- and it will be a lot of opinion, I think -- but not this part. We have several clients within our factoring business, within our leasing business, those types -- running brokers, freight for us, those type of things. And so we have some insight into the smaller carriers, and it is not a very large percentage that has moved to ELDs already.

Most of what we've heard and in discussions with them is until that rule is official, we have no reason to go ahead and move to it. And so we haven't. And once that rule is official, then we will start planning out what we're going to do, but we feel like we will have two years to do it.

That said, what we -- as we care about these other carriers that are doing business with us, and running freight for us, we are suggesting that they do phase that in over the shorter period. Because it will be very difficult if they wait all the way till two years in order for them, A, to keep their trucks seated; B, to be able to move the freight on a timely basis, and get to each of their customers' shipping points on time. And it's just going to be difficult.

So, that's what we're instructing. And we feel like the better-run, smaller businesses will start adding that throughout 2016. And they won't wait. And so I think we are going to see a lot of these other carriers start moving to that slowly through 2016. And by fourth quarter of 2016, there could be a pretty heavy percentage that have moved to ELDs, or at least moved, call it, half their trucks.

And that's a guess, so a lot of opinion here on that. But I think it will be progressive through the year. I don't think it's going to be, everybody wait till late 2017 to move to ELDs. So that's (multiple speakers).

Listen, your opinion is what we're all after, right? Have you heard about any shippers doing the same thing that you guys are going do if carriers, if you will, (inaudible) having them try to map out a plan for ELD implementation?

Yes, we've heard rumors of -- and more than rumors of certain shippers that are going to want to at least know all their carriers' plans for implementing ELDs. There is a liability concern that if a shipper allows a carrier -- or if a broker allows a carrier to run for them that doesn't at least have a plan for ELDs, and somebody runs over their hours of service, that's running that freight for them and has a bad accident, that there's an opportunity maybe that that shipper could be attached to it.

And so there is a concern there that they need to be careful to at least have dotted their I's and crossed their T's -- that they have addressed that with their carrier base. And so I think that could cause -- I haven't heard anybody say, unless they are running 100% ELD, we won't use them. I haven't heard that yet. Obviously that will be the case, as you move sometime in late 2017. But I think that you could see some push and aggressiveness, and maybe the shippers will get to that point. Some shippers --.

There's no doubt in my mind they will.

Yes, so David thinks they will. The legal side of this is going to be too big for them. They are not going to take responsibility.

Yes, they're not going to sit there and wait until the fourth quarter of the second year to hope that their freight gets moved. They're going to (multiple speakers).

It's going to get real aggressive in the bid season next spring. And for that reason, I think there's going to be a lot of discussions between the shippers and the carriers about that. And I think the shippers will use that. If assumed -- depending on your view on freight for 2016, I think for those carriers that haven't adopted, shippers will use that in a very, very, very heavy way in the negotiations for pricing for 2016. For me to keep you on, you are not on ELD, so I can't afford the risk. I can only afford to pay you blank if you want to keep the freight.

So, I think it's going to get real aggressive. Once we get past, I think, the next busy season -- it will start [ferreting] itself out very quickly.

Okay, great. Gentlemen, thank you once again.

(Operator Instructions). Donald Broughton, Avondale Partners.

If I'm doing my math right -- I'm backing into some numbers here -- your gain on sale was down pretty dramatically in the quarter, on a quarter-over-quarter basis, provided I'm calculating $0.04 of headwind compared to what you had a year ago. We are hearing that the used truck market is certainly -- valuations have weakened. Is that an ongoing challenge to you?

Can you help us quantify and think about that part of the market? You certainly have new fleet, and you are in a very -- the catbird seat -- as to how you handle this valuation fluctuations. Give us some insight into what you're thinking.

Yes, Donald, I think the used equipment market has softened up here the last couple of months. But there's no question with that, A.

B, I agree we are -- our fleet being young, as young as it is, it still provides us opportunity to be a little ahead of the market for our equipment, as far as what is placed in the marketplace. I think the one of the things that we're fighting a little bit with is that we've moved our trucks, especially on the expedited side, very well the last couple of years.

And so the miles, frankly, are maybe a little higher than maybe it had been; not bad, but just a little bit higher. So a combination of the market slowing a little bit and miles a little bit higher. It's a little bit tougher for us to sell the equipment.

Are we concerned about moving the equipment? No. No, we're not. It's just getting the gains that we've had. And again, we've -- technically, our policy, we try to manage it to breakeven. And we really work hard to -- no surprises. But, obviously, it's not perfect. And we're going to have some small losses or gains, either side of that.

I still feel good. It has softened. I think we are going to do some things in 2016 that may help us a little bit as far as our equipment, as far as another group of equipment that we're going to try to bring to market maybe a little earlier than the market as a whole. So that will help some. But yes, it's softened. There's no question about it. But we're not concerned about moving what we have.

Yes, the proceeds were actually half of what they were last year. We didn't just didn't have as much to sell. It wasn't that we couldn't sell. It was just, we didn't have as much to sell in the third quarter of this year as we did last year.

In addition, in the fourth quarter, we had planned on disposing of some more trailers that we were going to hold off on, because the trailer needs are so strong by these expedited customers. And as we have this heavier volume, peak volume that we've -- contracted peak volume that we've talked about already -- we decided that we needed to keep more of those trailers around through the end of the fourth quarter.

Those will be disposed of in the first quarter. But it will keep gains lower than original expectations, because some of those still have pretty good market value. The trailer market is still very strong.

I agree with that.

The truck market, even though it's weaker, the trailer market is extremely strong on used trailers.

But if I'm doing the math right -- and this was obviously a good quarter for you, a strong quarter for you -- but you would have put another $0.04-plus of earnings to the bottom line, had you had as strong a gain on sale this quarter as you did a year ago. Correct?

That's correct. We did (multiple speakers) to our numbers this year that was from the sale of the build -- or purchase of the building. And so I think that evens out, frankly.

Got it. Thank you very much. I look forward to seeing you next week.

(Operator Instructions). Okay, gentlemen, there are no further questions in the queue at this time.

All right. Thank you for your time, and we will talk to you next quarter.