Knight-Swift Transportation Holdings Inc (KNX) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by. Welcome to the Q1 2015 earnings conference call.

(Operator Instructions)

I'll now turn the conference over to Mr. Jason Bates. Please go ahead, sir.

Great, thank you, Crystal. Again, we would like to welcome everyone to Swift Transportation's first-quarter 2015 Q&A session. As a reminder, we have posted a comprehensive letter to stockholders summarizing our results on the front page of our Investor Relations website.

We will start the call today with our forward-looking statement disclosure. This call contains statements that may constitute forward-looking statements which are based on information currently available, usually identified by words such as anticipates, believes, estimates, plans, projects, expects, hopes, intends, will, could, may, or similar expressions which speak only as of the date the statement was made. Such forward-looking statements are made pursuant to the Safe Harbor provisions of the Private Securities Litigation Reform Act of 1995.

Such forward-looking statements are inherently uncertain, and are based upon the current beliefs, assumptions and expectations of Company management and current market conditions, which are subject to significant risks and uncertainties as set forth in the Risk Factors section of our annual report Form 10-K for the year ended December 31, 2014. As to the Company's business and financial performance, there are many factors that could cause actual results to differ materially from those in any forward-looking statements. You should understand that there are many important factors in addition to those discussed and in our filings with the SEC that could impact us financially.

As result of these and other factors, actual results may differ from those set forth in the forward-looking statements, and the prices of the Company securities may fluctuate dramatically. The Company makes no commitment, and disclaims any duty, to update or revise any forward-looking statements to reflect future events, new information or changes in these expectations.

In addition to our GAAP results, this call also includes certain non-GAAP financial measures as defined by the SEC. The calculation of each measure, including a reconciliation to the most closely related GAAP measure, and the reasons management believes each non-GAAP measure is useful are included in the schedules attached to our letter to stockholders.

With that out of the way, I would like to recognize the members of Swift's management team on the line today. We have Jerry Moyes, our Founder and Chief Executive Officer; Richard Stocking, our President and Chief Operating Officer; and Ginnie Henkels, our Executive Vice President and Chief Financial Officer. Again, my name is Jason Bates, Swift's Vice President of Finance and Investor Relations Officer and I will be moderating today's Q&A session.

We genuinely appreciate all the questions that were submitted prior to the deadline last night. Similar to quarters past, we have categorized them and will do our best to provide a detailed response to each. To the extent you have additional follow-up questions, feel free to reach out to me after the call.

With that, we will start the Q&A portion of the call today with a couple of questions on adjusted EPS trends and guidance before moving in to discuss the various operating segments.

Do you plan to give another large driver wage increase on May 1 which will negatively impact your Q2 results, according to you press release? What gives you confidence that you can still achieve your original full-year EPS guidance, especially given the fact that we have seen signs of truckload market loosening which may impact your ability to pass the higher driver wages to your customers?

The driver increases we announced were included in our original plan for the year. Therefore, these increases were already assumed when we gave our original guidance of $1.64 to $1.74 for the full year. We use the phrase, negatively impacting Q2, in order to ensure the investor and analyst models appropriately reflect this increase.

With regard to our confidence in the range and the ability to pass on the driver increases, as Richard will elaborate on in a minute, we believe there is still tightness in the market and our customers are still concerned about capacity. They need quality carriers just as Swift to meet their needs. Therefore, we are still expecting to work with our customers to achieve the required rate increases necessary to provide the drivers with the pay they deserve.

When you talk about sharp increase in driver pay and owner-operator payments in the second quarter, can you describe the magnitude or impact of the cost?

We are not quantifying the increase other than to say the impact should be similar in magnitude to the increase we gave in August of last year.

A similar question -- can you quantify by segment -- Truck, Dedicated, CRS -- how much the increased wages going into effect on May 1 should impact operating income relative to the first quarter?

Again, we're not quantifying the exact impact but I will give some perspective by segment. The increase we are referring to is applicable to the majority of drivers in the Truckload and CRS segments. Dedicated works a bit differently and those increases are passed on to the drivers as we are able to obtain increases from the customers.

Intermodal will also be giving an increase to the majority of their drivers on May 1, but this is only applicable to the dry portion of a total intermodal move, thus it will be a smaller financial impact to the overall segment.

Since the increase is on May 1, to be clear, the wage increase would only cover two-thirds of the second quarter but then 100% of the third and fourth quarter, correct?

Yes, this is correct.

Driver pay increases on May 1, does it put Swift in line with the industry or are you moving to the upper end of pay?

I believe we are moving higher in the ranks of pay scale. But it is not just about the pay, it is about their W2 and what they take home. Which is also a function of the miles that they run. So, we're continuing to work on improvement or utilization to increase the miles a driver can run so that they can take more money home to their families.

Where does driver pay have to go to alleviate the driver shortage?

I will answer from the industry perspective. In general, I believe the industry average per driver wage is around $45,000 or so, and some private fleets with low turnover pay north of $60,000. But, again, it is more than wages.

These people deserve respect on the road and at our customer locations, in addition to having a great experience at our terminals. In some of these areas we as an industry have a long way to go. We want to really focus on respect and treatment, the predictability in the home time and the paychecks for our drivers.

How are you thinking about seasonality of earnings following a strong first quarter with driver pay increases and fleet expectations? What factors do you see as potential upside and downside to your affirmed 2015 EPS guidance of $1.64 to $1.74?

Our seasonality should be somewhat similar to prior years, normalizing for unusual items. Q1 should be the lowest quarter and Q4 should be the highest quarter with regard to EPS. Despite the driver increases in Q2 we would expect to have some sequential improvement over Q1 with improved weather, additional volume and pricing helping to offset the wage increases. This should accelerate a bit more in Q3 with additional fleet growth, as well.

In Q4 we would expect the project business to kick in, which should drive EPS higher, similar to prior years. The downside to our guidance would be significant claims issues and acceleration in fuel prices and/or unexpected weakness in the economy. The upside potential would be rate increases that exceed 4% to 5%, a continued reduction in our driver turnover, and/or improvements in our safety trends, amongst other factors.

Over the past few years the fourth quarter has represented a higher portion of your overall annual earnings and comparisons this year could be challenging with the fuel tail winds in the fourth quarter of 2014. Do you expect the fourth quarter of 2015 to represent a similar magnitude of annual earnings compared to recent years?

What visibility do you have to the fourth quarter? And what could be some of the factors that result in the fourth quarter being higher or lower year over year versus 2014?

With regards to the visibility to the project business in the fourth quarter, we are working on those contracts with several customers now and currently expect that we will have a similar level of business in 2015 as we did in 2014. Based on this, as we just discussed, we do expect that Q4 will be a larger portion of our annual EPS, as we have seen in prior years.

We are expecting to have a year-over-year head wind with regard to fuel in the fourth quarter, as we've discussed previously, but are hopeful that our insurance and claims will be a tailwind in Q4 given the focus and changes we are implementing with regard to safety. Other than this, the upside and downside factors are similar to what we just mentioned with regard to the full year.

In your Q4 2014 earnings call you forecasted that gains on sale would be lower in 2015 versus 2014. Has that outlook changed? And what type of color can you provide us on expected gains on sale in the coming quarters?

Gain on sale is very difficult to predict and it is dependent upon the number of trucks or trailers that we have available for trade or sell in any one particular quarter, the completion of those sales, the type of equipment we are selling and the used truck market, amongst other things. We are expecting gains to be slightly lower year over year but this could vary given a change to any of the variables we just discussed.

Is you $1.64 to $1.74 range using the $0.29 adjusted EPS or $0.26 GAAP EPS estimate? I presume it's $0.29 since your target is an adjusted rate but I just wanted to verify.

Yes, $1.64 to $1.74 is based on our adjusted EPS, therefore would include the $0.29 of adjusted EPS for Q1.

Do you include derivative interest expense in your EPS? Haven't you excluded it in the past? And why is this rising?

Derivative interest expense is included in EPS, meaning that it is deducted from our earnings, just like regular interest expense, to arrive at EPS. For adjusted EPS purposes, per our definition, we add back derivative interest expense that is associated with the ineffective portion of the mark-to-market adjustment of our interest rate swaps, which has been minimal for the past several years since the swaps were de-designated as an effective cash flow head in 2013. This is explained in more detail in footnote 16 of our annual report.

The amount of derivative interest expense is increasing because the underlying interest rates incorporated in the hedging, for which we are paying fixed and receiving floating, increases each quarter. These hedges mature in July of this year.

What was the impact of the drop in fuel prices on your income statement? Has it been positive or negative? Please express in terms of EPS impact and impact by segment.

As anticipated, we did have a positive impact year over year from fuel in the first quarter that was roughly $0.04 to $0.05 of EPS. The majority of the impact was in Truckload followed by CRS.

Okay. We will move into the segment questions. There were a lot -- emphasis on a lot -- of questions specifically as it relates to the Truckload segment. We've tried to group them and capture all of the key themes here. So, we will go ahead and run into that section right now. Can management talk to demand trends experienced during the first quarter of 2015 on a month-by-month basis compared to a year ago?

How is April shaping up compared to April of last year -- miles, turn down rates, or any other metrics that speak to demand and supply? Also, can you elaborate on freight volumes from a geographical strength and weakness perspective from an end-market perspective and/or from a segment perspective?

I will start by reminding everyone that the first quarter of 2014 was extremely abnormal as a result of the severe weather. So year-over-year comparisons would probably be somewhat misleading. However, I will talk about the monthly trends we experienced this year in the first quarter and thus far in April to help provide some color to what we are seeing out there.

In an effort to halt the end-of-the-world mentality that some seem to want to proliferate out there for the truckload industry, as we mentioned in our last quarterly call and reiterated at the mid-quarter conferences, freight volumes in January were very strong. February slowed down a little bit because of the severe weather but volumes returned solidly in March.

Seasonally April is generally not a record month for the industry as a whole. We have seen a little softness during some of the weekends this month; however, month to date in April we are actually up year over year in total loaded miles.

Geographically I would say the majority of the markets have been relatively balanced. If I had to pick an area of softness I would cite parts of the West Coast having been soft from time to time.

From an end-market perspective that there hasn't been anything I would characterize as weakness. And from a segmentation perspective I would say intermodal has been somewhat soft, followed by refrigerated being light during certain periods thus far in 2015.

Having said all that, even though there have been soft spots we are still booking out consistently. So thus far we are relatively pleased with April.

The market seems to be reacting to the idea that supply-demand dynamics will get materially weaker in the coming months and quarters. What type of visibility do you have from customers on their demand for capacity?

Simply put, we would characterize the dry van truckload market as strong, as I just mentioned. We have had some recent softness in a couple of markets and over a couple of weekends. However, a few soft weekends doesn't mean the truckload cycle is over.

Jerry and I have actually met with several of our larger customers over the past few weeks and they are still very bullish for the remainder of the year. Several of them are talking about growing, adding stores and DCs, and are concerned about capacity availability over the next several quarters.

To reiterate, over the past several months we have seen persistent supply-demand imbalances, driver shortages, combined with the desire from shippers to transition more to larger carriers and use less brokers. Customers recognize the value of partnering with large well-capitalized diverse service providers like Swift, and they are willing to pay for the comfort, service and security that comes from doing business with us. Simply put, we are very optimistic about our short- and long-term outlook.

What has been the productivity gain from the reversal of the hours of service rules change?

The utilization impact from the original implementation of the hours of service change is roughly 3% to 5% headwind for the industry, although not quite as extreme for Swift. Since that time, we have been actively working to train our drivers on how to maximize their legal availability time to drive, such as when to take their breaks and when to do their restart.

As a result of these training initiatives, we have been able to offset a good proportion of that initial utilization headwind. Therefore, the recent reversal of the hours of service will not have very much utilization impact or tail wind for us, given that we've already worked to recover the loss utilization these past couple of years.

Can you discuss your expectations for rate increases in 2015? Truckload revenue per mile increased 6% during the quarter, with previous comments expecting 4% to 5%. Is 4% to 5% still appropriate for modeling purposes? And if so, does the implied second-half moderation primarily reflect comparisons or something else?

Our most recent guidance for 2015 was for rate increases in this segment to be in the 4% to 5% range for the full year of 2015, but not necessarily for every quarter. Obviously the sequential quarterly rate development in 2014 would play a role in that. As the rates improved sequentially throughout last year, we are still very confident in the 4% to 5% range previously provided for the full year of 2015.

However, to be clear, within that range there will be customer accounts or lanes which could necessitate significantly more than 4% to 5%, while others may warrant less. Obviously there are a variety of factors which could cause us to meet or even exceed the weighted average of 4% to 5% range. However, as we discussed previously a good portion of these increases will be passed along to our drivers to ensure they continue to be appropriate compensated.

What is the split of your truckload business between spot and contract? The spot market in the truckload market appears to have softened according to many industry sources. What is Swift seen early in the second quarter and how do you anticipate the recent trends will impact your contractual business?

As stated on previous calls our business is almost entirely contractual in nature and we do not meaningfully operate in the spot market. We, too, have heard that the spot market has been softening up. However, that could be a byproduct of a variety of factors, including an abnormally difficult comp in Q1 of 2014, or the desire for shippers to pursue contract carriers instead of playing in the spot market as a result of their capacity concerns. So, the movement of these shippers away from the spot market and into the contractual market is a positive for carriers like us.

Of the 6% year-over-year increase in average revenue per loaded mile during the first quarter, how much of this was a result of the contract rate increases versus spot or bonus pay? What percentage of the truckload accounts have repriced thus far in 2015 and what percentage of the revenue reprices during the remainder of the year?

As discussed previously we do not meaningfully participate in the spot market; therefore, the 6% year-over-year rate increase is almost entirely a result of contracted rate increase and mix. Regarding the latter part of your question, we are continually repricing our business. Although a slightly larger percent of the business gets repriced in the first quarter relative to the remaining three quarters, the split is not as disproportionate as some have inferred.

Should we view the driver pay increase announcement as a validation that the 2015 rate increases have been better than expected to date this bid season?

No, we anticipated providing a meaningful driver wage increase when we provided full-year guidance last quarter. We weren't certain exactly when in the second quarter we would be rolling it out. However, the revenue per loaded mile increase we have realized, as well as the driver wage increase we will be implementing, were both previously anticipated.

What percentage of the achieved rate increases is being passed on in the form of driver wage increases?

This is a difficult question to answer because of the wide range which are triggered by a variety of different factors. But setting aside the year-over-year impact on the driver wage we put into place in the third quarter of 2014 for the majority of our fleet, this year's increase to the drivers will range 25% to 30% of the increase that we're actually getting from our customers, dependent on the tenure, the ranking and the experience of each driver. However, in some fleets, including the Dedicated, it can be a little higher. The remainder of these increases is used to defray other costs, such as new equipment, technology, recruiting and training, and to expand our margins for our shareholders.

If 33-foot pup trailers were legalized, is there a role for them to play in your free-running truckload operation and/or your Dedicated operations?

The short answer is yes, there's a possibility to incorporate these trailers in both our Dedicated and Truckload segments and we would closely evaluate and be ready to respond accordingly if the law were to change.

How does the advent of Amazon fulfillment centers in urban cores impact your businesses? Is this shift positive or negative for the Company? Would you ever consider last mile delivery as an additional service offering?

Yes, Amazon is one of our valued customers with whom we have been growing rapidly. So, obviously we are excited to see them grow as it has the potential to be mutually beneficial to both parties. I have met personally with these folks, both in our offices and in their offices, and there's significant opportunity in many of our service offerings.

The potential and possibility there for us to participate in the final mile, we haven't participated in this offering as of yet, but that doesn't mean we wouldn't consider it in the future.

Can you give us progress reports on where your Mexican operation and the truck brokerage initiative currently stand?

Yes, our Mexico division has had some record results in the first quarter. We are extremely excited about our progress in Mexico. We have great customers, great employees, and we are seeing great results. And we will continue improvement in many of our key operational metrics.

We are focused on growing both our trucking as well as our intermodal offering in Mexico. I will defer my answer to the latter part of your question regarding progress in our truck brokerage division until a little later on in the call as we have a variety of questions on that topic.

You've reached an 87.9% operating ratio for the quarter in truckload. Does that lead to a sub mid-80s OR for the year? What is your threshold for more rapid fleet expansion?

While we are proud of the progress we have seen in our truckload segment, we want to be careful to not get out over our skis. Rest assured, our teams will do everything in their power to over-achieve their targets. We remain very optimistic about the possibility of reaching our long-term goal of the low 80s adjusted operating ratio in our truckload division.

However, we want to reiterate that as we expect the first quarter was aided by a fuel tail wind, additionally, as planned, the next couple of quarters will have meaningful driver and owner-operator wage increases as a cost head wind. So, everything at this point is developing according to plan. As such, for the time being, we anticipate to remain consistent with our previously stated fleet growth objectives and our OR improvements in the truckload division.

How much were the total miles impacted by weather and port issues?

This question is very difficult to answer accurately. We had at least seven of our terminals that were shut down due to weather during the first quarter, some for a day or two because of ice-related issues. I will state that both of these issues served as head winds in the first quarter but to identify the exact magnitude is pretty difficult.

Weekly revenue for tractor growth accelerated from 9.1% in the fourth quarter of 2014 to 7.3% growth in the first quarter of 2015. Are we past the peak of rate growth?

The fourth-quarter 2014 improvement was very strong, boosted by a combination of solid rate increases, year-end project business, and seasonally strong fourth-quarter demand. We expect weekly revenue per truck will continue to grow at levels similar to Q1 with varying levels of increases in rate versus increases in asset utilization as we progress throughout this year.

Tractors in service dropped 100 from last year's first quarter but are up 200 sequentially. Was the third quarter of 2014 the bottom for the truckload count?

Yes, that is our current expectation.

You showed nice sequential fleet growth within Truckload during the quarter and seemed comfortable with the expected full-year growth of 700 to 1,100 tractors. Can you provide an update on expected growth by segment -- Truckload, Dedicated, CRS -- as well as a cadence by quarter?

We don't really provide that level of segment specificity in our guidance. However, trucks will continue to grow across all of our segments for the remainder of the year, with the largest percentage increases, or the largest number, occurring in the Truckload segment. Keep in mind that in total we are just now approaching our pre-recessionary fleet size, and that is after the 2,000 additional truck growth that were added with the Central acquisition.

Approximately how much of the 480 basis points of year-over-year OR improvement at Truck during the first quarter of 2015 was attributable to fuel benefits? How much from core operations and execution of improvement initiatives? How should we think about Truck OR for the remainder of the year?

As Ginny mentioned previously and as we anticipated in our original guidance, we realized roughly a $0.04 to $0.05 EPS tail wind from fuel in the first quarter, the lion's share of which was in the Truckload segment. The remainder of the year-over-year improvement would be a function of operational execution and price increases, combined with improved year-over-year weather trends.

As it relates to modeling the Truckload segment for the remainder of the year, we would advise you to look at the typically seasonal quarterly trends, normalized for the aforementioned benefit, being sure to take into account the large driver and owner-operator increases in Q2. As such, this year's quarterly adjusted OR trend may look abnormal relative to years prior, but the plan is still to generate year-over-year improvements for the segment on a full-year basis.

Loaded miles per tractor decelerated from fourth quarter's 2.5% improvement. And on an absolute basis, from 2Q to 3Q to 4Q performance, what level of growth would you expect going into the rest of 2015? Will growth accelerate?

The level of year-over-year utilization improvement will likely vary from quarter to quarter this year. But our goal is to continue to realize improvement in this metric for our Truckload segment on a full-year basis.

As mentioned previously, the fourth quarter of 2014 was particularly strong for a variety of reasons. Additionally, this year, as previously discussed, we will be trading a lot of trucks, which may lead to a slight utilization head wind from time to time as we strive to bring in this newer, safer technology for our drivers.

Having said that, we have worked hard to clear the path for our network engineering and planning groups, empowering them to assist our drivers in maximizing the use of their driving time, thereby increasing the number of miles they can run, through a variety of tools and initiatives, all of which help lead to better tractor utilization for Swift and a larger paycheck for our drivers. Our shops are also hyper-focused on turning the equipment as quickly as possible, further assisting these metrics.

Great. As I mentioned previously there were obviously a lot of questions on our Truckload. Hopefully we've been able to address all of the themes.

We are going to go ahead and move into the CRS segment now. Central has turned the corner on margins. Is this sustainable into the upcoming beverage season?

Yes. We do believe that Central has turned the corner and that this trend is sustainable on a go-forward basis. As we have previously discussed, our goal is to produce quarter-over-quarter improvements in profitability in each quarter in this segment.

This is a commitment we don't take lightly and, as such, we have appropriately allocated the required people and resources to make this happen. We are encouraged by these recent trends and remain focused on delivering and sustaining improved results.

What is the Company continuing to do on the cost side? Or has illuminating that large breakeven customer altered the economics here?

Eliminating the unprofitable dedicated account will certainly be helpful. But, as in all areas of our organization, we are constantly looking for areas to improve efficiencies and reduce cost, and this is no different in our CRS segment.

The same strategic initiatives implemented on the drive side continue to be implemented in the refrigerated segment and are beginning to produce results. These results include a large gamut of activity such as reducing the number of unpaid miles driven, realizing synergies developed through our acquisition, and improving driver retention. We are constantly reevaluating our key processes to ensure we are running efficient and cost-effective.

The fleet has increased for two quarters now. What are your thoughts on optimal size for the network?

We are excited by the continued growth within this segment, and view this growth as a direct byproduct of our recently implemented driver-friendly initiatives. We have growth opportunities with our existing customer base, as well as with new customer accounts on both the OTR and Dedicated side. As long as this growth meets our profitability requirements we will continue adding trucks to this fleet. A lot of this growth will be directly dependent on our ability to attract and retain these drivers.

For your CRS segment, the loaded miles declined only 2% after falling 18% last quarter, yet yields were up a solid 5%, double our target. But revenue per load of miles fell off. What is driving that decline? The sequential increase in fleet?

As we discussed in our letter to stockholders, due to the lack of sustained profitability we made the decision to discontinue servicing a large dedicated customer account effective January 31 of this last quarter. This particular account had a much higher revenue, excluding fuel, per loaded mile, a much lower length of haul, and much higher deadhead. These mentioned metrics were all affected by the termination of this account. And when this account is excluded for both periods, the remaining business produced a year-over-year increase in revenue per loaded mile of 4.7%.

Can you elaborate on the customer adjustments at Central refrigerated? How did the contract adjustment impact tractor utilization in deadhead miles specifically? Can you remind us of how big this fleet was?

This account was approximately 100 tractors and carried a very high revenue per loaded mile, roughly four times the normal level, which was more than offset by extremely low utilization and very high deadhead.

CRS walked away from a dedicated account at the end of January 2015 given it was underperforming and generally wasn't a good fit. Are there further accounts that CRS may cull over the next 12 months? If so, please discuss.

The mentioned customer account was specialty operation and as such was foreign to our core business. It was the only one of its kind within our book of business.

That being said we are constantly culling over our OTR and Dedicated operations, ensuring profitability requirements are being met. To the extent improvements need to be made, we work diligently with our operations team and in many cases our customers to help drive efficiencies and price increases where necessary to attain expected profitability targets.

Do you offer team-expedited services in your CRS unit? With all the emphasis on fresh foods, I have heard that this market is very attractive right now as stores offering fresh foods often opt for expedited services to extend shelf life if the food is not processed with preservatives. How large is this operation or how large could it be?

Yes, we do roughly have 200 trucks that run team-expedited services in our refrigerated segment. We currently operate this fleet in several strong power links with customers requiring expedited transit. Based on customer feedback and conversations, I agree that this is a high potential growth area and one we will continue to focus on.

Can management provide more color on the improvement in driver recruitment and retention at CRS, and how Swift's been able to successfully grow tractor count during a period when the CRS fleet was experiencing two full challenges from both the industry as well as the Company-specific, such as integration headaches, competition, et cetera?

Yes, we are committed to delivering a better life to all of our drivers. And as part of this commitment we continually seek feedback from our driving professionals. We view this feedback as immensely valuable as it helps structure our relationship with our drivers.

As it relates to the CRS segment, we have listened to driver feedback and have implemented measures to address their specific concerns. As a result, great opportunities have been created for our drivers to grow, develop and enjoy home time, and earn the appropriate paycheck to support their families.

Can management provide an update on the CRS acquisition synergies? Management previously spoke to $4 million of potential synergies that are likely to be generated through the Swift CRS combination. Is this goal still a reasonable one? And if so, what is the proper timeframe for achieving the synergies?

We have completed the facilities consolidation, the back-office consolidation, the insourcing of Central's maintenance and the fuel savings, as originally anticipated. The challenge we had was recovering from the significant driver turnover we experienced in Q1 and Q2 of 2014. As discussed previously, we are making progress in this area on a daily basis and are replenishing the fleet while making other operational improvements, as well.

That turns us to the Dedicated segment. The first question -- yields turned positive for the first time in seven quarters. Is this a sustainable trend given the loosening of spot rates?

I'm assuming you are referring to the revenue per tractor excluding FSR metric. Spot rates have very little, if any, impact on our Dedicated business. Mix has been a contributing factor to the decline we have seen over the past several quarters, especially in light of the significant growth over the past year.

However, as it relates to our Dedicated business, we generally evaluate the combination of revenue per truck per week, as well as the adjusted operating ratio on an account by account basis. The goal would be to ensure that each account is showing progress in each metric even though the weighted average for the segment may be trending down.

Since the first quarter of 2010, the size of the Dedicated fleet is up 90%. Revenue was up roughly 80% but the operating income is flat. We are at a point in the cycle where demand for Dedicated capacity is at a premium. Why are the results seen as much margin pressure relative to the results back in 2010, 2011?

This is a good question and one that deserves a deeper comparison to fully explain recent trends within the segment. I believe your analysis is simply looking at the first quarter of 2010 compared to the first quarter of 2014. However, when comparing full-year 2010 to full-year 2014, Dedicated truck count and revenue have grown roughly 70% while operating income grew roughly 14% over the same period.

The 14% operating income growth was dampened by significant startup cost, which will be recouped over the life of the contract, increased driver wages and increased insurance and claims expense in 2014. Our stated goal is to run the segment with and adjusted operating ratio in the mid to high 80s. Doing so on a revenue basis has increased by 70%-plus, will be an accretive prospect to stockholders.

How would you describe the pace of new Dedicated wins so far in 2015 versus the more torrid pace you experienced in 2014? Are customers as eager to consider Dedicated as a key components of their supply chain? Or has the decrease in diesel fuel prices reduced their interest in exploring Dedicated fleet solutions? What sort of start up cost do you expect to incur during the remainder of 2015 for this segment?

The pace in Q1 Dedicated growth has been a much slower and controlled growth when compared to the rate of growth over the past couple of quarters. This pace is intentional and by design as we first focus on improving the profitability within our existing business.

We are continually approached by customers seeking Dedicated solutions. Therefore, I do not believe the decrease in fuel prices have impacted the customers' desire for a Dedicated solution. We will continue to evaluate new Dedicated opportunities and will proceed with these that meet our profitability objectives.

As it relates to the Q1 results, no substantial dedicated startup costs were recognized.

Were there any headwinds in the Dedicated operating margins during the first quarter of 2015, such as startup costs or other miscellaneous costs that could potentially dissipate as the year progresses?

As explained in the fourth quarter, the biggest headwind in Dedicated in Q1 was related to insurance and claims expense, which we hope to dissipate throughout the year given the initiatives we have in place.

Does management believe that the potential mandate for ELDs beginning in 2016 could accelerate demand dedicated to industry services?

Generally we feel the potential mandate for ELDs could result in a tightening of capacity for the overall industry not just the dedicated services, and that large, well-positioned carriers such as Swift could greatly benefit. We feel that over the long run these devices could help improve the productivity as well as improve safety within the industry.

We will now turn to the intermodal segment. While you called out the port labor strike in the letter as a reason for soft intermodal performance in the first quarter, wasn't poor railroad service still a significant factor? How long do you think it will be before the rail fluidity returns to the levels experienced in 2012 and the first half of 2013?

Rail service has improved significantly on a year-over-year basis but it has not yet met our expectations or some of our customers' expectations. We have been able to deliver more consistent service in many lanes, especially when compared to last year. Maintenance underway activities are now going on with the railroads which will negatively impact service through much of the summer. Therefore, we don't expect service levels to fully improve until later in the year.

Walk through the impact on business due to the West Coast port strike. Loads per container were flat year over year and down sequentially.

The port strike has significantly reduced both the length of haul and revenue per load, especially in February. It also has impacted dray fleets, particularly those based on the West Coast whose utilization was negatively impacted by the port slowdown.

Can management quantify the impact of the West Coast port labor and congestion issues on the intermodal volume and margin during the first quarter of 2015?

It is very difficult to accurately quantify the impact of the port issue since there were many variables that were impacted, such as lost volume, volumes filled with spot business, balance issues throughout the network, driver turnover due to a lack of volume, et cetera. Given the impact to many of the metrics in this business, we believe the impact was significant but we will refrain from quantifying at this time.

How is the West Coast port cleanup going to impact results in the second quarter? More specifically, length of haul, container turns, spot usage and operating ratio?

We anticipate the West port cleanup to continue through much of the second quarter. As this occurs, we believe volumes will progressively increase which will improve revenue per load, container turns and the operating ratio. The usage of spot business off the West Coast has dropped since February, which was the high point. We anticipate spot business to progressively reduce as a percent of overall volume mix as normal volume flows return and new business implementations take place.

Has intermodal returned to profitability month to date in April? Have your margin expectations for the segment changed? What rate increases is intermodal realizing this bid season?

We anticipate intermodal being profitable in Q2. We also anticipate overall intermodal profitability to improve for the full year. We have been successful on increasing price during this bid season. The strength of the increases have been stronger on east to west lanes, which we feel is a byproduct of the West Coast port situation.

What is the breakout of COFC versus TOFC on loads or revenues?

We don't disclose this level of detail. As we have mentioned in the past the TOFC product is a much smaller percentage of the total volume we move intermodally. However, COFC continues to be the strategic focus of the intermodal segment, and we are pleased to see continued success in growing that offering, which is up 16% year over year in the first quarter.

What have you done to get intermodal costs back in line for the second quarter and beyond?

We continue to focus on improving container turns and the utilization of the dray fleets, as we feel these are critical to reducing costs. Increasing container turns will reduce chassis expense and deliver more revenue and profit across the fixed equipment base. Increasing the use and efficiency of our own dray fleet will reduce the usage of more costly third-party options. Significant progress has occurred in this area with drays conducted by Swift power approaching 80%.

Additionally, we have continued to improve the dray infrastructure. As an example, we opened a new Chicago dray operating point about halfway through the first quarter within a few miles of the primary rail ramps in Chicago. We are continuing to establish additional dray operating points near rail locations. This will reduce both empty miles and increase available power to move customer volumes.

Loads were up 8.5%-plus. What gets Swift to increase container fleet again versus improving margins?

We believe we can move 20% more loads with our existing container fleet by continuing to increase the turns on our equipment.

There were some questions on logistics. Other segment revenues -- brokerage, logistics, IEL, et cetera -- slowed to a 21% growth. Is this fuel related or is there a slowdown in brokerage activity given loosening of the market?

Actually, our logistics business continues to grow both the top and bottom line. Load count actually increased 60% year over year in the first quarter.

The primary reason for the slowdown you are referring to from 29.7% year-over-year growth in Q4 versus 21% year-over-year growth in Q1 for the entire other segment is primarily related to the leases and associated lease revenue of the CRS owner-operators and the integration of their program into our IEL lease program.

They were a handful of questions on debt and CapEx. The first -- what is your plan for debt reduction in 2015? Given the amount achieved in the first quarter of 2015, can you update us on the amount you plan to achieve for the full year?

As we discussed in the letter, our debt balance and leverage ratio in Q1 was lower than originally anticipated due to the delay and receipt of equipment purchases. Therefore, we were able to temporarily pay down some debt while we awaited the equipment deliveries.

As our equipment deliveries will now be heavier than anticipated for the rest of the year, we are expecting that our debt and leverage levels will increase a bit from where we ended Q1. But, as we discussed last quarter, we anticipate ending 2015 with a net leverage ratio that is lower than the end of 2014, which will largely be driven by growth in EBITDA.

What caused you to increase your CapEx guidance by $50 million for 2015?

We actually did not increase our CapEx guidance by $50 million, we just described it differently. Last quarter we said we anticipated our net cash CapEx to be in the range of $300 million to $350 million. This quarter we broke out the components of that and said we anticipated the full-year total or growth CapEx to be between $350 million to $375 million, which will be offset by proceeds from sale of roughly $45 million, which implies a range for net cash CapEx of $305 million to $330 million.

Management discussed delays in deliveries of new equipment during the first quarter of 2015. What drove these delays?

We believe it was the change to the new model year with all of their new specifications, the new safety equipment it was bringing in. It just took them a little longer to get everything implemented. We actually believe that this is probably going to continue in the third and fourth quarter.

Under what parameters would you consider an equity-driven refinancing?

Given that we no longer have high priced debt and our leverage ratio is close to two times debt to EBITDA, finding parameters that would make an equity-driven refinancing feasible or accretive is challenging. This is not something that we are considering given our improved financial position.

There were, just to wrap up here, a couple of questions on drivers and a couple of miscellaneous questions. The first -- can you give us an update on driver turnover performance?

Yes, our driver turnover is down year over year. We have many initiatives in place to deliver a better life to our drivers, and those initiatives are helping to retain our drivers. We believe there are many benefits for our customers, our non-driving employees, our shareholders and our communities if we can make Swift the employer of choice in the industry.

We are not there yet, and although our turnover has improved year over year, we are not where we want to be. We have many more things to do and many other non pay-related items that we will be rolling out very soon.

Is there risk that the industry is finally retaining drivers and growing fleet count at a time when, broadly speaking, economic growth is slowing?

I do not believe this is a risk to Swift. It's still very difficult to attract and retain qualified drivers. As many of our competitors have already discussed, recent industry data has shown that the turnover in large fleets such as ourselves has improved, but the turnover in smaller fleets, and the industry as a whole, is still very challenged.

Did the West Coast port labor and congestion issues have a positive or negative impact on Swift's remaining businesses, the non-intermodal businesses? If meaningful, can management provide some more color on the impact on a division by division basis?

Our Truckload segment had some small benefit but this was negligible when looking at the segment as a whole.

This is a final question and then I will turn it over to Richard to wrap up. With several carriers discussing industry consolidation initiatives, at what point will Swift be ready for its next acquisition? Do you have any preferred deal size or preferred type of carrier in mind?

We want to continue to make progress with Central and deliver upon the acquisition objectives there first. Then it will be a matter of what make sense for us at that time. We do not have a targeted deal size. Each opportunity is unique and will be analyzed as such with the objective of rapid accretion to earnings.

Just to recap and to follow up here, over the past several months, again, I want to reiterate, we have seen persistent supply and demand imbalances, driver shortages combined with a desire from shippers to transition to more larger carriers, core carrier programs, and to use less brokers, as we talked about earlier. Customers recognize the value that we bring and are willing to pay for that service and security of that capacity.

We are extremely excited about our short-term and long-term outlook. We have had two quarters of 6%-plus rate increases and this is huge. Our network engineers are working very well to engineer our network to help load our trucks where they land, increase our rates in head haul markets.

We have strategic focus teams that are aligned to produce results. Safety is number one. We are very focused on that through leadership and technology. We are making great progress and believe that will continue.

We are hyper focused and fanatically focused on our cost control and making sure that we get a return for the dollars that we do spend. We are very focused on revenue growth, bringing in the right revenue in the right lines of business. And our teams are extremely aligned through sales, customer service and our network engineers, and pricing to do so.

We are extremely focused on recruiting and retention. Our net promoter score for our drivers is at an all-time high, which is helping us to retain our drivers and grow our fleet. So, we are very excited about our recruiting and retention efforts.

Our utilization obviously is a continued focus. We believe we can be best in class with utilization. We have several initiatives underway to continue to bolster the utilization, as we believe that helps the W-2 of our drivers as well as the profitability of the organization.

We are extremely proud of our team, our leadership, the Swift family. Drivers, the men and women who drive our trucks, are very important to us. We put them on the top of the inverted triangle. And we are proud of our progress in delivering a better life to our employees, obviously our drivers, our shops and office employees.

I believe we are aligned, our morale is high, and we are extremely focused on the future. And we believe this is a great year for our customers, our employees, our shareholders. We believe we're making progress in delivering a better life in each of those categories.

So with that, we thank you for joining the call.

Thank you all.

This concludes today's conference call. You may now disconnect.