Knight-Swift Transportation Holdings Inc (KNX) 2015 Q3 法說會逐字稿

So anyway we'd like to welcome everyone out to our third-quarter 2015 Q&A session. As a reminder, we have posted a comprehensive letter to stockholders, which summarizes our results on the front page of our Investor Relations website. We're going to go ahead and 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. 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, are based upon 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 a 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's 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.

So, with that out of the way, I'd 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'll be monitoring today's Q&A session.

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

So with that, we'll start the Q&A portion of the call today with a couple of questions on EPS guidance and expectations, before moving into discussing the various operating segments.

First, why would you not consider the normalized adjusted EPS to be $0.39 to $0.40 for the quarter, excluding the $0.07 per share impact from the charge discussed related to prior year accident and Worker's Compensation claims, as well as the $0.02 per share from the settlement of the lawsuit?

That is one way to look at it and we would not dispute that analysis. But when we report our adjusted EPS, for the sake of consistency we utilize the adjusted EPS calculation as outlined and defined in the schedules accompanying each of our SEC filings.

You've previously noted downticks in project business, what is project business? Who is it with? And why is it down so early?

Project business is a term that we use loosely to describe a variety of profitable, seasonal business we perform this time of year. It is an accumulation of different capacity solutions which we provide towards the end of the third quarter and throughout the fourth quarter for a handful of our strategic partners. A large portion of the project business is for customers who need carriers like Swift, who are uniquely capable of providing creative capacity solutions for large volumes of freight in tight windows during the peak holiday season. In conjunction with the repositioning, we're typically paid in this capacity-constrained time of year.

So, we were able to determine early in the peak season that it would be down due to customers communicating to us some of the logistical disruptions they were experiencing in their supply chain, which led to a portion of the project freight not arriving domestically in time for the peak season. This, combined with an expectation for less repositioning revenue due to an unusually soft freight market, were the contributing factors to the noticed slowdown in our project business.

On September 25, when you lowered guidance, you stated that $0.05 to $0.06 was due to, quote, a reduction in expected volumes of seasonal project business in the fourth quarter of 2015, due to customers' recent logistical changes, end quote.

While it sounds like a volume issue at a couple of customers, how much of that was weaker than anticipated pricing tied to seasonal projects? And is the pricing of seasonal projects tied to things like the DAT spot index, even though they may be contractually governed -- i.e. a lane that was $1.75 a mile is contractually moved higher, to, say, $1.90, from November 15 through December 31? In other words, what is a short-term seasonal project pricing based upon -- some spot index or whatever you can negotiate?

I believe I just answered the first part of your question, related to the project business reductions. However, I want to briefly touch on the latter part of your question. To be clear, project business is awarded early in the year. At that time, the lanes of pricing are committed to and agreed upon. This is part of the reason we have historically been able to discuss our comfort with the unusual ramp in our earnings from Q3 to Q4 each year. Volumes are not guaranteed. But historically, our customers have done a very good job of forecasting these figures as well. This year, the lanes and pricing were all agreed upon and contracted. But our customers did not anticipate some of the previously discussed supply chain disruptions. So it is not as if they have taken this project business away from us, and elected to move it in the spot market. But rather, the volumes are simply not at the levels they had previously anticipated.

You effectively lowered your fourth quarter 2015 EPS by going from $0.48 to $0.54, down to $0.47 to $0.51. What are the reasons for this? Do you have a better sense of the seasonal project headwinds that you've discussed in the guidance revision? At a recent investor conference, Management mentioned a significant majority of retail customers were bullish on prospects for peak season. Have demand expectations worsened in the past month?

I would not say that demand expectations have worsened over the past month. But unfortunately, they have not improved either. An area that has deteriorated, though, and has affected our expected Q4 2015 earnings, is our view on the strength of the used truck market, as well as the number of trucks we will be selling.

Why have selective retailers moved away from the project work that has been so lucrative in the recent fourth quarters? Do they plan to access the spot market to fulfill the need? Or have they more dramatically changed their supply chain design, thereby eliminating the need for so much fourth-quarter project work altogether?

As mentioned previously, the slowdown in the project business was not intentional on behalf of the retailers, but a function of the supply chain disruptions in a couple of the networks. These customers are not utilizing the spot market to fulfill these needs, as the freight is under contract. However, the repositioning component of the project business would potentially be impacted by the softening freight market as shippers may not need to pay repositioning fees if capacity is not as constrained as seasonal norms in the markets where they need to move their freight.

In a challenging freight environment in the latter part of 2012 and early part of 2013, Swift was able to temporarily show that it was a company-specific freight transportation Company. How does Swift get back to taking control of its own destiny, and stop merely blowing around in the seasonal, cyclical, freight-win currents?

Yes, I believe the perception that Swift is subject to seasonal, cyclical, freight-win currents is not entirely accurate. One of the keys to weathering these types of storms is ensuring we are strategically aligned with solid customers who are growing. This has been a staple of our business for several years now. Unfortunately, we have experienced some volatility in our earnings. However, it has been more related to insurance volatility and struggles managing the growth over the past couple of years, from organic-dedicated contract wins to the CRS acquisitions to the recent fleet expansion, rather than due to seasonal, cyclical, freight patterns. Having said that, we're strongly committed to increasing our discipline around growth, which we'll discuss in a couple of minutes here.

In your release, you noted it would take some time for your underlying improvement and safety to translate into lower insurance costs, due to the prior-year adjustment impact on historical trends. Assuming you continue to make underlying progress in safety, when should we expect this expense item to show favorable results?

We would hope to see some reduction in 2016, with further improvements beyond that as we continue to implement the enhanced safety technology throughout the fleet.

Help us put into context that comment regarding peak volumes have not yet materialized as in years past. I ask because, according to spot data that Wall Street has become so hyper-focused on, spot rates tended not to accelerate until the second to third week of November, if we look back to 2011. So should we be seeing or hearing about strong October trends at this point, since e-commerce has shifted peak later and later each year?

That's a good question. However, given the contractual nature of the majority of our business, our historical freight pattern has typically accelerated in advance of the traditional pickup in the spot market indexes. We believe that volumes will continue to improve in November, with e-commerce. And I will tell you that, as we move forward, we believe that e-commerce will impact us 12 months of the year -- meaning that there are great opportunities for growth there.

In the press release, you had called out a weaker operating environment, as well as peak season volumes not yet having materialized. Can you give us a sense of what you are incorporating into the new fourth-quarter earnings guidance, from a pricing and utilization standpoint?

We've been providing annual, but not quarterly, guidance on rates and utilization this year. Therefore, for the full year 2015, we remain comfortable with the roughly 4% year-over-year increase in rates, offset by a slight year-over-year decrease in utilization, stemming from the various fleet-growth issues we have discussed over the past couple of quarters.

How are you able to be so precise in lowering fourth quarter 2015 EPS Outlook by $0.05 to $0.06 before the fourth quarter even began? Doesn't that suggest you are vulnerable to other seasonal volume and pricing issues, if things remain lethargic?

I'm assuming you're referring to the anticipated reductions in the project business, which we've just outlined.

There is an old adage that there is no such thing as one bad quarter. All four segments experienced year-over-year margin compression. What is your expectation for margin expansion, if any, at each of your four divisions?

We agree that opportunity exists for margin expansion in all four of our operating segments. In our Trucking segment, Truckload, Dedicated and Swift Refrigerated. We believe we can improve margins even in a soft freight environment, as we hyper-focus like never before on utilization, improved safety, and increased driver retention. In our Intermodal segment, margins should improve as we continue to work to fill the existing container fleet, and meet our turn objectives of two turns a month. Reaching these levels of turns will significantly improve our chassis and dray costs, and, as a result, create opportunities to expand our Intermodal margins. Additionally, we have nearly completed the buildout of our dray operational infrastructure, which is a critical component to improving and sustaining our desired Intermodal margin.

Does the weakness in freight relate to certain customer groups, or is it broad-based?

It's not unique to any one customer or vertical. But, rather, a broad-based impact.

Can you break out the dollar amount of the impact of negative development from prior-year claims, per Company segment, so investors can get a sense of what a cleaner view of trends looks like in these segments?

While we don't publicly disclose the dollar amount of impact of period-specific claims, we can share that on a year-over-year comparison. Our insurance and claims, and corresponding reserves expense, increased roughly 180 basis points within the Truckload segment; roughly 235 basis points within the Dedicated segment; and 30 basis points within Swift refrigerated, as a percentage of revenue, excluding fuel surcharge revenue. Worker's Compensation expense increased, year over year, roughly 10 basis points in Truckload; 135 basis points in Dedicated; and 30 basis points in Intermodal.

So there were quite a few questions related to the different operating segments. So we'll dive into those now, starting with Truckload. Contract freight rate increases have been consistently up 3% to 4% for Swift and other truckload carriers in 2015. However, with fuel surcharge revenue declines benefiting freight shippers' total transportation bills this year, will there be more pressure on pricing heading into 2016? Is there a confidence that freight rate increases will be materially above cost inflation next year?

As it relates to fourth-quarter pricing, for both dry and refrigerated vans, we expect contractual rates to be relatively flat, sequentially, in the quarter, due to customer feedback and market softness. But up year over year. The 2016 bid season is ramping up quickly. And although it's still a little early to fully gauge the quality of the season, it appears that the general feedback may be downward pressure on rates. We're targeting full-year rate increases in the 3% range in 2016, versus the 4% to 5% in 2015.

How do we read Internet truck pricing, compared to what you are getting in the market? Does that portend weaker rates are coming?

As we have discussed in past quarters, we haven't found spot market rates and contract rates to be as perfectly correlated as many would have you believe. Declining spot market rates don't always signify a compressed contractual market. Our recent experience indicates that customers are still very much concerned about securing capacity with quality carriers who can provide a broad suite of services, in conjunction with a desire to realize cost savings and optimization.

Can Swift provide initial yield growth expectations for 2016, if the current rate environment persists? Was the end-of-quarter fleet count higher or lower than the average count?

We're in the process of evaluating our various segments and working through more specific goals for each line of business in 2016. So I won't disclose specifics. However, we believe we can improve margins even in a soft freight environment, as we hyper-focus on utilization, improved safety, as well as increase our driver retention. For our Truckload segment, our third-quarter ending truck count was very close to the average for the quarter.

Turning down the fleet, what are your expectations for utilization improvement over the next few quarters? Is the market robust enough to support utilization improvements, even at the reduced fleet expectations?

As we discussed in our release, utilization will be a major area of focus for us for the remainder of 2015 and throughout 2016. A soft freight market would be a headwind for utilization improvements. However, there are several other areas we have identified where we can make utilization improvements. These improvements include sales targeting the proper freight, planning, and customer service velocity; maximizing our drivers on-duty hours; the shops and stream-lining our equipment maintenance. And Management working with our vendors to ensure a smooth equipment delivery process for the year of 2016.

Utilization declined 2.2% in Truckload. Yet loaded miles were up 2.8%, indicating too many tractors. Again, why would you not shrink the fleet to increase utilization? Can you be providing the drivers the miles if each individual utilization is declining?

As we mentioned, our utilization was negatively impacted by our larger than normal equipment trade process, and the tractor growth in the quarter, which caused additional tractors to be idle. These utilization headwinds do not impact an individual driver's ability to get their miles.

Over the last six or seven quarters, most public truckload carriers have seen their length of haul increase. You don't provide length of haul for the OTR truck. But directionally, had the length of haul been shrinking, flat, or rising during the last 12 to 18 months?

Our average length of haul has been relatively consistent over the past couple of years.

How did freight demand trend in the quarter on a monthly basis? And how is demand in October? When do you expect to see the pickup in Truckload freight to start -- mid-November? Can Management please quantify the expected magnitude, as it relates to prior fourth quarters?

Freight was seasonally stronger earlier in the quarter, but then softened in September. In October, certain markets were extremely tight while others were soft. But in general, freight was softer in the month than we had experienced in the recent years, although it did strengthen as the month progressed. We hope to see this positive freight trend continue to build throughout November.

So moving to the Dedicated segment -- Dedicated fleet increased; was that due to new contracts? Were there new startup costs associated with expanding this business?

Dedicated truck growth increased 3% year over year. However, most of this growth occurred in the fourth quarter of 2014 and the first half of 2015, and not in the current quarter. So we did not experience material startup costs in the current quarter.

What drove the sequential acceleration in Dedicated productivity? Revenue per tractor per week, net of fuel; year over year's increase? What does the Dedicated pipeline look like currently?

The improvement in revenue per tractor per week was mostly due to improving our pricing, increased back-haul revenue, and some changes in freight mix. We have been working closely with our customers over the past several quarters to improve the profitability of underperforming fleets, by improving operational efficiencies and/or pricing to compensate for increased costs related to driver wages, recruiting, and the new equipment. We have various opportunities in our Dedicated pipeline that we are currently evaluating. And we'll add or upgrade business where it makes sense.

With slack returning to the truckload market, at least temporarily, have you seen a reduction in Dedicated fleet bidding opportunities?

Bid volumes over the last 2 to 4 weeks have actually slightly increased in the Dedicated operation.

Can you give us a sense of how you're contractual rate renewals trended in Q3? What are conversations like on contractual renewal thus far in the fourth quarter? And did these discussions have any impact on this quarter's lower guidance?

Within our Dedicated segment, our recent contractual renewals have been in the 3% range. The majority of our truckload renewals are pending the 2016 bid activity, of which we haven't seen the results yet. Yes, these discussions and customer feedback were considered in our quarterly guidance.

Moving to the Intermodal segment -- can Management discuss current market dynamics? Are competitors going after price or volume? Has there been a shift in freight away from Intermodal to truck, due to lower fuel prices? Or has the improved rail service mitigated any changes?

Current Intermodal freight demand has been less robust than we anticipated. The market is not horrible; however, the demand fundamentals have weakened. We believe that most competitors are behaving in a responsible manner and pursuing a fair balance between volume and price. Lower fuel prices and a modest increase in truckload capacity relative to demand are creating more options for our shippers. The improved rail service situation, along with a long-term perspective of strategic purchasers who understand that there are significant long-term truckload capacity headwinds, are mitigating volume shifts away from Intermodal.

How did Intermodal service trend during the quarter? Is service back to the 2012 levels? Or does more room for improvement exist?

2015 Intermodal service has significantly improved over 2014. However, there's still room to improve in order to reach the 2012 levels. However, we're confident that the rails understand the need to improve in this area, in order to create a compelling value proposition to retain and grow highway conversion freight.

Does it make sense to be in the intermodal business when you have a strong competitor with key structural advantages versus you, in addition to you being on the other end of the negotiating table with the rails? It doesn't appear that Swift is earning its constant capital in this segment, regardless of how low the perceived invested capital might be.

Many of our customers value the capability of a large service provider, such as Swift, to provide multiple types of mode solutions, of which intermodal is a critical service type. We feel that Swift has been successful in negotiating favorable rail contracts. We also continue to believe that reductions of dray costs is the critical component to close the profitability gap with those competitors.

Although several of our large competitors have created great intermodal franchises, the creation of those businesses was not quickly achieved. We feel we have made substantial progress in creating a viable intermodal operating model, and that many of our customers will welcome a competitive alternative to their existing provider.

Loads were up 6%. And revenue per load was up 3%. Are you returning to taking share, given the rail did not grow as fast?

We need to continue to grow our Intermodal business faster than market, in order to gain the cost efficiencies provided through economies of scale. We will price responsibly, relative to market pricing, while growing. It is important to understand that revenue per load is not solely a function of price, but is also impacted by relative mix and length of haul changes.

The BNSF improved service, but Norfolk Southern's service has suffered. How is that impacting Swift?

The BNSF has significantly improved their service, and this has really helped Swift to provide stronger service for our customers. We utilize both the CSX and the NS in East. The Eastern railroads both expressed service challenges in 2014, and both have improved their service levels in 2015. This includes the NS.

TOFC loads have declined 50% to 60% the last few quarters. What percent of the total base does that now represent? Why offer it at all, given the structural declines in that segment?

TOFC represents just under 5% of Swift's Intermodal volume. We offer TOFC to customers who value heavier payloads than are attainable with COFC, can support the deployment of new trader builds, and to provide capacity relief in selected markets in which demand temporarily exceeds container supply. COFC is and will remain, the primary intermodal platform for Swift, while TOFC will provide tactical customer or market support under predefined conditions.

In recent years, your Intermodal division has seen significant margin improvement in every fourth quarter. Last year, the OR was 91.3%. And the fourth quarter of 2013 was 94.2%. What are your OR thoughts for the fourth quarter of 2015?

We anticipate sequential improvement in our OR results in Intermodal during Q4.

How much of an earnings headwind was the drayage wage increase, and the relocations of the service centers last quarter? How confident are you that this segment can get to the mid-90s in the near term? And what additional adjustments do you need to make to your book of business and cost structure to get to this level of profitability?

Retraining drivers is critical to our Intermodal results. Weight changes were costly, however, are critical to possessing adequate dray capacity, improving service, and delivering strong safety results. The operating center points are being located as close to major ramps as possible, in order to eliminate empty miles and improve driver productivity. We feel that our operating-centered infrastructure is nearing the final state necessary to drive our dray costs down. We also feel the majority of our book is priced at levels to support profitability. Our key objective is, win more business and drive economies of scale through our dray and container fleet. This will improve our profitability to our desired levels.

Moving to Swift Refrigerated -- in terms of the loss customer at Swift Refrigerated, you mentioned the customer relationship wasn't profitable and skewed some of the operating metrics. Are there any other relationships like this that need to be addressed from a profitability perspective? Also, can you provide some data on the operating metrics, excluding this relationship, in order for us to better understand the trends going forward?

We are constantly evaluating our book of business in all of our segments to ensure our profitability objectives are being met. To the extent that changes need to be made, we make them both from an internal perspective and also externally, by working with our customers to implement the needed improvement. As it relates to our Swift Refrigerated segment, this particular customer was unique due to the specialty requirements of his operation. And we do not currently participate in any other similar type of operations. Although we haven't publicly disclosed the exact impact this account has had on our segment's overall operating metric, the business was fully discontinued on January 31 of this year. So, comparing 2015 Q2 and Q3 results to 2014 Q2 and Q3, could give a general indication of the account's impact.

We were a bit surprised to see the Refrigerated fleet's contract, sequentially, in an easier driver market. Can you walk us through this reduction -- i.e., did you lose a customer, experience increased driver turnover? Or was this merely a response to a weaker demand environment with the impact of the bird flu and droughts, et cetera?

We did experience some fleet reduction with one of our Dedicated customers early in the quarter, although this was very temporary and has since returned to the fleet. Driver retention was also a challenge in the beginning of the third quarter, especially around the Fourth of July. But I will add that, since that time, our turnover metric within the segments have trended favorably. In fact, driver retention has improved so drastically that the Swift Refrigerated segment now leads the entire organization in driver satisfaction and retention. We fully expect this trend to continue, which will allow us to grow truck count within this segment, without having to purchase any additional equipment.

What are your near-term margin targets for this segment? And what adjustments do you need to make to accomplish these goals?

We have high margin improvement targets for Swift Refrigerated segment. But we also realize that these improvements will not happen overnight. As we discussed last quarter, we believe our rates and utilization are too low and our deadhead and claims costs are too high. But we have made significant progress in driver retention. We look to leverage this momentum in other areas within the segment. As it relates to the near term, we want the segment's operating ratio to continue to improve, as it approaches 90%.

Were there any rebranding expenses recognized in the quarter in your Refrigerated division? If so, how much?

A nominal amount of costs associated with the rebranding of Swift Refrigerated was incurred during the third quarter. This cost included replacing some signage and miscellaneous items at a couple of facilities, along with some legal expenses. But it was relatively minor. On a go-forward basis, we don't anticipate rebranding all of the trailers. That will happen over time, as we go through the trade cycles.

Utilization increased 3.9%. This is the only fleet that increased sequentially. Looking at this experience, do you parlay this improvement to other portions of the fleet?

We were able to increase utilization, both on a sequential and a year-over-year basis within this segment, primarily due to the fact that many of our strategic initiatives continue to gain momentum and produce positive results. We have been successful in increasing our team service offering in select markets and have increased the number of hours our drivers are under dispatch. And, yes, we are actively leveraging this success in all portions of our consolidated fleet.

Weekly revenue per tractor declined at a lower pace than last quarter. Is that indicative of the lost contract business finally benefiting Refrigerated's performance?

Well, there's no question that walking away from the mentioned specialty business has improved our overall profitability. Our hyper-focus on asset utilization and driver retention have also contributed to this metric improvement and has helped partially offset the driver pay and insurance and claims increases mentioned above.

How much of the weak Refrigerated segment results is a function of the drought in California, and any displaced smaller carriers moving into your markets?

We have experienced a slight decrease in produce freight out of California, caused by the drought. And while this has had a negative impact on utilization, it is difficult to quantify how much it has impacted the segment's overall profitability.

Okay, so that takes us to debt and CapEx. There were a lot of questions on this topic, so we'll try to move through them as expeditiously as possible.

After sizable reductions in the debt balances, the debt level has crept back up the past two quarters. Should we expect the debt to start to decline again? Or are you comfortable with the current debt level?

First, with regard to the debt level increasing, as we discussed in prior quarters, due to the way the equipment purchases have played out, our debt levels and leverage decreased in Q1, when many purchases were delayed. As we discussed at that time, we expected the levels to increase from the Q1 levels, as we started to receive the equipment. But we expected it to remain below last year, which is consistent with where ended Q3. Our debt and leverage is higher than Q1, but lower than Q4 of 2014.

With regard to the second part of this question, we're comfortable with their current debt level, especially given the significant reduction in interest expense associated with the debt profile. In 2010, we had over $320 million in interest expense. Today the annualized run rate as of the third quarter was $36 million. That is nine times less than it was just over four years ago. Our pre-tax weighted average cost of debt is now less than 2.5%, whereas in the past it was over three times this amount. So, when you ask if we're comfortable -- yes, we're comfortable. I do not lose any sleep with regard to our current debt and interest profile. With that said, we do not want to anticipate any sizable permanent increases to our leverage position and expect it to come down over time.

Can you elaborate on the $100 million share repurchase program you announced last month? Perhaps some color around the expected expiration of the program, and/or how quickly you plan on ramping up purchases?

The Board has authorized a $100 million share repurchase program, which we intend to kick off after we release our 10-Q, which is targeted for November 4. We intend to initiate a 10b5-1 plan that is consistent with 10b-18 rules. Given the current stock price, which we view as extremely attractive, and the current daily volumes, we expect that the program will be completed within the next couple of months. We do expect that we will need to use the balance sheet, temporarily, for a portion of this program, given the speed at which we expect the purchases to occur, but expect the impact to our leverage ratio after the first quarter of 2016 to be minimal.

Why doesn't the Company revert to its strategy outlined during the IPO, and successfully executed on until the purchase of Central, of generating significant free cash flow and improving OR, rather than a strategy of fleet growth? In the absence of fleet growth, the Company can generate approximately $250 million a year in free cash flow and return it to shareholders via dividends or buybacks, in the process improving asset returns and multiple.

Based on recent Management discussions regarding capital deployment strategies, and given the current freight environment, we're not planning to grow the fleet in 2016 from the current levels. However, we do expect to be able to grow revenues meaningfully by driving utilization on the existing fleet. We are currently assessing the accelerated trade cycle, given the enhanced features expected in 2017, and have not yet finalized our CapEx plans for 2016. We do expect that we will have positive free cash flow in 2016, and are committed to return this capital to shareholders in the most accretive manner after making the mandatory repayments on our debts. We will share these plans with investors once they're finalized.

The cancellation of 450 tractors at $100,000 to $125,000 apiece gets savings of $45 million to $56 million. You lowered CapEx and other by $75 million. Where is the other $20 million to $30 million coming from?

Other than tractors, we're expecting a bit less CapEx with trailers, facilities, and other IT and miscellaneous items.

It appears that you modestly increased the number of truck order cancellations and deferrals -- i.e., previous was 400, now 450. Given the softness in the freight environment, should we expect more cancellations? How much further will you cut fleet growth by, in the event volumes soften further?

We do not expect further cancellations for 2015. As I mentioned, we're also not currently planning for growth in 2016, and we have the flexibility to adjust upward or downward based on the number of trucks that we trade. So we will adjust accordingly, as needed, given the environment.

As a clarification on the disclosure related to the cancellation of 450 tractors originally planned for 2015 -- have those orders been canceled, or have they been pushed back into sometime in 2016? Is the cancellation of those 450 tractors solely on account of the pullback in initial growth targets, given that the freight environment is softer than originally expected, as described in the preceding paragraph in the press release? Or was there another factor contributing to that cancellation? Any further detail on the type of tractors that were canceled, and rationale, would be helpful.

The orders were canceled because the freight market was not as robust as we expected. And if we would've accepted these trucks is planned, we would've needed to have processed additional trades to avoid further growth. Given the backlog of trucks we already had in process to be traded, we did not have been able to keep the fleet flat by accepting these trucks. Therefore, they were canceled. We have not disclosed the manufacturer.

How can I reconcile the delta between the 500 to 600 average operational truck count growth now anticipated for 2015, and the 700 to 1,100 initially projected, to the 450 in cancellations?

This is actually quite simple. If you take the 500 to 600 growth, plus the 450 cancellations, we're within the original range of 700 to 1,100. Any other variance can be made by adjusting the number of trades.

Why not shrink the fleet after adding 800-plus tractors year over year, given the market softness?

Keep in mind that, even though we speak of market softness, our volumes as indicated by loaded miles were up roughly 3% year over year in our Truckload segment. Our utilization was negatively impacted by the larger than normal equipment trade process in the third quarter. But our focus is to improve this utilization as we go forward, as I mentioned previously. As Ginnie mentioned, we're currently not expecting to grow the fleet count in 2016. And we'll monitor our progress with utilization in volumes, and will adjust the fleet accordingly.

How much of an earnings headwind did Swift incur in Q3 related to the tractor deliveries? As the backlog is worked Q1, 2016, do expect this to be an earnings drag over the next two quarters? If so, how much, and which expense categories will this impact?

As we discussed in our press release, we expect the earnings impact of the tractor backlog to be roughly $0.05 to $0.06 of EPS in the second half of 2015, at which $0.03 to $0.04 was incurred in Q3. The impact to Q1 should be relatively minimal.

Why wasn't the financial impact of the equipment trade you discussed in the third quarter called out on the second-quarter conference call?

You are correct that we were aware there would be a financial impact associated with the equipment trades when we released our Q2 earnings. However, keep in mind, at that time we had a $0.10 range in our full-year guidance, which provided us with sufficient contingency assuming the remainder of the year played out according to plan. However, upon realization that the various other financial headwinds that we've talked about -- insurance, the legal settlements, the project business -- it became relevant to discuss the financial impact of the equipment trades as part of the updated guidance.

Why is it taking so long to absorb the new equipment into the fleet? What is the bottleneck -- i.e., technician availability, getting the driver into the facility to swap trucks, et cetera? Given that this is part of the normal operations of a truckload carrier, how can this be cropping up as an issue?

The issue isn't as much related to absorbing the new equipment, as it is processing the old. It takes very little time to get a new truck in service. But it takes three times as long to prep an old truck for trade or sale. And when you're hit with thousands of trucks in a very short period of time, there is only so much that can be done.

You are guiding to a large decline on gain on sale of used equipment. Can you discuss how much of the reduction is due to fewer available units for trade sale? And the decline in used equipment values? Can you discuss the magnitude of the forecasted drop in used equipment values you are using to arrive at your gains forecast? What is your expectation for 2016 gain on sales?

Some of the decline in gains is related to less equipment being traded. But the bigger impact is related to the decline in used equipment values. The market seems to be flush at the moment, which was a consistent theme that we heard from others at the ATA conference last week. We are basing our gain forecast based on some current sale and trade packages we have in place today. And as for 2016, it's actually a bit too early to quantify since we have not yet finalized our trade plans and given the current softness in the market.

Is the $9 million run rate good for interest expense? Will this increase with rates?

We refinanced our credit facility on July 27. So there is a little bit of room in the $9 million run rate for the quarter, given current market rates. Our debt is primarily LIBOR based; and so, therefore, as LIBOR rises, our interest expense will increase.

So we'll move into a handful of miscellaneous questions before turning it over to Jerry for a wrap-up.

Do you have a Company estimate for ELD impacts on the industry? If so, can you share it with us? Has it begun to influence current shipper decisions?

Given the enormity and incredibly fragmented nature of our industry, it is very difficult for anyone to actively quantify the impact. However, I have heard various industry sources cite expectations for capacity availability limitations ranging from 3% on the low end to 10% on the higher end. Regarding the latter part of the question, shippers have definitely expressed concerns about the impact this regulation could have on their supply chain. They are more likely to award their freight to a carrier like Swift, who has already fully implemented ELDs and is past the implementation headaches in the learning curve.

What is your current read on the timing of the ELD final rule? Will it be issued in the next week? Will OOIDA sue to stay the rule once again? Will carriers have to hit milestones during the two-year implementation period? Or will companies be allowed to wait until the 11th hour?

You know, honestly, we prefer not to speculate on potential regulations. The key is that we're already fully integrated with our ELDs, and have been for several years. From a perspective, the sooner everyone is forced to play on the level playing field, the better.

How much did fuel, in total, benefit third-quarter earnings on a year-over-year basis? And how did this compare to the second quarter? Remind us, please. And what are your expectations for the fourth quarter?

The year-over-year benefit in fuel realized in Q3 was a couple million better than what we realized inQ2. And regarding the fourth quarter, as we discussed earlier this year, given the significant benefit from fuel in the fourth quarter of 2014, we are expecting the year-over-year impact in Q4 of 2015 to be a meaningful headwind to earnings.

Other non-reportable segment off income. Typically, there's an annual catch up in the fourth quarter. What should we anticipate for the fourth quarter of 2015?

Although the magnitude may not be the same as in prior years, we would anticipate a similar sequential operating income trend in 2015 to that which we have experienced in years past, with the fourth quarter representing a significant portion of the full-year non-reportable segment's operating income.

Are there any more significant lawsuits outstanding, that could be settled during the remainder of 2015 or during 2016?

Note 9 of the notes to our consolidated financial statements in our 10-Q provides summaries of the various outstanding lawsuits.

What are you hearing regarding the holdup of the speed-limiter rule at the OMB? When can we expect a preliminary rule to be issued for comment?

The most recent information we have seen is the DOT's October 15 report, which gave no insight as to when the industry can expect a proposed rule to mandate the use of speed limiters.

Given the current availability of drivers, how should we think about driver pay increases in 2016?

Good question. Given the recent trends, we do not anticipate driver wage inflation at the same levels we've experienced in the past two years. However, we do expect to increase the amount of money our drivers can take home to their families through our enhanced focus on improved asset utilization in this fourth quarter and throughout all of 2016. Having said that, as we've seen in periods past, the driver market can tighten in short order. So we will continue to closely monitor our recruitment and our retention trends, to ensure we are appropriately compensating all of our drivers.

While the rationale has been given before regarding the high dollar amount of self insurance deductibles, has any thought or consideration been given to the lumpiness and lack of consistency, or lack of visibility, of earnings that is created as a result? And more importantly, the corresponding impact that it had on the valuation multiple on the stock?

We are currently exploring alternatives to reduce the volatility that will not dramatically increase our expense. And we will share more if we're able to obtain any viable options.

And the last question: what is the market impact of the maturity of Jerry's variable prepaid forward contract in November?

Jerry and his advisors have recently informed the Board and I regarding his plans for this facility. He is basically planning to do an amend and extend to the BPS; and, given the current stock price, he will need to increase the number of shares used in the facility. As such, we have talked with his counter-parties to this facility, and based on the proposed structure we believe there will be no material change to the number of shares purchased or sold in the market as a result of this extension.

Great. So that concludes the questions have been submitted. We will go ahead and turn it over to Jerry for a wrap-up.

All right. In conclusion, Richard, Ginnie, and I had a strategic session yesterday with our Board of Directors. And I'm very happy to say that we all came out of the meeting aligned on the strategic direction of the Company. A couple of key items that we agreed upon: first, we are extremely disappointed with the current stock price, and feel the multiples and the implied earnings make it very attractive. We will be aggressively repurchasing shares, pursuant to the $100 million repurchase program already outlined. Once we complete this initial repurchase, we will evaluate additional repurchases.

Secondly, Richard and I have talked at length, and we are both in agreement that, effective immediately we will enter into a zero fleet-growth mode. But keep in mind, we still have a significant opportunity to grow our top line, and bottom, by increasing the utilization of our existing equipment. Until we reach best-in-class utilization levels, we will not be adding any new equipment growth. We will continue to invest in maintaining our fleet, and continue along our normal trade cycles, but will not be adding incremental capacity. In fact, as we review all of our different pieces of business, we may elect to slightly downsize the fleet to eliminate less profitable accounts.

Third, we're committed to returning as much of our tremendous free cash flow generation to our shareholders. We will evaluate the most effective manner to do this as capital becomes available. However, at the current stock price, share repurchases are likely to be the most accretive action into our foreseeable future.

Thank you very much.

Thank you, everyone.

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