奧多明尼昂貨運 (ODFL) 2014 Q2 法說會逐字稿

Good morning, and welcome to the second-quarter 2014 conference call for Old Dominion Freight Line.

Today's call is being recorded and will be available for replay beginning today and through August 14, by dialing 719-457-0820.

The replay passcode is 2918191.

The replay may also be accessed through August 14 at the Company's website.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements among others regarding Old Dominion's expected financial and operating performance.

For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements.

Without limiting the foregoing, the words believes, anticipate, plans, expects, and similar expressions are intended to identify forward-looking statements.

You are hereby cautioned that these statements may be affected by the important factors among others set forth in Old Dominion's filings with the Securities and Exchange Commission, and in this morning's news release.

And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements.

The Company undertakes no obligation to publicly update any forward-looking statements, whether as the result of new information, future events, or otherwise.

As a final note before we begin, we welcome your questions today, but ask in fairness to all, that you limit yourself to just a couple of questions at a time, before returning to the queue.

Thank you for your cooperation.

At this time for opening remarks, I would like to turn the conference over to the Company's Executive Chairman, Mr. Earl Congdon.

Please go ahead, sir.

Good morning.

Thanks for joining us today for our second quarter conference call.

With me, this morning is David Congdon, Old Dominion's President and CEO, and Wes Frye, our CFO.

After some brief remarks, we will be glad to take your questions.

For the second quarter, Old Dominion continued to produce strong profitable growth.

Our revenue and earnings growth accelerated to their highest rates in over a year, with a 19.1% increase in revenue, driving a 26.5% increase in earnings per diluted share.

WIth our revenue growth far outstripping growth in the economy, we believe we are continuing to gain meaningful market share.

As we have discussed with you often, we believe our ability to deliver superior on-time, claims-free service differentiates Old Dominion in the LTL industry and has driven, not only our long-term growth in market share, but one of the industry's strongest financial performances over the short, intermediate and long-term.

Even though we grew tonnage at a double-digit level for the second quarter, and we are faced with productivity pressure brought on by expanding our workforce to handle such strong volume, we maintained 99% on-time delivery, and our cargo planes ratio stayed an exceptional 0.26% for the second quarter in a row.

Our ability to produce this superior service performance, particularly in a quarter where tons increased at a rate that exceeded our expectations, again [highlights] the strength of our organization and our commitment to our service.

To achieve these results while also producing an 82.5% operating ratio, validates our business model, and the continuous investment in our people, capacity, and technology.

To put it simply, Old Dominion continues to stand apart from the rest of our industry, and we are committed to raising the bar further on what it means to provide competitive LTL services.

With continued execution, we are confident that we can achieve our long-term growth objectives, driving further growth in shareholder value.

Thank you for joining us in our conference call today, and now here is David Congdon.

Good morning to you all.

We have had another great performance for the second quarter, demonstrating our continued earnings momentum.

While we have now produced our fourth consecutive quarter of double-digit revenue growth, the last two quarters have especially highlighted the Company's outperformance of the LTL industry.

We came through very poor winter weather with outstanding results in the first quarter.

And even with Easter in the second quarter, we exceeded our high second-quarter expectations for growth in tons and revenue per hundredweight.

This marketing -- or this market position reflects the increasing demand for our high-quality services, which is evident in our expanding market share.

For the second quarter, this demand drove our strong growth in tons per day, and supported better than expected revenue per hundredweight in a pricing environment that has remained fairly rational.

The resulting expansion in freight density and yield was primarily responsible for producing further operating leverage and incremental margins of 22.3%, compared with the second quarter of last year.

In addition for the quarter, we achieved an operating ratio of 82.5% which is the best quarterly OR we have ever produced, and is 100 basis points better than our previous record which was set in the second quarter last year.

Looking forward, our objective is to expand our market share into double-digits, by focusing on the continued execution of our proven business model.

There will inevitably be challenges on our path to this goal.

However, having proven the strength of our business model throughout the economic cycle, we are confident that Old Dominion will continue to produce long-term growth in its financial results and shareholder value.

Thanks for being with us today.

And now I will ask Wes to review our financial results for the quarter in greater detail.

Thank you, David, and good morning.

Old Dominion's revenue reached a record $703 million for the second quarter of 2014, an increase of 19.1%, and $590.3 million for the second quarter of 2013.

The revenue growth was primarily driven by a 14.9% increase in LTL tons for the quarter, above our expectations of 14% to 14.5%.

This increase reflected a 12% increase in LTL shipments and a 2.6% increase in LTL weight per shipment.

Also contributing to the revenue growth, LTL revenue per hundredweight for the second quarter increased 3.7% or 3.6% excluding fuel surcharge, despite the impact of a 2.6% increase in weight per shipment, and a 1.4% decline in our average length of haul.

This increase in revenue per hundredweight just exceeded the high end of our expectation of 3% to 3.5% for the quarter.

Our results for the quarter also include the impact of a 4.3% general rate increase that was effective on May 1. Directional changes in weight per shipment and length of haul have been consistent now for 10 consecutive quarters, reflecting the ongoing shift in our freight mix to a higher weight contractual business, and to increased volume in our next-day and two-day regional lanes.

The second quarter of 2014 monthly LTL tons per day increased sequentially by 1.6% for April from March -- excuse me -- decreased 1.6% from April to March, increased 3.4% for May, and 3.3% for June.

Historically, sequential trends for April, May and June increase by 1.2%, 4.3% and 2%, respectively.

On a comparable quarter basis, LTL tons per day increased 4.1% for April, 15.5% for May, and 14.8% for June.

And we estimate July LTL tonnage to be approximately up 18%, versus the same period last year.

Third quarter of 2014, assuming normalized sequential trends, we expect LTL tons per day to increase in a range of 17% to 18%, compared to the third quarter of 2013.

We expect revenue per hundredweight excluding fuel surcharge to be up in a range of 2% to 2.5% for the third quarter, compared to the third quarter of last year.

Old Dominion's operating ratio improved 100 basis points to 82.5% in the second quarter, from 83.5% for the second quarter of 2013, driven primarily by our increased freight density and yield.

We also continue to benefit from savings from fuel purchasing strategies and fuel efficiencies, which contributed to a 50 basis point reduction in our operating, supplies and expense.

Capital expenditures were $138.8 million for the second quarter of 2014, and $218.6 million for the first half of the year.

We estimate CapEx for the entire year of 2014 will total approximately $375 million, including planned expenditures of $132 million for real estate, $196 million for tractors, trailers and other equipment, $47 million for technology, and other assets.

We expect sales of assets during 2014 to be approximately $20 million for a total net CapEx of approximately $355 million, and we expect to fund these expenditures primarily through operating cash flow, as well as our available borrowing capacity if necessary.

Total debt to total capitalization was 12.9% at the end of the second quarter of 2014, compared to13.4% at the end of 2013.

Our effective tax rate for the second quarter of 2014 was 39%, compared with 38.6% for the second quarter of 2013.

We continue to expect an effective tax rate of 39% for the remainder of 2014.

This concludes our prepared remarks this morning.

Operator, we will be happy to open the floor for questions at this time.

(Operator Instructions)

Allison Landry, Credit Suisse.

Thanks.

Good morning.

First, I just want to ask -- you mentioned wanting to achieve double-digit market share.

So I was wondering if you can comment on where you think you might be now, and maybe roughly how long it would take you to sort of achieve that goal?

At this time, Allison, it looks like our -- depending on what you use for a denominator, whether it's a --whether we are in a $30 billion to $34 billion industry or a $40 billion to $50 billion industry, we are somewhere in the -- 6% to 8% market share range now, and growing into double-digits is in our 5 to 10 year time frame.

And then, David, I think it was you mentioned that there was, or maybe it was Earl, that you saw some productivity pressures during the quarter, the volume or tonnage growth was so strong.

Could you may be expand upon that a little bit, and maybe talk about some of the metrics during the quarter?

Yes, I will handle that.

This is Wes Frye.

Productivity, actually we had some improvements on the linehaul.

Where we had a little bit of deterioration in productivity is in the platform and P&D, mostly in the platform.

But we had to add roughly about --12% more people on the -- on the docks.

And the training of -- on that is a 3 to 9 months before they become efficient with how we do things so to speak.

So we had a lot -- quite a bit of training pressure.

And we attribute some of that reduction in that training backload -- with a [15]% increase in tonnage, we expect some productivity enhancement.

And also, during that training -- maintaining a 99% on-time service with 0.26 claims ratio, we think is very admirable from our management group and our workers to be able to accomplish that.

Absolutely.

Okay.

That was it for me.

Thank you.

Scott Group, Wolfe Research

Hey, thanks.

Good morning.

Good morning.

So Wes, just wanted to ask you, just in terms of the pricing guidance -- so we saw an acceleration of pricing in the second quarter.

It looks like you are talking about deceleration in yields net of fuel in the third quarter.

Is it that mix, is it the tougher comp with the GRI?

It is a couple things.

One is obviously, is the tougher comp of the GRI that happened in May, and last year was in July.

So that goes full circle, once we get to the third quarter.

We still have weight per shipments that we expect to be, maybe a little bit in line with the second quarter, so we still have that as well as a reduced length of haul.

But the second quarter was an easier comparison on yields.

But keep in mind, the yield guidance of 2% to 2.5% is just that, 2% to 2.5% on yield.

From a pricing standpoint, including the impact of that increased weight per shipment and decreased length of haul, we still think we are getting pricing of 3% or better.

Which I think is still think, in this economy is very comparable.

Yes.

So that all makes sense.

What we are hearing from some of the other guys, that the underlying pricing -- forget about the GRI -- but underlying contractual pricing is accelerating.

Are you seeing that?

Well, we have consistently apply reasonable and fair and equitable pricing to our contractual business all along.

So we will continue to do that consistently, whereas I am not sure where the rest of the industry stands on that, and whether they are trying to get -- recover more than what we need to, because of our consistency of pricing discipline.

Got you.

And then just, a follow up on the market share targets.

It seems like that is implying some sort expectation for maintaining a low double-digit, plus top line rate the next five or so years.

Is that kind of the way you are thinking about the business?

And if that's right, is this level of CapEx this year is -- is this what we should expect going forward?

Does this go up from here, how are you thinking about that?

I am not sure I totally followed your question.

Obviously, we expect our market share to continue and to increase into double-digit at some time frame.

Whether that could be three to five years or longer, would depend somewhat on macro, along with other factors.

But we don't expect it to go from -- if it's 8% now, stay at 8% for five years, and then all of a sudden go to 10%.

We expect it to consistently to increase, as we have already demonstrated over the last few years.

From a CapEx standpoint, obviously we will stay on a very reasonable replacement cycle for our equipment, and spend CapEx to the extent that we maintain our average age on that point.

We don't really address how much of our CapEx going forward would be due to growth.

And obviously, that would depend on what that growth is.

But we expect our CapEx to be meaningful as we continue to grow our service center network.

We do expect our CapEx as a percent of revenue, as we continue to grow our network to decline in the years to come.

Okay.

I was referring to the -- to get to double-digit market share, you need grow your top line load amid double-digit annually.

And I just want to make -- you think that that is sustainable run rate, is what is what you are saying?

We do, yes.

Okay.

Thank you.

Bill Greene, Morgan Stanley

Hello, there.

Good morning.

So Wes I want to chat little bit on OR, so congrats.

Fantastic OR in the quarter.

Now, we usually model you sequentially, we look at seasonality.

And if I do that here, I get another record for the third quarter.

So are there factors in third quarter, you want caution me against getting too bullish on the third quarter because of things we got to think about?

One thing I will, that didn't affect year-over-year because it is in both quarters, is we did have gains on the sale of real estate in the second quarter, that was about a 0.5 operating point.

And we had that same in the second quarter of last year, so year-over-year that is comparable.

But sequentially, we don't expect any material gains on sale of real estate in the third quarter.

So that is one thing sequentially that you need to consider.

Okay.

The other thing, which is we typically give our wage increases in September 1 which we plan to this year.

So that's another thing to consider the third quarter compared to the second quarter.

Is the wage increase larger than normal, or is it just sort of in line with historical averages?

Because otherwise you would think that the sequential change would always happen.

Yes, we haven't discussed at this point what that wage increase will be.

Okay.

And then Wes, when we look at this sort of tonnage growth, and we look at what's going on overall in the marketplace, trucking even affecting rail, things are getting tight.

So do you feel like the cost inflation you are going to experience is going to accelerate going forward?

When you say cost inflation, what do you mean?

Because 67% of our cost is our own people.

We, as you know, we use very little purchase transportation, and the amount of purchase transportation you see on the release includes some of our non-LTL drayage operations.

So first, for transportation specifically for our LTL is very small, and so we don't expect a lot of inflation on that.

The inflation on our own cost lies in the wage increases that we get, and then additional cost of equipment, et cetera.

And then, of course, the cost of fuel is passed through fuel surcharges.

So I am not sure how -- if that answers your question, but that is --

No, that was great.

So all right.

Well, great quarter.

Thanks so much for your time.

I appreciate it.

Thank you, Bill.

Chris Wetherbee of Citi

Thanks, good morning.

Maybe just a question on the dockworkers.

You talked about increasing, I think 12% is what you said for folks on the dock.

And you think about the third quarter and the growth that you are getting in tonnage, and you are seeing that tick up 17% to 8%, is there going to be incremental hiring that we can expect in the third quarter, and maybe a little bit of productivity that goes along -- or productivity expense that goes along with that?

Well I guess, I am just trying to make sure I understand sort of how the staffing levels look like, relative to the third quarter volumes.

Yes, sequentially the third quarter, from the tonnage standpoint, we do expect it to be higher than the second.

And, of course, you can pretty much calculate that yourself based upon the guidance that we gave.

So I would suspect there would be some additional hiring in the third quarter, probably not as much hiring that we had in the second quarter compared to first.

But I - as I had also mentioned if you recall, just the training in the second quarter still has some legs going into the third quarter, if it takes 60 to 90 days to get the new employees to be efficient.

So that will still effect somewhat the third quarter.

And then we will be hiring additional people -- excuse me -- also in the third quarter.

Okay.

That's helpful.

And then just a follow-up question.

Thinking about the balance sheet a little bit, you mentioned this sort of -- debt to capitalization seems to be roughly the lowest level we have seen in quite some time.

I guess, when you think about the improved profitability of the business, the cash flow generation, how do you think about that?

Is there anything that you might want to do differently as far as deployment of cash flow?

Obviously, CapEx needs are going to be there as you continue to foster that growth.

But just thinking about that, whether you buy back, dividends, anything else we can be thinking about?

Yes, we get asked that question.

And we evaluate, and continue to evaluate some return to the stockholders in terms of -- even dividends or stock repurchase.

We are leaning towards stock repurchase, so we will discuss that and evaluate that continually as our cash flow -- and our debt to EBITDA.

I know those -- continues to decline.

So we will continue evaluate those alternatives from an investor standpoint.

Okay.

Sounds good.

Thanks.

Rob Salmon, Deutsche Bank

Hey, good morning.

If I am looking at the ancillary or the non-LTL revenue, it looks like that growth rate accelerated in the second quarter.

Can you talk a little bit about what's driving that growth rate?

Our growth?

Yes, the growth in the kind of non-LTL services.

It looks like -- I am backing into something around $19 million or about 18% growth in the quarter.

That -- the non-LTL was -- most of that is our drayage operation, and we have had some good success in growing that in the quarter.

So that is most of it.

It also included, is our truckload brokerage, which has had some success, as well as our global [freight], and there is the three segments on that.

They are still very small relative to our total, but we have had meaningful growth in that.

That's really helpful there.

And then in terms of the pay increase, Wes, that you alluded to.

That is just -- do you think it has to be more or less than kind of historical?

And how should we be thinking about your linehaul expense, given some of the challenges that some competitors have noted, as well as the tough driver environment in truckload?

Well, we have not announced our pay increases yet, and we don't want to do it over this conference call as to what we are planning on doing there.

And the second half your question was what?

It was just, related to the drivers.

I know you had kind of called out toward the end of last year some headwinds that you had experience with regard to the hours of service.

Certainly, what we are seeing, truckload driver pay inflation, significant right now.

Are you in the linehaul side of the business, needing to make any adjustments there?

Not really.

Our road drivers are very well-paid, especially as it compares to truckload drivers.

So our turnover is very low, and we have had pretty good success in hiring drivers.

As our business ramped up this year, finding road drivers was a little tougher than P&D drivers.

It was a little bit of a strain, but we got through, and got through the year so far, and maintained our 99% on-time service.

Well, congrats, and thanks so much for your time.

(Operator Instructions)

David Ross, Stifel

Good morning, gentlemen.

Good morning, David.

To continue on the driver pay theme, do you have incentives for your drivers on top of base wages, whether it be for fuel efficiency or picking up new business?

Really, it is a safety incentive for driving accident-free.

Okay.

But nothing on the fuel side?

No, just the incentive to do better, so that we can give a good raise.

And then, Wes, can you comment a little bit on the new IT platform.

You mentioned on the fourth quarter call that that was going to be rolled out over the next year or two.

Is that still on track, any update on the progress there would be great?

Dave, the IT, what we call our modernization efforts are well underway right now.

With examining numerous of our operating systems, we got a -- I mean, it is a 4.5, 5 year process in three major phases, looking at all of our systems and converting to a new hardware platform with -- going from IBM to Oracle -- with Oracle.

So it is well underway.

Excellent.

Thank you very much.

Thomas Kim, Goldman Sachs

Good morning, everyone.

As you think about growing your share, and I can appreciate a lot of your growth has been organic, and you obviously have done very well with that.

I am wondering whether -- you need -- you are considering about or whether you need to consider diversifying into other complementary businesses to sustain that long-term growth that you are anticipating?

Well, for the time being we are successfully winning a market share with our -- with the business model that we are under, and we think that we should continue staying focused on that.

And that will be the best return on our invested capital to do so.

However, we always keep our eyes open for diversification opportunities as they may arise, and also for potential acquisitions within the various spaces that we currently occupy.

Great.

And just on that last comment, what would be the framework in which you would deem be to sort worthy of considering M&A?

I am not really excited about acquisitions right now for the reason David stated.

We are very protecting our service levels, because that is why we are successful as we are.

And an acquisition has really got to be tempting, and we look at them all the time.

But we almost always turn them down.

So it is not a major thing for us right now, because of the fact that we are so successful doing what we do.

Like we see that slowing down, we will get more interested in acquisitions I expect.

But as of now, we are just trying to grow organically, and think we are pretty successful at it.

And another point is, as we have looked at asset-like type acquisitions and companies of any size, it appears to us that the marketplace has overpriced a lot of these companies.

And some of the multiples of EBITDA that companies are paying -- that the private equity firms are paying tend to price us out of the market.

And we are also a bit constrained by our own success.

The fact that we are earning greater than 15% return on invested capital, if we plug that expectation into an acquisition, we might only come up with 3 to 4 times EBITDA, and people are paying 8 to 10 times EBITDA.

So and we tend to price ourselves out of the market because of our own success.

That's very helpful.

Thank you.

Todd Fowler, KeyBanc Capital Markets.

Great, thanks.

Good morning, everyone.

David, I think in the past you have talked about the business is growing at some sort of multiple of where industrial production is or some other economic metric.

It feels like that the last couple of quarters, the growth rate has been faster than that.

And I am curious if you can comment as to why you think that is?

Is that success with your 3PL partners?

Is it a shift towards e-commerce, and where you are positioned with the next-day shipments?

I am just kind of curious, kind of your view on the growth rates relative to where your have been historically?

Todd, I really believe it's just a matter of our overall total service product that we are offering to, anywhere from mom-and-pop shippers to large shippers where we have a direct relationship, to our relationships with our 3PL's.

And we just have a darn good service product that sells, and we are just playing along, wining market share.

But you have had a darn good service product for long time.

And so, I guess trying to get a sense of if there is something that you are seeing in the market that's different now?

Or why people are realizing that more now than what they were, even if you look at the growth rates a year ago?

Well, I think part of it --I think the second quarter, we had such a strong tonnage growth because of -- I think the macro was behaving a little more appropriately.

I think you see the initial indications of GDP in the second quarter being as much as 4%, compared to a down 2% in the first quarter, so I think we are all kind of floating along with that.

What -- it remains to be seen what will happen in the second half, but for sure, that is part of the second quarter in addition to our market share.

I think in the first quarter, we had a strong growth despite the weather, because we simply were providing service and providing coverage.

Even in those areas that were negatively impacted by weather, we were still running our equipment safely, obviously to service our customers.

Okay.

That makes sense.

And this is kind of a damned if you do, and damned if you don't, type question.

But when you look at the growth rates, I mean, is there ever a point where you say, growing in the high teens is too much and we want to moderate the growth, to make sure that we have got the employees, and we got the efficiencies and those sorts of things in place?

Or do you feel that the business is positioned that it can grow at the high teens, and continue to produce results like you had this quarter?

I will tell you, our operating people darn sure have sweat on their brow, living with growth rates that we have been sustaining over the last -- this last year especially.

So it's -- I am really proud of our management team and all of our service center managers, all of our drivers and dockworkers, and all who are delivering superior service product.

But we have had our nose to the grindstone, and our people have really come through, and done a great job.

Sure.

We can see it in the numbers.

Thanks for the time this morning.

Thom Albrecht, BB&T

Hey, everybody.

Fantastic quarter.

Hey Wes, I wanted to ask on miscellaneous expenses, it was $1.8 million versus $17,000.

What was in that.

Was that the deferred comp, or it seems like that used to be down below the line?

Well, a couple things.

Last year we had some positive results, in some of our costs that were lower than normal.

This year, we are not -- unfortunately as it turns back to normal.

The other thing is, David, we have discussed modernization.

And while most of our modernization expense will be capitalized, accounting principles dictate that some of it has to be expensed, and some of that increase is due to the cost that we are realizing from our modernization efforts going forward.

All right.

So IT costs that are expensed.

But when you talk about other expenses, what is an example of other, not related to the modernization?

The other thing that is in there, is the gains on sale, but that is comparable, so that is not part of the million -- (Multiple Speakers).

Sure.

Most of it is a favorable impact last year, so an easy comparison, and the effects of some of our modernization in there this year.

So let me ask you kind of a bigger picture question then.

Your weight per shipment continues to go up, and when we look at the public companies, some are up, some are down.

Are there certain days of the week that make more sense to play in the truckload spot market, or is it geographical?

Can you just talk about the philosophy of when that occurs, versus maybe part of your weight per shipment just coming from customers doing better?

As we said in our comments, a lot of the weight per shipment increases -- we are still growing in the larger contractual business, which has a weight per shipment that is more like 1,700 pounds, or even a little more.

So just mathematically, as you continue to take on large contractual, whether it be 3PLs or direct, your weight per shipment is going to continue to go, go higher.

Also in up economies, you are shipping more widgets.

So that -- if the economy is behaving well, then we can expect weight per shipment to be up, that way as well.

From a truckload standpoint, we do use truckload in some cases.

And we call it spot quotes, but we manage that very closely.

Obviously, our costs are related to providing LTL service.

And a truckload rate per mile, call it a $1.55, just doesn't compensate us for this -- the heavy network that we -- expensive network that we have to support.

So we really don't see getting into truckload on the spot basis measurably.

And if we do, price it such that we do have a pretty good margin on it.

But that is not -- that isn't what we would expect to increase our weight per shipment measurably going forward.

In general though, have you seen a greater rate of growth with shipments over 5,000 and maybe even 10,000 pounds?

Not really.

In shipments, obviously it is flat to down.

If the revenue was up in that case, it is because we are charging to compensate us for taking on that truckload.

And, of course, truckload brokerage is one of our value added services that we will -- if our customers needs that service, we will take into the truckload brokerage, and get him the resources from that side.

Okay.

And then lastly, on the fuel, you commented on fuel management buying practices.

Was there also an element with just better MPG for newer equipment?

We have had a continuous improvement in MPG, really going back since 2010.

And it is just has been, better managing fuel mileage down to the driver level, the addition of and the replacement cycle of the newer equipment, the installation of the skirts on the trailers which we are a 100% skirted fleet now.

All of that has come into play with the continuous improvement in fuel economy.

Okay.

Thank you very much.

(Operator Instructions)

Jason Seidl, Cowen and Company.

Thank you.

Good morning, and thanks for taking my question.

Just quickly, when you look at your mix of business between sort of more local and national accounts, was there any noticeable shift in the quarter?

There has been shifts in that for years, that the higher percentages of our business is in the contractual, are larger as opposed to what we call the smaller tariff type.

And that is occurring within the industry, and a lot of that is going to 3PLs.

But on the other hand, we work very closely with 3PLS on that front as well.

So it's a trend that is happening.

We are doing well managing that, and so basically, it just is what it is.

Wes, you also talked a little bit about your pay increases coming up.

Are you having trouble in other areas besides maybe some drivers in hiring people, maybe such as mechanics, dockworkers?

I am just kind of curious how tight the labor market is for you?

Well, we have increased our employee in the second quarter this year over last year by 14%.

And although that has been something of a challenge, we are able to do that.

And so, we been successful in adding, not only on the docks, but also the driver force.

Okay.

Thank you for the time.

As always, I appreciate it.

Brad Delco, Stephens Incorporated.

Wes, maybe for you just real quickly.

You commented that your debt to cap ratio is probably as low as it has been in at least quite some time.

What -- where do you feel comfortable with your debt to cap ratio, just if you turned it -- if you decide to deploy some capital, what is the comfort level on that number?

I think it's reasonable -- well, I mean, we have had it as high as 40% in a large growth.

And so, I mean, and we could do that, but it had to be an opportunity, which we were probably not in tune to do.

The 15% to 20%, we would think would be a good -- just looking at cost of capital and looking at our capital structure is still a reasonable frame.

Okay.

And then, this may have been asked, and I apologize -- I have been off and on the call -- but when you look at your incremental margins of the quarter, I think they were just north of 22%, very close to where your overall book of business is running.

Is there any way to sort of parcel out where you think this new tonnage that is coming on, is it more profitable than, call it your sort of legacy business or business that has been in your model for a while?

Have you changed the targets at all for your sales force, in terms of what type of freight they to have to bring on, and what the OR is?

I guess, the bottom line is, is there -- is the freight that is coming on incrementally more profitable, or priced differently than what you have existing in your network?

Brad, I have to say no to your question.

We are seeing our tonnage growth, our revenue growth, really pretty strong and uniform across the entire country.

And so, the entire sales force is just bringing on business, growing with existing accounts.

And there are no targets to bring on freight at lower operating ratios than we have historically have.

In fact, our pricing OR target -- and I am not going to tell you what it is -- but it is really the same.

We haven't changed that at all, over the last while.

And so, I mean -- it is just across the board.

Okay.

Well, thanks for the time, and congrats on a great quarter.

Thank you, Brad.

And gentlemen, it appears we have no further questions at this time.

Mr. Earl Congdon, I would like to turn the conference over to you for closing remarks.

As is always, thank you all for your participation, and those excellent questions today.

We appreciate your support for Old Dominion, and please give us a call if you have any further questions.

So thank you, and good day.

And again, that does conclude today's conference, and we thank you all for joining us.