US Xpress Enterprises Inc (USX) 2004 Q1 法說會逐字稿

Welcome to the U.S. Xpress Enterprises Incorporated conference call. Today's call is being recorded. Now at this time, for opening remarks and introductions, I would like to turn the call over to Mr. Tripp Sullivan of Corporate Communications.

Thank you. Good morning. Thank you for joining the U.S. Xpress 2004 first-quarter conference call. On the call today will be Max Fuller and Pat Quinn, Co-chairmen; Ray Harlin, Chief Financial Officer; Jeff Wardeberg, Chief Operating Officer.

Before we begin, I would like to cover the Safe Harbor language. This conference call contains certain forward-looking information that is subject to certain risks and uncertainties that could cause actual results to differ materially from those projected. Without limitation, these risks and uncertainties include economic recession or downturns in customers' business cycles; rapid fluctuations in fuel pricing or availability; increase in interest rates; and the availability of qualified drivers. We urge you to carefully review and consider the various disclosures made by the Company in its press releases and periodic reports on Forms 10-K and 10-Q. I will now turn the call over to Ray Harlin to summarize the operating results for the quarter.

Thank you, Tripp. Good morning and we appreciate you attending our conference call this morning. We will briefly discuss the results of our operations for the quarter, and following my comments, we will be available to respond to any questions.

We are pleased that we continued our trend of quarterly earnings improvements during the first quarter of 2004. This represents the ninth consecutive quarter of year-over-year quarterly increases in revenue and earnings, and we expect this positive trend to continue throughout the remainder of 2004.

For the quarter, consolidated revenues increased 6.3 percent to $234.7 million. Excluding the effect of fuel surcharges, consolidated revenues increased 7.1 percent. Truckload revenues, excluding the effect of fuel surcharges, increased 4.2 percent to $197.9 million, driven by a record increase in revenue per mile of 6 percent. The impact of the increase in revenue per mile on revenue growth was offset to a degree by a 1.2 percent decline in average trucks and a 4/10 of a percent decline in revenue miles to trucks.

The 6 percent increase in rate per mile was achieved primarily as a result of aggressively pursuing necessary rate increases from our customer base. Recognizing that we and the entire industry are facing unprecedented increases in operating costs, we initiative an aggressive campaign to improve rates and replace business which did not allow us to a receive a reasonable financial return. In certain cases, we have walked away from underperforming accounts.

The decline in the average number of tractors reflects the decline experienced in our owner-operator fleet. Due to the difficult operating environment in truckload industry in recent years, we, along with many in the industry, have experienced a decline in the owner-operators, as many have exited the business. The slight decline in miles per tractor primarily reflects the continuing change in the mix of our truckload business. Our dedicated contract and regional businesses each grew revenue by over 50 percent in the quarter, and together represented 20 percent of our truckload revenue in the quarter versus 18 percent a year ago, with a corresponding decrease in our over-the-road longer haul rate. Dedicated and regional operations generally achieved lower miles per truck, but at higher rates per mile than long haul operations.

During the quarter, we continued to expand our expedited rail program. We initiated this service last year in order to meet growing demand and improve financial returns in certain long- to medium-haul markets. Using our existing trailers, along with expedited rail service, we can provide our customers service which is comparable to solo truck transit times. During the first quarter of 2004, our expedited rail group contributed approximately $15.5 million in revenue to our truckload business.

During the last nine months, we have experienced an increasingly difficult driver and owner-operator recruiting environment. As we disclosed previously, we experienced a decline in seated (ph) trucks during the fourth quarter of 2003. However, during the first quarter of 2004, we reversed this trend and by the end of the quarter, increased our seated trucks counts by approximately 200 compared to the fourth quarter of 2003, and have less than 100 unseated units today.

For the quarter, our truckload business achieved a 10.6 percent improvement in operating income to 3.4 million. This improvement was achieved despite an unprecedented degree of increased costs facing the truckload business. During the quarter, we increased accessorial pay for our drivers and owner-operators effective January 1 to compensate them for the expected impact of the new hours of service. We provided our owner-operators a three cent, or 3.5 to 4 percent, increase in pay effective January 1. Further, effective mid-February, we implemented a driver pay increase of approximately 8 percent. The impact of the driver pay, along with increases in benefits and workmen’s compensation insurance, increased the (indiscernible) cost of drivers and benefits by approximately 8.3 percent year-over-year.

Fuel prices increased throughout the quarter, and on average were only slightly below the 2003 first-quarter record high prices, and well above historical price levels. Fuel costs were further impacted by the lower fuel efficiency of the new EPA-compliant engines. On a year-over-year basis, fuel costs net of fuel surcharges was only slightly negative to the quarter. However, these factors did materially impact our results versus our expectations at the beginning of the quarter.

The (indiscernible) rents (ph) and depreciation increased by over 7 percent, reflecting the increased cost of tractors, resulting primarily from increased costs of the new EPA-compliant engines and the expansion of our trailer fleet by approximately 1800 trailers. The increase in the trailer fleet was necessary to support the expansion of our regional truckload business and the expedited rail program. During the quarter, we achieved a reduction in maintenance expense of approximately 60 basis points as a percent of revenue, as the average age of our tractor fleet declined from approximately 29 months in the prior year to 23 months in 2004. In summary, despite significantly higher costs, including almost record high fuel prices, we were able to improve operating income in our truckload operations by over 10 percent due to a record 6 percent increase in rate per mile and improved business mix.

Xpress Global once again experienced strong growth, with revenues increasing 18.2 percent in the quarter to $34.4 million. The floor covering transportation revenues increased 24 percent to $24.4 million, while the revenues of our airport-to-airport operation increased 9 percent to $12 million. Operating income in the first quarter, which is seasonally the weakest quarter for this operation, increased almost twofold to $230,000, compared to $126,000 in 2003. The improvement in operating income was driven by the growth in the floor covering transportation business, as airport to airport failed to deliver improved operating results due to lower than anticipated freight volumes.

Looking forward, we are currently experiencing strong demand in each of our business segments. In the truckload sector, we believe that given the current supply and demand situation, there exists an opportunity to increase yields through better freight selection and to realize further rate increases. Further, we expect that for the remainder of the year, capacity in the industry will be restrained due to driver availability and other economic factors.

We have a number of new dedicated contract awards which initiate service over the next three months. Further, we expect the expedited rail program to experience further growth as this allows us to provide additional long-haul capacity to our customers during the seasonally strong shipping season. At Xpress Global, we have the opportunity to significantly improve profitability by achieving our volume objectives for our airport-to-airport operation.

We remain committed to previously disclosed financial expectations for 2004 of consolidated revenue of over $1 billion and earnings per share in the range of 90 cents to $1. For the upcoming second quarter, we expect revenues to range from $240 million to $245 million, and earnings per share to range from 25 cents to 30 cents per diluted share. These expectations assume that fuel prices do not continue to accelerate or the occurrence of a significant softening in the economic or freight environment. With that, we would be glad to respond to any questions.

Thank you. (OPERATOR INSTRUCTIONS) Ed Wolfe of Bear Stearns.

Could you give a little bit more clarity on what is going on with hours of service? In other words, when we look at it, how is impacting utilization? How much of the driver pay is related to that? And at this point, can you tell or is it still too early whether you are getting back in rate?

As we said in the press release, the first quarter is seasonally a slow period relative to the rest of the year, and so obviously you're not at your peak utilization. Obviously, it does impact some customer freight. The increase in accessorial charges -- we increased our accessorial charges for the quarter, and we also increased our accessorial pay. From the analysis we have done at this point in the quarter, we think it had minimal impact. In other words, between the change in the way the customers -- we had a lot of change in customers -- the way they load and unload -- that has improved.

We had an increase in accessorial pay, both in the detention area and in the stop charges and in the load and unload charges. And we had an increase in driver pay related there too. But when we look at it altogether, it looks to us like they had minimal impact in the quarter. In other words, we were able to cover it with accessorial charges.

When I look and I see miles per tractor, for instance, down year-over-year despite an extra operating day in the quarter, I'm guessing some of that had to do with hours of service, no? Or is it -- ?

I think the biggest part of that is the shift that is going on in our business. If you looked at how much more dedicated business we had that has lower miles per tractor, and how much more regional business that we have that had lower miles per tractor, and our overall length of haul coming down, that is where I see the biggest impact. Now, there is little doubt that there was some impact of the new rules, but I do not think that was a significant part.

The big place that we saw the impact was a slight increase in deadhead, and we saw some drivers that just couldn't meet the customer requirements. So it limited some freight that we could take from time to time. But until utilization gets to a very high limit, it is going to be pretty tough to sit here and say hours of service had a major impact on us. We would anticipate second and third and fourth quarter that to be more the case than in the first quarter, where utilization is at lower figures.

And I think, like Ray said, that the census (ph) we got from our customers in eliminating delays and abuses has been substantial -- and more spotted triggers (ph), more dropped (ph) (indiscernible) to facilitate loading and unloading. There has been a very good respond from the shipping community and it has been very helpful in mitigating a lot of those costs.

And in terms of the tractor fleet, it's down year-over-year. Where do you see that heading, both owner-operators and owned fleet as we go out? How should we remodel this for the next couple of quarters?

I think from where we are today, that I would not expect more than another 250 tractors throughout the rest of the year, until we see the returns that we need to see.

And that is a combination of owners or are there any owner-operators (multiple speakers)?

We would like it to be a combination, but the owner-operator market is very, very difficult. So I suspect it is going to be slanted towards company-owned trucks.

We talk to a lot of finance companies, and I think they aren't seeing owner-operators coming into the industry. They're not seeing these guys buy trucks. And they are actually seeing drivers, owner-operators turning trucks in, maybe not at the pace they did, say, two or three years ago. But with cost increases that they are having, some of these guys are just basically saying, I would rather be a driver than be an owner-operator. And the finance companies are basically telling us that that is a tough market anyway to get a guy financed.

But, Ed, we have no major plans. The fact that we had trucks would be dependent on the fact that we got a bunch of dedicated contracts that are coming up that we are going to have to put trucks on. And whether we take them out of our existing business or we have the trucks, we will see how business is.

Can we talk a little bit about the impact of fuel? It seemed like fuel hurt you in the quarter, which I was a little surprised by because you said it was down year-over-year, in comparison, or pretty flat year-over-year in the comparison. And if it hurt you this quarter, is it going to hurt you worse next quarter?

Well, two things. We said relative to last year, fuel only hurt us slightly. In fact, I would estimate the (indiscernible) penny a share (ph) is a tough competition. And that is because fuel increased throughout the quarter. And in fact, on average, it's only a couple pennies below where it was last year. So it is at record levels, and where you really get hurt is as fuel increases, your fuel surcharges, as you know, are behind.

So if fuel increases throughout the quarter, we're taking a bigger hit. If fuel stops accelerating and stays at this level, or better yet, were to decline a little bit, then it is not going to negatively impact this quarter versus what we saw in the first quarter. However, if fuel continues to go up from where it is at the end of the March quarter, then you're right. There will be a margin effect.

But assuming fuel stays where it is right now, if I recall right, second quarter everybody benefited a little bit last year.

That's correct.

-- from the dip. I am guessing the comp year-over-year on second quarter is going to work against you, even if fuel stays where it is. Or do you feel like you can cover it enough from here?

I would agree -- from a fuel standpoint, unless we get a good drop, it's going to be a negative comparison on fuel costs. And in fact, in our budgeting, we in essence have forecasted higher fuel.

Ed, there's also something that's probably getting ready to take place. A lot of carriers, because of the difference in the West Coast fuel costs, how much it has gone up compared to the rest of the nation, you're starting to see a lot of carriers do what they are calling the West Coast fuel surcharge. And that could be one way to mitigate part of this, maybe even the second- and third-quarter effect on higher fuel prices.

And the West Coast surcharge is an extra surcharge in addition to the regular surcharge on the West Coast?

Those customers -- depending on how you do it, and different carriers have different methodologies that they are working on, but it may replace on those freights that originate and/or are destined to, say, places in California, would probably have that surcharge applied to their freight in lieu of the national surcharge.

Yes. Just switching gears, one last question. On the airport-to-airport, it sounded like the growth is not exceptional at this point. You would think off of this base at this point with the economy feeling better, the growth might be better. Is there something you're doing intentionally, or has the market slowed down? Or is it getting difficult? What's going on with the growth of the airport-to-airport business?

You have to look at the fact that this was the first quarter, and it's always a fairly soft quarter for airport-to-airport. The other thing is that to make sure that rates stay in the level that they should instead of going out and discounting in what historically is a slower quarter, we chose to keep the rates at the level that they should be, so we have ability to build on them as we go out through this coming year. Sometimes, if you take rates down in a slower quarter, it is harder to get them back in quarter two and quarter three, so we decided we would rather have a slower first quarter and keep the (technical difficulty) rates at the level they are, than to bring them down and then have to fight to get them back up.

Directionally, prices went up pretty sharp last year in the industry and for you. You were one of the leaders in that. Do you expect that to happen again this year or are they going to be flatter this year?

Talking airport-to-airport?

Yes.

I think prices have to go up, and I think pricing for freight in general has to go up. And if you listen to a panel that was at the NASTRAC conference, I guess it was this last week down in Naples, comments were made from the panel that if a shipper hasn't budgeted anywhere between a 7 to 10 percent in freight cost for the next three to four years, they are going to be short in their budget each year. And I guess the question was made of Jerry Datter (ph), can you give us assurance it we won't be more than that. And his answer was, absolutely not.

And I think that shows that costs are going up, and we the industry really have no choice but to keep pushing rates up to cover that cost. And I think if you look at our first quarter here, we had some costs that we definitely have covered, and I think that's probably part of the good story here, is we were able to push rates up enough to cover the cost. Now, what happens over the next two or three years -- who knows?

That's fair. Thank you very much for the time.

Dan Moore with Stephens Investment Bank.

Good morning. A little bit below our expectations, but I thought some pretty respectable improvement year-over-year, and certainly very encouraging second quarter guidance, so hats off to you there.

Looking at a couple of different issues, though, in following up on a couple of Ed's questions. I just want to clarify, Ray. You had indicated that guidance for the second quarter was 25 cents to 30 cents, which is significantly above the street's consensus right now. With respect to the fuel price issues that you discussed a little earlier, can you give us a sense for how much you factored into that guidance, how much fuel price inflation you factored in the guidance? Talk to us a little about that.

Okay. I factored in that prices would not substantially -- would not go up from the levels they were at at the end of the quarter and into April -- would not continue to go up. If prices, for example, DOE goes from $1.64 or whatever it was to $1.75 and 80 and goes steadily throughout the quarter, that is probably going to impact, at least at the fuel line, what the costs are from what I would anticipate reporting. But if prices generally stay in this range throughout the quarter, then with our fuel surcharge mechanism, I believe the EPS numbers that we put out of 25 to 30 are reasonable numbers.

Keep in mind, historically, fuel prices are coming down, usually in the second quarter, and they haven't started to let up at this point.

Sure. Maybe focusing a little more on rates here, wondering if maybe you could give us an idea of what rates were, excluding accessorial-related benefits during the quarter?

Accessorial benefits -- the increase in accessorial benefits was less than a half (indiscernible).

That's helpful. Could you talk to us about your rail business that you're ramping up on here? It's sounds like you have been working at now for about 12 months. So moving forward, it looks like you're annualizing probably somewhere between 60 and $80 million. What is the profitability associated with that? Maybe an unfair question this early in the game. If it is, what should we anticipate over the next 12 months, and then maybe 18 to 24 months?

I think it's probably tough to talk about profitability at this point, especially since we are still building the operation. We are trying to put together a nationwide network. You can count (ph) back off and look at imports coming into this country. Forty percent of the imports that hit the United States come through Los Angeles. So what we've tried to do is put together a program to really focus at that market and be able to provide incremental capacity to our customers.

And part of what started this, when we started looking at the facts of hours of service, especially in that long-haul market and the solo driver going (ph) nationwide, how do we meet the customers' requirements and then how do we continue to give the customer the kind of service that they had pre hours of service change? And that's what brought us to the rail thing, and we told you last year we were experimenting with it. It became a product in the third and fourth quarter of this last year, and today we get pretty good traction.

You'll probably see us continue to grow that, especially as a substitute for that solo long-haul driver going primarily coast-to-coast. But I think that to apply numbers to it at this point would probably be a little bit misleading.

What is your expectation for revenues as we look out a year or two down the road (indiscernible)?

It will probably grow anywhere to 15 to 20 percent of our total business. That's something we argue about internally here. Different people have different opinions. But we think that with the congestion that the railroads are having, that we only go so far with it. You've already seen UP come out and say that they have got to back off on volumes from some of their larger customers because of congestion they're having. Some other railroads are obviously having issues too. But U.S. Xpress, we think there is a unique opportunity for us, and we decided to go for it. And so far, it has turned out to be a pretty decent business.

Who are some of your major rail partners then -- or future major rail partner at this stage?

BNSF is obviously the largest that we deal with. The NS is another one. We deal with CSX. UP on a very limited basis. And I think Canadian National and Kansas City Southern, if I remember right. And FEC in Florida.

Maybe to refocus on airport-to-airport, how we need to be thinking about that business again as we move through the year, and how much growth should we be anticipating looking out over the next couple of quarters, Ray? You talked a little bit about profitability. What about growth?

We did 9 percent growth in the first quarter, and that will not meet our objectives. So it needs to be more in that 15 percent plus category to reach our objectives.

What is it going to take to get that? Is there any specific piece there or is it more just a function of overall demand?

I think it is the maturing of the business. There's a lot of factors that will lead to that, and we have got people in place, we have programs in place, and there's a lot of things going on to improve and to expand the volume in that business. So there's no one bullet that will do it.

One thing that we did, Ed, was we opened up a facility, a cross-dock facility in Columbus, Ohio that is going to give us the ability to service our customers substantially better than we have. Probably improvement in quality of service is going to be the biggest thing that will probably help that operation. And truthfully, the big issue we have today is we have trailers running from one location to the other with probably half as much freight as it should be. So it is a volume issue, but Columbus solves part of that issue.

Fair enough. Ray, what about CAPEX? What are you looking at for the year at this point -- on either a net or --?

On a net basis, about $40 billion. About 40 is where it will end up I think.

And length of haul for the quarter?

Right around 740 or so.

How did that compare to the year-ago period?

Down about 50 miles I believe.

Last but not least, if you have it handy, could you give me what the average owner-operator count was -- not at quarter-end, but the average owner-operator count?

852.

Great, thanks. I appreciate it.

Donald Broughton of AG Edwards.

Can you give us what the total detention charges were that you collected for the quarter?

Yes.

And while you're looking for that, how about the percentage of the fleet that's now with the new engines, the EPA engines? Because I thought your comments last quarter, Max, were very interesting, and I would love to know how much the fleet is those engines and what if any problems you are having with them on an ongoing basis.

Detention was about cash collections, which is the way we are reporting it, is about $600,000 for the quarter on detention. And I will turn it to Max, but as far as number of trucks that we operated in the first quarter that were EPA engines, it's approximately 1500.

Was that 600,000 in incremental detention or what was (multiple speakers) last year?

No, that's 150 or so incremental.

Great.

Okay, if you look at the engine side of the fence, we're still having fuel economy issues. Fuel economy issues are showing between 8 to 12 percent degradation in fuel economy over the previous same-brand engine before the EPA EGR technology was applied. We're also -- with certain manufacturers, we are having a lot of different types of small failures -- nothing really catastrophic, but just a lot of things that takes a truck out of service for five and ten hours here and there. That's one reason we've been slow to add these engines up here over the last several months. And we are asking the engine guys to fix the problems before we continue to reaccelerate new trucks into the fleet. Drivability for drivers, drivers like them. They are pretty responsive. But they are a lot more costly for us to operate.

And to buy.

I'm looking at your guidance, and I really would love to see the Phoenix rise from the ashes here. But you're talking about 25 to 30 cents on 240 to $245 million revenue, which tells me that you're looking to see at least 75 basis points of operating margin improvement over last year, and obviously fuel, at least so far, is a headwind not a tailwind. So where is that operating margin improvement going to come from? Am I hearing that it's pricing driven entirely or where else?

It's pricing and utilization. If you look at equipment utilization, that's got to go up here in the second quarter and it historically does. So we are not trying to put anything that is a stretch out there. But if you kind of follow it from quarter-to-quarter what happens to equipment utilization, second quarter is always above first quarter.

I understand, but I'm saying versus second quarter of last year.

Donald, here's a few things that are going to drive that. Number one, obviously pricing is driving that, because we are entering the second quarter at rates that are above the average for the first quarter and are substantially over the rates of the second quarter of last year. In addition to that, we have changed, really, our mix of business to a large extent. We have a substantially larger dedicated operation than we had last year, and there are additional dedicated contracts that started during the first quarter and that will start during the second quarter. These are just some of the factors that will get you there.

So it's a combination of a lot of things. We have fixed costs that we have pretty good controls over, and that, as you achieve your increased revenue and increased rate, those fixed costs stay in line. So there are a number of factors that get you to that 25 to 30, and including improvements in our Xpress Global operation. It is not -- the operating rates (indiscernible) to achieve those kind of numbers is not -- it is in excess of 95, as you well know.

Well, you could -- whatever -- 96.2, 96.3, at least at the kind of revenue you're projecting and you're there. So nothing heroic, I am just trying to map out exactly how you do get there (multiple speakers) across the ocean, but I don't know that you can forge the river either.

In your airport-to-airport business, is that profitable? It's hard, I know, to distinguish because the carpet is mixed in there.

We do not report separate numbers on the airport-to-airport business, but in the first quarter I would say it was a negative contributor.

And you expect it to be positive in the second?

We are working very hard to make it positive in the second quarter. Do I think it will get there? It depends on volumes. We know what our costs are; we know where we are. It depends on whether we reach our volume objectives.

So you need a run rate that is significantly over the $15 (ph) million level essentially?

Yes, that's correct.

Thanks, gentlemen. I will let someone else have the floor.

Nick Farwell of Arbor Group.

Just a follow-up on the airport-to-airport, Ray. Was the loss in that particular operation less than last year or was it roughly equivalent or more?

Again, I'm going to say that because of all the sharing that goes on, we don't report separate profitability of those two items. But I think it was slightly below last year. In other words, contribution this year was slightly below, primarily because the revenue objectives were not met this quarter and we put in the Columbus stop (ph) and the other things without reaching the revenue objectives that negatively leveraged the bottom line.

Right. So, the comment I think you made earlier, I may have misinterpreted, was that critical mass pet 15 million, you did 12 in the quarter, which is seasonally a slow quarter anyway.

Yes, it's very slow.

Yes. But if you presumably leverage the Columbus, Ohio terminal, as was commented on earlier, it would seem to me that doing something like $15 million -- and I thought I heard that number -- you should be at least breakeven.

You are right. We should.

If not, you should make money. I mean, you're talking about adding incremental $3 million.

The key -- and we've got a number of programs going and it's in the early stages of the year for some of these programs, so -- and we said this before -- we have the network in place. We have the fixed costs associated with that network. We are continuing to try to put the synergies together between our profit side of the business and the airport business. But to get to where we need to get to, where it's a positive contributor, it needs additional volume.

And given the current environment, notwithstanding the fact you didn't want to take on incremental business at a discount, I guess you would plan or anticipate that you would see that incremental volume looking out over time?

Yes.

I guess I was a little confused that you were not somewhat more upbeat, although I understand this has been a struggle to get it where it is at this particular point in time.

I think that we've made it clear in the past that we are behind schedule as to where we thought we would be with the airport-to-airport. But the flip side of that is we have a number of things in process that we think will get us to where we need to get to. It's just picking the day that we get there is pretty difficult.

Right. Do you see any diminution in the carpet business at this particular point in time? And I'm not talking about aggregate dollars, since you've had some price increases. I'm talking about tons or whatever way --?

The carpet business is very, very strong and we are very pleased with it.

It's probably the strongest we have seen it during the first quarter ever.

And is that, Max, is that any indication for the balance of the year or it just happens to be because interest rates were low and there's lots of housing and the timing of the environment was conducive to strong carpet shipments?

Probably yes to all those. I'm not sure.

(multiple speakers) new housing starts were 2 million, they just announced, which is about as close to a record if it isn't a record that's (multiple speakers) sustained at very high levels.

I think part of what has happened is the consolidation of the carpeting and floor covering industry, and especially the fact we have some significant large customers in that space, basically is what's driving it for Xpress Global. So I think that's probably the positive side. But I think the volumes are up. When you see Warren Buffet buy a company like Shaw, obviously he thinks something is going on in that area, so --

And you have the leading retailers being Home Depot and Lowe's now, rather than (multiple speakers) stores at Sears that is no longer servicing carpet and the consolidation that Max talked about. It is benefiting our carpet distribution operations substantially.

Have you now signed all regions for Home Depot?

I don't think we have 100 percent.

We have, I think, everything but the Northwest. A substantial portion of it.

And where do you stand with Lowe's now?

We have long way to go there. We are moving up with them every month.

Okay. Do you have any guesstimate what expedited was in the first quarter last year to compare to the 15.5? Was it a couple million dollars?

It was negatively (multiple speakers) the first quarter of last year. You're talking about the rail?

Yes, I am.

(multiple speakers)

The reason I ask that is if you just work the numbers, you look at last year's long haul then was roughly $156 million of the $190 million, and down to, say, 129, 130 in this first quarter, which is clearly reflective of what you were mentioning earlier, as you shift the business to the dedicated and regional.

That's correct.

That is a very substantial shift in your business mix.

That's correct.

With significant implications of stability of -- the shift in the stability of that mix; the offset perhaps being you lose some of the leverage if rates come back to a greater extent on the long haul.

I think you have to look at sustainability of business. If you look at regional, for instance, it does not slow down in January. The long-haul market usually almost dies in January. Then you have the Chinese New Year that almost devastates the West Coast markets for about three weeks, and you've got that that disrupts during the first quarter or so. So it's not an every-month business, and of course that's what we built U.S. Xpress on. So what we are trying to do is move the assets to something that is more of a twelve-month sustainable business.

I think of that model -- that may not be fair, Max -- but I think of that model being closer to the Warner and Heartland model.

Heartland is real big in regional and dedicated. So is Warner, and yes, you are right.

Which have rates of return, obviously, for those who have had a chance to look their income statements, rates of return which are very attractive.

Yes, also, if you look at this latest downturn in the economy, those companies performed well almost up to the eleventh hour before the market turned. So I really think that that market is one that we would like to get into. Full truckload long-haul actually ended up being one that took a big hit. That went into a downturn earlier than the regional and dedicated markets, and I think since that is true, that we're trying to look at how to handle the long-haul market, which will be intermodal and teams. And if you look at how we handle the regional market, where we've got more assets deployed, then that will get deeper into a downturn type cycle, so revenue streams are a lot more sustainable.

Is there not an offset or should there not be an offset in this cycle, Max, where the long-haul team driver segment of the business should get very substantial rates of return, because if nothing else, there are going to be less of them available.

I think there is some truth to that, but if you sit here and say could I put a lot of teams out there and make a lot of money over the next five years, I would say chances are that the down cycle will have a pretty negative impact. Part of what happened to the guys that had a lot of teams in that long-haul market, we all had too many teams focused at the market and it drove the rates down. Most of us backed off on the number of teams that we've got and rates have started to come back up. Okay? Rates may continue to come up during this up cycle, but what happens in the next down cycle? And what we're trying to do is engineer a company that can weather almost any type of economic environment.

Thank you. May I move on to just another quick one (ph)? I noticed revenues per mile declined sequentially, and I am assuming most of that must be calendar. Were there any other factors?

I'm sorry, Nick. I'm not sure I follow you. What revenue per mile?

I may have this incorrect, but at the end of the year, I though revenue per mile for the fourth quarter was 28.5, 28.553. For the first quarter it was 26.565. Part of it, I presume, is mix. The other part, I assume, (multiple speakers) calendar.

I think what you're looking at you -- you looking at loaded miles?

I thought so. Hold on. I may have pulled the wrong statistics.

I think you have the wrong numbers.

I probably did. What I was trying to do is get some feel for the shift in mix and trying to take out the calendar to say that, in reality, the first quarter, despite seasonal factors, looked like it was a pretty darn good quarter. I mean, understanding January and certainly a good part of February are seasonally tough months.

The first quarter rates are up over fourth quarter and are up -- which is unusual. Most first quarters, you're fighting to keep the rates you got in the fourth quarter. This year, we've had incremental increase from the fourth quarter to first quarter, and we have had obviously a significant increase year-over-year, up 6 percent. So that helped us to achieve what is seasonally a bad quarter for a long-haul carrier, helps us to achieve the improvement we achieved this quarter, despite the increase of the fuel cost and the other costs we talked about -- the driver pay that we went to market with to stabilize our driver situation. So we covered a lot of cost in the first quarter.

Another way to look at that is look at empty miles -- and I may have those statistics wrong. But you had slight increase in empty miles -- sequentially. Not year-to-year, but I'm talking about (multiple speakers).

That's correct. First quarter, you're chasing freight to a certain extent.

Right.

And the long-haul market in the third (ph) quarter.

And you are a little bit higher than last year. Is there anything statistically in that of any importance -- it was so modest, it was almost (indiscernible.

That's probably more hours of service effect there, yes.

Okay, thank you very much.

(OPERATOR INSTRUCTIONS) Mike Peasley of BB&T Capital Markets.

I think all the good questions have been asked, but let me try to piggyback on a couple here. Ray, I think you mentioned the change in unseated trucks. Did you give the number for that, what the unseated trucks stood at the end of the quarter?

I said we had about 100 unseated.

Okay, and then --

Which really is pretty much season. When you're at 100, you're not going to do much better when you got as many trucks as we have.

You're right. That's fair. And then thinking about that, you raised your driver pay 8 percent. You're paying the owner-operators more. Looking after '04 and where we stand here, if demand were to pick up or whatever the factors may be, do you anticipate having to perhaps raise driver pay again or are you done for the year?

We think there could very well be another round later in the year, and in fact, we have planned for it in our internal planning.

Would it be the same magnitude at 8 percent?

No, I don't think so, no.

Probably be half that or less.

Okay. And then, I hear what you're saying on HOS, as you see it now or at least through Q1, a seasonally slow quarter, it had a minimal effect. But if you break it down by month and look at perhaps March, which is generally the seasonally strongest month in the quarter, is there any way to characterize how it might have impacted March versus maybe January and February?

I know everybody wants all the truckload carriers to figure this out, but this is a very complicated thing that's involves how the driver -- they have changed their behavior; the customer is changing their behavior. And to be honest, we have not been able to see a significant negative impact through March. Now, even March as a good month, usually utilization gets even tighter and picks up as we go through the year, and I think we will all have a little more experience with it.

And we did some stuff here with the intermodal program that kind of negated where we thought some of the major negatives would hit. Plus we had a lot of customers that were somewhat abusive (ph) of detention times and stuff, that once it became chargeable, they cleaned up their act. So it's almost a good story in some respects, because those customers that were issues, now are not the issues they used to be over the last few years.

So I'm getting the sense that customer behavior has changed a lot more than maybe you have had to charge them.

Yes, definitely.

Well, given that, I think you laid out the detention charges were $600,000. Let's back up for a second -- let's maybe talk about multistops. How has your multistop business changed, maybe this year versus where it was last year? Is there less of it?

There's a lot less of it, but we had moved away from that business prior to Hours of Service for the most part. We don't have a lot of stop-in-transit business, or if it does, it has a single stop and a final. So the impact there was pretty negligible for us.

So it's maybe less than 1 percent of your business?

It's less than 5 percent.

If you take out dedicated, it's way down -- one or two percent.

Yes -- very, very small. And in dedicated, it pretty much is taken care of.

In our overall business, you're probably right -- one or two percent.

Yes. Very, very small (indiscernible).

So that's probably the same year-over-year -- you're just managing a little bit better.

I think it is lesser year-over-year, but I think some of that business has either gone to bigger shipments or perhaps it's gone to LTL. But it hasn't impacted us substantially all.

Let me just ask one more. If you look at your rates, is there any way to break out perhaps how much of your rate was due to accessorial charges this year versus last year?

Very, very small impact. Less than half a penny.

Okay. All right, well I appreciate the answers and your time. Thank you.

Michael Latronica of Excalibur Group.

Most of the questions I had have been answered. There is one, Ray, that I'm having a little bit of difficulty with, and that has to do with the purchased transportation line. It was up significantly in the quarter year-over-year, and I'm trying to reconcile that with the decline in owner-operator.

Let me help you there, Mike. It is we had a decline in owner-operator of -- these are round numbers -- you probably went down 17 percent on cost on owner-operators before the wage increase. That was another 3 percent add-on, so you're down 13. But then the rail purchase transportation all goes through that purchase transportation.

So a lot of the component of the increase there is due to --?

Yes, the expedite is intermodal and it also is the increased business down at Xpress Global that is being hauled increasingly more by third-party carriers.

I see, okay. I was having a hard time trying to get those numbers to work. Okay. That was it. Everything else has been answered. Thank you.

Nick Farwell of Arbor Group has a follow-up question.

Ray, can you just give us a brief cash flow in the first quarter?

Yes. From operations, it's about a breakeven because that's when we pay all of our license and registrations. We had about 11.5 to $12 million in capital expenditure.

That's where you paid out -- it wasn't leased? That was Company (multiple speakers)?

Yes, that's cash. And a corresponding $12 million increase in debt.

Okay.

Those are round numbers.

Right. Okay, thank you.

Mr. Harlin, there are further questions at this time. I will turn the call back over to you for any additional or closing comments.

Thank you, everyone, for attending and we appreciate it.

This concludes today's teleconference. Thank you all for your participation. You may now disconnect.