US Xpress Enterprises Inc (USX) 2005 Q2 法說會逐字稿

Good day, everyone, and welcome to the US Xpress Enterprises Inc. conference call for the second quarter financial results. Today's call is being recorded. At this time for opening remarks I'd like to turn the call over to Mr. Tripp Sullivan of Corporate Communications.

Good morning. Thank you for joining this US Xpress conference call. On the call today will be Max Fuller, Co-chairman; Ray Harlin, Chief Financial Officer; and Jeff Wardeberg, Chief Operating Officer. Before we begin I'd like to cover the Safe Harbor language.

Certain statements made in this conference call may be considered forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934 as amended, and Section 27A of the Securities Act of 1933 as amended.

You should consider carefully the risks and uncertainties described in our press release issued last night and various disclosures and filings with the Securities and Exchange Commission. The Company disclaims any obligation to update or revise any forward-looking statement to reflect the actual results or changes and in fact affecting the forward-looking information. I will now turn the call over to Ray Harlin.

Good morning. I would like to briefly summarize our financial results for the second quarter of 2005 and following these comments we will be glad to respond to any questions. As announced we reported net income of 1.9 million (ph) or $0.12 per diluted share before a onetime pretax charge of $2.8 million related to the sale and shutdown of our airport-to-airport business compared with net income of 4.2 million or $0.30 per diluted share in the prior year quarter. After the onetime charge net income for the quarter was 482,000 or $0.03 per diluted share.

In addition to the onetime charge, consolidated earnings were negatively impacted by a 2.8 million operating loss incurred by Xpress Global, largely as a result of losses in our airport-to-airport operations prior to the sale and shutdown on May 31, 2005.

As announced earlier in the quarter, we sold our airport-to-airport customer lists and agreed to exit the airport-to-airport business for 12.75 million. In connection therewith, we have closed a number of facilities and are in the process of liquidating assets which were utilized in the airport-to-airport business.

Following our exit from the airport business our management at Xpress Global is now focused on its primary business of providing transportation, warehousing, and distribution services to the floor covering industry.

Turning to our truckload operations for the quarter, our revenues -- excluding the effect of fuel surcharges -- declined slightly to 222.4 million versus 223.8 million in the prior quarter. The effect on revenues of a 9.7% decline in average tractors (ph) to 4,966 was largely offset by a 6.2% increase in rate per mile and growth in our expedited rail service revenues.

As has been the case in recent quarters, we experienced significant growth in revenues in our dedicated and expedited rail operations as we have continued to ship assets out of our long haul solo over the road operations.

A summary of our truckload line haul revenues for the quarter -- excluding fuel chill surcharges and other miscellaneous revenue -- along with year-over-year for the second quarter growth percentages is as follows. Dedicated, 50,180,000 58% growth; Xpedited Rail, 30 million, 45% growth; Xpedited Team, 45.4 million, 21% growth; and our regional and over the road business was 91.2 million, a 31% decline.

Truckload operating income for the quarter declined by 2 million year-over-year to 7.9 million. During the quarter, fuel prices increased over 30% compared to the 2004 second quarter which negatively operated income net of the effect of fuel surcharges by approximately 1.5 million or $0.05 per share.

Other factors impacting our overall margins in our truckload operations included our truckload rate per mile increase of 62.2% on quarter over quarter basis and approximately 2% compared to the first quarter of 2005. The higher yields we achieved enabled us to cover increases in driver pay and benefits of approximately 15% or $0.075 per mile and also increased revenue equipment and maintenance cost.

Our equity in earnings related to our 49% equity investment in total transportation and Arnold transportation contributed approximately 900 to $1000 to our truckload operating income. On a combined basis these affiliated companies generated 73.9 million of revenue while operating at an operating ratio of 93.4%.

Finally, freight demand was clearly lower relative to the strong demand experienced in 2004's second quarter which along with a reduction in the length of haul from 726 in 2004 to 650 miles in the current quarter led to a 1.3% reduction in utilization, when measured by revenue miles per tractor.

From a balance sheet perspective, our long-term debt including current maturities of debt and our securitization facility was 122.6 million at June 30, 2005. A reduction of approximately 27 million since December 31 of 2004. Our liquidity remained strong with over 93 million in available borrowings under our revolving credit and securitization facilities.

Our cash flows from operations for the first six months of 2005 are approximately $54 million while our net capital expenditures year-to-date through June 30 are approximately 22 million. As we stated in our release we experienced strengthening truckload demand late in the quarter which has continued into July. We continue to believe that capacity in the truckload industry remains constrained, due in part to a very tight driver supply market.

FOr the remainder of 2005 we anticipate an improving freight environment, coupled with success in our ongoing initiatives to moderately increase our seeded trucks, achieve selective rate increases, negotiate better fuel surcharge programs and improvement of freight index will enable us to improve truck load margins relative to the second quarter of 2005.

Finally with our exit from the airport-to-airport business, the performance of our Xpress Global operations should show significant improvement over its recent performance.

In conclusion, yesterday, our Board of Directors authorized the Company to repurchase up to 15 million of its Class A common stock. The stock may be repurchased on the open market or in privately negotiated transactions at any time until July 31, 2006, at which time or prior thereto the Board may elect to extend the repurchase program.

The Company is currently permitted to repurchase approximately 4.3 million of its class -- $4.3 (ph) million of its Class A common stock under its revolving credit facility and is seeking approval from the lending group on the facility of the remaining amount authorized by the Board of Directors. Our Board of Directors believes that the Company stock is an appropriate investment in light of prevailing market prices.

We will be glad to respond to your questions at this point in time.

+++ q-and-a.

(OPERATOR INSTRUCTIONS) Ed Wolfe with Bear, Stearns.

Actually Rob Farley sitting in for Ed.

Want to ask you a little bit about the fleet cuts. You mentioned you're liquidating some assets and it looks like your fleet is down close to 10%. Is that more related to the freight environment or are you still having problems with the drivers? Can you talk about that?

I think part of that is drivers are still somewhat problematic. Some of it is a little bit of a trade market. Part of it is the changes that we are doing in our operations where we are moving more of the long haul stuff into the expedited rail; and as you change from one mode to another you sometimes get up with some excess equipment. We have gone through that cycle and we're to the point where we need to start adding at this point.

Last year we were a little bit fat on equipment is the reason we let it taper off some; and at this point it's time to start adding. So, that's our goal for the next couple, three quarters.

Yes as we stated, Rob, at the end of the first quarter we would have liked to have had 150 to 200 more seated trucks and that continues to be the case.

You mentioned shifting a little bit from long haul to rail. Can you talk a little bit about how much of your yield improvement -- the 6.2% -- came from a mix change? And how much of it is shifting between modes?

That is a difficult number to come up with. It is almost incomputable but I would say the large majority of our increase relates to true increases or changes in customers or whatever, although a portion of it obviously relates to our lower length of haul.

Touching on drivers, again, real quick. How is the market right now? And what is driver pay doing or any plans on increases there at all?

At this point, driver market is still somewhat tough. We are able to keep fairly consistent on the number of trucks that we have seated; at this point we don't see any need to increase driver pay. We think that will have to change the way that we recruit drivers somewhat and the way that we have done it over the last 3 to 4 years. That's some of the things that we're putting in place that we think will show good results over the next quarter or so.

John Barnes with BB&T Capital Markets.

Real quick on going back to the fleet cuts. How much of that was related or was any of it related to your exit from the airport-to-airport business and even on the (inaudible) operator side?

The airport trucks, those trucks were not involved in airport-to-airport site. It didn't have anything to do that.

So what I'm seeing on this page in terms of the 7.2% reduction in total tractor in that period then, none of that was due to the airport-to-airport?

No. That's the truckload site. Now part of it -- we didn't mention this -- when we converted a lot of freight to rail that was also part of letting our truck fleet go down a little bit.

Any of the equipment that was involved in airport-to-airport are you bringing over into the traditional truckload business?

There were some other operators that have come over but in general the airport-to-airport business outsourced most of its freight so that there's not a large number of trucks coming back to US Xpress now.

In terms of Xpress Global, now with the elimination of that business, do you expect Xpress Global to be profitable now or best case remainder of this year kind of be somewhere in the breakeven neighborhood?

We are quickly rationalizing our overhead in that business. Historically, that has been a business that has been able to make money so obviously our attempts and our strategy is to make money. We do not expect it to have significant loss or so as we go forward.

You have been putting some money out to work in some of these minority stakes in other companies. Look, I'm not going to take away from the share repurchase plan. But just talk to us a little bit about why more of a share repurchase and not why -- why not more focused on maybe taking 100% stakes in these companies? Or do you think you have the cash flow to do all of that?

I think the answer is that we believe our capital resources are adequate to do all that. That the 2 companies that we have minority interest there have good cash flows and are paying down their debt. We obviously believe that we have opportunities to generate adequate cash flows in the future and we believe a moderate repurchase program of $15 million, given the market conditions, makes a lot of sense at this point in time and is a good investment for our shareholders.

Latly on the truckload side I want to try to understand the need for 150 to 200 more trucks in the fleet vs. still some deterioration and some of the -- whether it's (indiscernible) miles per tractor or things like that. And a little bit weaker environment. Is there something I'm missing on why you need more equipment at this point? Are you actually don't have enough equipment to handle all the loads that are being tendered to you or --?

I think that when you look at the makeup of our business with the various business units and you look at what your infrastructure costs are, what you may call a sweet spot for revenue generation, and we believe that that sweet spot requires more capacity, you have got 2 choices. You either get that capacity or you take a stab at significantly reducing fixed cost and that's not an easy thing to do.

Also we do have business that if we had additional trucks we can probably deploy those trucks probably almost overnight.

Where is that business going if it's not in your system? Do you know?

We don't know at this point. We have had meetings with a lot of customers and they are talking about business actually improving for the balance of the year. And if business improves and we're sitting here at this level of utilization, we can push utilization up some but we think that we've got to have some additional trucks to be able to handle much of a surge in the marketplace. Usually going into the Christmas season, you see a surge so we think if we had 150 trucks today we will be better prepared to handle us -- getting ready to hit us here in this next quarter.

If you ended up a little light on equipment are you -- do you believe you are in a little bit better spot from a pricing standpoint? I mean as long as the imbalance remains, seemed to me that you still have the pricing power in your favor. Or do you think there's a better balance of price and volume to be gained?

I think we still have pricing power. I also think there's a good balance, too, that we would like to try and maintain.

Chas (ph) Jones with Morgan, Keegan.

You talked about things going a little bit stronger here in July. Could you maybe compare that relative strength to where we were last year?

You have to look at last year. 2004 was probably the best year for freight that has ever been on record and even last July was pretty strong. And if you look at where we're at this year vs. last year July is almost tracking right on top of last year. Even though April, May, and June didn't totally track like last year did as far as total freight strength. But we are seeing that in July of this year.

Turning to Xpress Global, just curious maybe how much of the revenue in the quarter was attributed to the airport-to-airport piece?

About $10.7 million related to air cargo.

And serious, Ray, are any of the costs there were being allocated to the airport-to-airport fees going to be absorbed by Xpress Global moving forward or is that not going to be the case?

Obviously, we had combined facilities in many cases and we had combined support staffs that supported both core covering and air cargo so one of our challenges in the immediate and has already taken place is to rationalize that support group and where we have to sell it these that are oversized, relative to what is needed solely for the carpet business we will have to take care of that. So there is going to be somewhat of a hangover related to those types of sheer costs that we are actively taking action on.

Is that why you are being a little cautious here in terms of breakeven standpoint for Xpress Global here, maybe in the second half of year?

I think now that we are -- we've just gone through a thing where over the last 45 days we either downsized or shut down 14 facilities. We've eliminated a large number of jobs. We are redoing our plan and I think we want to get all that shaked out before we get real specific as to where we think Xpress Global will be.

Looking at the expense items, insurance and claims was down pretty significantly. Was that due to favorable claims and I'm just curious if that level is sustainable moving forward?

It's a couple of things. No. 1, what you've got to remember more of our freight is going on rail so more of our models are are rail generated which obviously helps from a claims standpoint. Our number of average miles are down this year, too, which helps from (indiscernible) standpoint. And our adverse development and our claims have not been as great as it was last year.

I think this is a more sustainable type number than what we saw throughout last year.

In looking at Arnold and total transportation, you gave some revenue and some OR numbers. I was just curious if you might be able to share how those stacked up against this time last year?

I can give you some broad numbers. Arnold is about on track in the quarter where it was from a margin standpoint with last year's margins as I recall. Or pretty close. And on the total transportation, I think it's as good if not better than last year. They had 2 1/2 good months with us.

Are any one of those pieces of business adding equipment or have plans to add equipment?

Since we have been involved with Arnold they have added equipment and the same is true for Total. They have added new equipment. They've had the ability to add and add drivers.

Last question. In the past, you guys have given earnings guidance and I was just curious if you had any comments on things looking out to the second half of the year?

I think, Chas, we will leave it where we've said that we expect with the freight environment and with the things that we have going on and being able to expand our seated trucks that we expect our operating margins in the truckload business to be better than they were in the second quarter of this year.

John Martine with Legg Mason.

There was talk on the street about some customers that got a little irritated with what was characterized as aggressive pricing in the second half of '04. Perhaps early on in '05, they had some options that they didn't have in the second half of '04. And they took advantage of those which created maybe a little more softness in your system then you might have seen in some other truckload carrier systems. Any thoughts on that and have you more or less going back to those same customers and gotten back into their good graces?

What I would tell you is that we have recognized some customers that found other options within our network and have worked with them to repair any perceived damage that has been done over the past 6 months or so.

So Jeff, some of the strength that you are seeing in June and July related to the repairing of those relationships you think more so than the freight market firming up or is it a combination of both?

I think it's a combination of both.

The other thing I wanted to ask you about, yesterday I think it was on the Norfolk Southern call, their head of marketing, Ike Perleman (ph) indicated that their intermodal business has really been growing on the international side and that it was his perception that there is less of what we used to call stripping and stuffing out of the West Coast that more of the (indiscernible) international boxes and makes its way to, let's say, the Wal-Mart distribution center in Columbus. I was wondering if that might have been what created some of the softness you saw in the first half?

I think it played a small role in it but it wasn't a preponderance of it.

I think it goes back more beyond the first quarter probably for the last couple of years and that's the reason that we saw those long haul rates get relatively cheap.

I guess the other question relates to on the rail side which seems to be growing very nicely for you. It looks like the railroads are pushing people to move more towards a domestic container as an operation of, clearly, Schneider is investing in domestic containers. Is that something that you can see here are on the near-term horizon, Max?

We basically have tried to shy away from it. If you look at the business we are providing on rail, we are doing what most people would call an expedited rail where we're basically using our trailer assets and if we moved it on a container, we would be on different trains than what we're on which would probably move at a slower pace. We also think that if we got into the container business, basically, just feeding other carriers head-on and it becomes a rate game, where the business that we are in we can be pretty selective what freight that we take. And we take the freight that we can get the expedited rates. So I think that, unless we are forced to move to the container side of the business, that we were kind of stable where we're at.

With the reduction in fleet size and I guess, maybe the addition of some what I call city caps to support the intermodal and maybe some of the Dedicated and with the '07 engine emissions standard sitting out there in the future, what is your strategy going to be with respective replacement service between now and, say, the end of '06, Max? Do you want to drive your fleet age down? Have you been able to do some of that? With the downsizing of the fleet already?

The downsizing of fleet basically was more of an economic thing, based on the conversion of freight primarily over to rail. And what we anticipate a little bit softer conditions. But most of our trucks and in fact, all of our trucks will be traded that aren't the old (indiscernible) engines basically will be traded before the new '07 engines, out. So we will be basically sitting there with a relatively new fleet. That's the reason CapEx is going to be a little bit heavy in the last half of this year and into next year to make sure that we got the complete fleet totally swapped out before the new engines come in.

Donald Broughton with A. G. Edwards.

Couple of questions for you. What is the average age of your tractor fleet today?

27 months?

And your goal for the end of the year?

Would be in the low 20s.

You purchased Transportation Line. What percentage or how many of those dollars on a nominal basis went to the railroads?

I don't have that number right in front of me.

50%, 20%, 80%? Bigger than a breadbox, smaller than a Railcar.

If you will hold on a second I will get it.

And then of course a follow-up to that would be to break it out and try to model going forward, obviously, you had a couple of months of air to air for Xpress Global traffic in there, I'm guessing.

Around 35% on a year-to-date basis has gone to the rail.

Very helpful, Ray. Appreciate that. Let me make sure I understand something in a previous question, you were talking about insurance and talking about how they've gone down. And that you had had favorable settlement and but I -- why (indiscernible) basis it looks flat?

It's down a little bit if you looked at (MULTIPLE SPEAKERS)

Less than 1/10 of a penny a mile -- on a per mile basis, it's down less than 1/10 of a penny per mile.

I'm not sure how you are computing it --

I'm taking the insurance line and dividing it by the miles you run. My question is, if you've had favorable development and it was only down 1/10 of a penny a mile should I actually be worried about it going back up?

I show it's down more than 1/10 of a penny so I'll have to -- maybe we can do this whole thing -- I show it down almost a penny a mile.

Donald Broughton) Fine, we can do it off-line.

That relates to a couple, primarily, we had the measure of development in last year's numbers was we have been on a high deductible now for 3 years and -- for over 3 years and these things tend to settle out after you've been on a high deductible.

Share repurchase. Max, Pat? Either one of you want your repurchase shares?

If the board will let me I probably will.

I suspect the market would react favorably to that.

I think at this value is one heck of a buy and my personal portfolio I like to buy a good bargain so -- .

We will look for the headline. I'll let someone else ask a question.

Dan Moore with Scopist Asset Management.

I just wanted to thumb through this real quick. If we adjust for the approximately $0.09, I guess, in charge related to the disposition of XGS and then $0.09 loss on an adjusted basis, you would have earned something closer to $0.21.

That's correct.

Just a little bit more fuel would have been $0.26.

I know you haven't given guidance I guess with respect to the back half of the year but I can't help but notice that a competitor of yours down the road is trading about $13.50 and they just earned less than $0.10 -- I don't $0.03, $0.04 $0.05 whatever it was for the quarter without that adjustment. Any plans to get out on the road and tell the story?

I think we probably will make sure that we go out and see our shareholders and see other potential shareholders over the next 6 months so we have historically done that and we will continue to do that.

When are you going to be in a position to update guidance?

We're basically trying to get global to the point that we are more comfortable with where we are at in it.

Is it called Global now?

It's still Xpress Global.

When do you think you will be in a position to update guidance? It seems really obvious to me that there's a story that needs to be told here.

I think we've said that we expect our margins to improve; we haven't talked about the degree of that improvement because we are coming out of a -- we spent an unusual 6 months. And we feel that the guidance we've given at this point is appropriate under the circumstances.

How much exposure do you anticipate you will have to the stock market in the back half of the year as we get in the seasonally stronger period of the year?

We think exposure to the stock market is probably going to be less as the go into the last half of the year because of the demand that we're having for existing customers.

Can you give me an idea?

It'd just be a guess.

I will follow-up off-line.

Tom Albrecht with Stephens.

Several things. I guess I'll keep coming at the questions from maybe different angles. Carpet did about 27 million and you can't really tell whether that was profitable or not, Ray --

Tom, I guess we have never -- we have never tried to report specifically earnings in Air Cargo and floor covering as we've always explained we tried to integrate those two completely together. Everything from facilities to hauling the freight, putting freight on (indiscernible) and you can get significantly different answers through allocations of overhead and things like that. So that -- we're not trying to avoid the question as much as we're trying to keep from misleading you.

I appreciate what you're trying to do there but with with the closure of 1, everyone's trying to look at what we have left and whether we should forecast any operating profit or modest loss there. I know you commented on -- .

I'm not for my own perspective, obviously, we have internal goals but I am not -- it is going to the less than 10% of our consolidated revenues going forward. And I am not right now, for the second half of the year, forecasting any significant contribution from that side of our business. From my own thought process.

I guess I'll go back and looked at historical margins before you got into the airport business.

If you look at historical, Carpet ran at 4 to 6%. 4 to 6% range. You have to keep in mind that we still have some of the overhang at the airport expenses in the numbers; and until we consolidate some of these facilities and stuff we are still going to have some ongoing expenses.

Did you provide a ballpark wind-down expense level in Q3 for airport stuff?

You mean in Q2?

In the beginning, you said there was still going to be kind of a wind down. And is there going to be a huge re-impact or was that all in that 5.7 million?

What's in the 2.8 (ph) million are the --

Charge part (inaudible).

Direct costs that we can measure as far as facilities that we are exiting facilities where we have severance pay for employees where we have impairment and specific assets. That being said, we can't from the accounting standpoint reserve for future overhead and things like that; and so those types of qualities where we had share facilities where not a significant portion was airport-to-airport. Those type of costs will take 3 months or so to get fully out of the system but we will eat some of those costs in our operating numbers during the third quarter.

That's really what I am trying to get at so and I know, historically, well -- just in the last year or so you provided some annual guidance but have not been a big commenter on quarterly numbers. But the third quarter consensus right now is $0.29. That is all over the ballpark as Dan alluded to, if you add back the negatives you could come up with anywhere from $0.21, $0.22 to upper 20s depending upon what you want to assume with your tax rate in that. Do you have a comment on the estimates versus what might be realistic on a go forward basis?

I think, Tom, at this point in time.

I know these are tough questions.

At this point in time we expect margins in the truckload side to improve and I guess I would like to stick to that and the numbers we have it is pretty easy to compute what a 1% improvement in margins can do to EPS on the truckload side so I think, at this point in time until we have more visibility, I think that is where -- what we stated is what we would like it to be.

Max, the press release was worded around the year-over-year decline in the fleet, but as you alluded to, you actually added some tractors recently. I calculate 136 Company trucks since March 31 and your body language is more. Roughly how many more trucks might you add over the next 2 to 3 quarters.

I think you're reading something into that. Most of what you are saying there is the trucks that we took back from Global -- I think was more of our operator trucks than Company trucks.

Owner operator sequentially declined about 9 units; that's not a big deal either way but the Company trucks went up by 136. So I didn't know. Is that just holding onto some freights, perhaps? Or is that actual growth?

From an average seated truck, we were pretty much flat quarter over quarter sequentially. We -- at any point in time we'll have a few more trucks in the house (indiscernible) not (inaudible) .

Part of that was a trade cycle that started -- timing just into several numbers showed up (MULTIPLE SPEAKERS)

Like we said Tom in the beginning we are pretty much on an average basis about where we work coming out in the first quarter.

You also made a comment that you thought you could add and may add.

One of our No. 1 goals is to get 100, 200 more trucks seated because that will improve our margins and provide revenues that we think are important to get. So we've got a lot of programs right now.

You're talking about seated trucks. You are not talking about net new additions.

Right, I am talking about seated trucks.

What was the number approximately of unseated trucks? Either or an average or as of the end of the quarter?

It runs anywhere between 100 to 200 depending on the day and so forth and so on.

Where are we as of this morning?

Pardon?

Where were you as of this morning?

I don't have this morning's number.

Part of it, Tom depends on where we're at in train (ph) , and putting new trucks in-service. And 50 of those 100 will probably be coming up in new truck, cycle in and cycle out.

Why was there such a big decline in the regional business? I think, Ray, was the number 91.2 million, down 31%.

That's the over the road in regional business.

(inaudible) includes long haul (MULTIPLE SPEAKERS)

We in essence combined those two together for most of (indiscernible) actually shifting -- that's where the trucks came out of as far as teh seated trucks and it's taking trucks and putting them into Dedicated and that is where you get that big decline.

Dedicated was 50.18 million. What was that percentage increase?

That was 58% increase.

And rail was 45%, is that right?

That's right.

Let see what else we've got here.

(inaudible)

I guess one last wild-card question. Because of the way the market developed a year ago and the really aggressive rate increases you experienced in the second half of the year, what's your best guess. Will you be able to even match the published average loaded rate per mile year-over-year during the second half of the year which you got up over to $1.60 by the fourth quarter or because of the zaniness of last year which shouldn't even think about rates (indiscernible) hitting last year's rate?

I think the fourth quarter number as far as just pure rate will be a challenge. It was a very, very strong latter part of last year. So I think those will be a challenge on a rate per mile standpoint.

We had customers (indiscernible) (MULTIPLE SPEAKERS)

That's one for the ages.

You never know. History repeats itself sometimes.

(OPERATOR INSTRUCTIONS) Nick Farwell with Arbor Group.

Some additional questions and perhaps some new ones. In the carpet business, Ray, is there any reason that this business -- based upon your analysis -- of how terminals will be restructured that it can't return to the 4 to 6% operating margin you achieved historically?

No, there's no reason.

So the 6 months is just a period of time to rationalize current terminals and return the business to its optimized level of operation?

That's correct.

Is there any significant seasonality in the carpet business? For example given the fourth quarter, perhaps between November and December given the holiday season, for some reason that business tends to go increasingly quiescent?

December is always a tough month for that business.

December is tough, January is tough and July is usually tough.

So, in reality you have seasonals working against you as well as the rationalization?

That's right.

As mentioned earlier I noticed that Expedited Team was down sequentially in terms of revenues. Are you shrinking that portion of the business also to some modest degree?

Not intentionally, no. We are trying to -- I think we've probably got about an optimal number.

About 2 years ago we did bring it down because of we weren't getting the premium rates but over the last year, we have been able to get them so we are starting to push it back up.

Can you give us some sense of how much you think you would like to shrink your over the road or long haul business from its current size? I mean if you have -- I'm making up numbers -- if you have 100 trucks are you likely to take that to 50 or have you reached what you think is basically what size you think you'd like to sustain this business over the next couple of years?

I think we have done a lot of shifting and to be quite frank, if we get some large dedicated accounts that require us to put some trucks we will shift some assets if that's where the money is to be made so to speak. I don't think our goal now is to keep producing over the road. It's more a let's get a better mix of freight in that over the road fleet?

I also think if we get more than 4 or 500 trucks shifted out of that business and will have a shortage of trucks in that segment so we are just about completed that shifting to these other segments. Out of the -- over the roadside.

If in fact the marketplace demands, supports the current level of trucks or assets you have associated with the long-haul business you are unlikely to shrink it any further? The market dictates that.

We might shift some of the freight from a longer length of haul to a shorter length of haul, but we are not trying to get our over the road fleet down dramatically at this point in time, no.

Main thing about our structure would be different segments that we are in we can shift assets from one segment to another that gives us a higher yield; and I think that you'll see that being an ongoing part of our strategy that if, say, Dedicated is popular today and we're getting good returns but 2 years from now that is no longer the case and we see Xpedited Team is getting higher yields you'll see us shift more assets in that direction then ebb and flow of trucks moving to where we have the best sustainable revenues.

In that particular transaction, I assume, is modestly complex if for no other reason you have drivers' schedules and the marketing effort to generate that revenue stream?

That's correct.

Also remember, Nick, we have -- with our minority interest -- we have about 2000 trucks that are involved and also involved in Dedicated and regional businesses. So we are looking at it over the longer-term also.

Yes because perhaps a gross generalization, my impression is the long haul tends to have the most volatility in rates when demand gets obviously much stronger for long haul and there are a lot of factors -- Expedited Rail, being one -- but there are other factors that are dictating perhaps a shrinkage of that business. But ultimately that will be rationalized and rates will return given the risk associated with taking a truck cross-country, that that -- the return should improve over time as that area gets rationalized by you, Covenant, and other long-haul carriers.

That's true and if you look at this latest downturn, a lot of the short-haul guys didn't have the severity declines that the long-haul guys have. So we think as we go forward, there's the shorter length of haul gives us better consistent performance year in, year out. And we can overlay what we do in the long-haul market. When that market is strong we can shift some assets in that direction. When it weakens, we can shift assets in either Dedicated or more regional short-haul type markets.

And your sense now, Max, is that that's pretty much reached its point of stability, that doesn't mean you won't take another 100 read some form of stability from your --?

We would be critical if we moved another 4 to 500 trucks out of that segment. I think that if we moved 4 to 500 trucks out we'd almost be adding back within just a very few months because we'd see that there is a need for those trucks in that market at good rates.

We would be critical if we moved another 400 to 500 trucks out of that segment. I think that if we moved 4 to 500 trucks out with almost the adding that within just very few months because we say that there is a need for those trucks in that market at good rates.

Yes. Can you -- either Jeff or Max -- talk a little bit about demand regionally and/or by customer sectors if you've seen any patterns that give you some sense of why you feel the second half of the year may be a bit stronger than the first half?

From a sector standpoint, it has been pretty consistent I think all year long. From a regional standpoint right now, when I look at our balance maps the Southeast is a little bit soft. The rest of the country is in pretty good shape. That is typical for us this time of year to have that softness in the Southeast. That should go away here in the next week or so.

Part of that is floor covering.

Yes part of it is floor covering and the July slowdown in carpet that Max alluded to. So I think we are going to be in halfway decent shape throughout the rest of the year.

When you go back and try to understand the decline in demand during the first half of the year and you try to take out which is always challenging -- the seasonal aspects of January, February and perhaps you focus more on April through May, June, other than rates and perhaps some reaction amongst your customer base to the escalation in rates in the latter half of last year, are there any other factors that you think cause you to lose tonnage?

The version of freight to the rail probably the long-haul business probably is the other thing I can pick up.

But were there internal operating problems, were there some factors? Were some terminals for some reason got screwed up? I'm just trying --

No it was what we saw in the first quarter we talked about before to a more limited extent of the second quarter we think the long-haul business really had a tough time; and we saw the version of freight to other modes potentially. And quite possibly, we got because we did increase rates drastically, we saw some diversion freight from our customer base probably. So I think it is a combination of all the factors that we talked about in the first quarter and those factors have diminished somewhat.

You had mentioned, Max, or perhaps Jeff commented that in earlier answer to questions you'd add hopefully 100 to maybe 200 trucks. In this current and tight environment for drivers is there something that suggests you are going to be able to do that? You changed some programs or did something happen to make you feel comfortable, or more comparable if that is the right expression? Did you get a little seated incremental, say, 50 trucks over the next couple of months, especially at this point in time in the demand cycle?

I don't think there's any doubt that the driver market is tight right now. And if we do operationally the right things and create the kind of jobs that the drivers want, we are not going to have a problem adding that -- adding to our seated truck count. And the key is executing on that and we have got a number of initiatives designed to do just that. We are doing some new things in recruiting, that we are starting to see deceit some dividends paid off on. So I'm pretty halfway optimistic after being less than that throughout the first 6 months of the year.

Finally, Ray, what are the legal restrictions you are operating under before you can become active in a share repurchase? You have to wait for example, say, 3 days or can you be active tomorrow?

From a legal standpoint we can be active tomorrow.

To shut that down will you shut it down a month before the end of the quarter, 3 days before or is there a time?

I think that obviously depends on -- there's no specific time but, obviously, we're -- if our expectations change dramatically or from a positive or a negative we obviously would not -- we would do the appropriate thing and shut it down and full adequate disclosure was made regarding expectations. If that is what you're asking.

Yes, I just was curious if there were some constraints you had in the timing other than obviously if you had some knowledge about a transaction.

I think the constraint is if we have any knowledge that was significantly impact other than what we've disclosed today that would -- in our opinion -- have a significant impact on the stock and we would obviously not continue to buy stock.

Because as you commented earlier to questions with respect to some notion of what the third quarter might have some guidance for the third quarter -- we all generate our numbers. There is no real range you are providing us although we can guestimate that and if in fact demand were very strong and one postulates an improvement in the airport-to-airport business for the sake of discussion despite carrying excess facilities, obviously, there's lots of leverage in this Company. It could be a very large number and you would have some sense of that certainly by the end of August. You are going to acquire some feel for that. May put you in a very tough position with respect to executing on the share repurchase.

All I can say, Nick, we will do the right -- we will do -- .

What you can.

Yes. We think that the market -- I guess our Board believes that the share repurchase given where the market is at this point in time is an appropriate investment. And obviously it is our duty to make sure that if we've disclosed what we could to the degree that we feel comfortable in our expectations for the future right now and rest of the year which indicates that we expect improvement. And we will see where it goes the rest of the quarter.

The last thing is, is there an opportunity for you and your agreements with Arnold and Total to consolidate them sooner than you might have earlier expected for any particular reason?

Within those agreements we have the option at any time over the option period to rectify that option. So it's not necessarily the agreement that keeps us from exercising the option. If that is what you're asking.

Is there any reason why you may not choose to assume 100% ownership say earlier by the end of this year as opposed to waiting out 2 to 3 years? Given how you improved the balance sheet and the transaction most recently in shutting down Global Xpress or airport-to-airport?

Right now we have no plans to -- I guess I would answer the question this way. Right now we have no plans to exercise the option in the foreseeable future. Could we exercise them earlier? If everything -- if from a business standpoint or balance sheet standpoint makes sense, the answer I guess is yes. I'm debating the question because we have not internally made any plans to exercise the options in the foreseeable future. We continue to work with them as partners and help them from where we can help them and they're helping us where they can help us and is working very well.

At this time there are no further questions in the queue. I'll go ahead and turn the conference back to you for any additional or closing remarks.

We thank everybody for attending our call and we will go back to work.

With that, we will conclude today's conference.