US Xpress Enterprises Inc (USX) 2005 Q3 法說會逐字稿

Good day, everyone, and welcome to the US Xpress Enterprises Incorporated Conference Call. Today's conference is being recorded. At this time, for opening remarks and introductions, I'd like to turn the conference over to Mr. Tripp Sullivan of Corporate Communications. Please go ahead, Sir.

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 in 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 actual results or changes and the facts affecting the forward-looking information. I'll now turn the call over to Ray Harlin. Ray.

Thank you Tripp. Good morning or good afternoon. We will briefly discuss the results of our operations for the third quarter of 2005 and following these comments we will respond to any questions you might have. For the quarter, consolidated revenues increased 3.1% to 297.2 million. Excluding the impact of fuel surcharges consolidated revenues decreased 3.4% to 262.6 million due to a 17.4 million decline in revenue of our Xpress Global operations due primarily to the sales of the airport-to-airport operations earlier this year. Net income for the third quarter ended September 30, 2005, was 4 million or 25 cents per share compared to 5.4 million or 39 cents per share for the third quarter of 2004. In summary, factors contributing to the year-over-year decline in earnings were the dramatic increase in fuel prices negatively impacted our truckload operating income for the quarter by approximately 2.5 million or 8 cents per share and an increase in operating loss of Xpress Global of approximately 1 million or 3 cents per share compared to the prior year quarter.

Truckload revenues excluding the effect of fuel surcharges increased 3.1% to $241.1 million from $233.9 million a year ago. This increase was driven by an 8.2% increase in revenue per loaded miles offset to an extent by 5.4% decline in total revenue miles. Reduction in total miles reflects the 4.5% decline in average tractors and a 4%decline in miles per tractor, mitigated to an extent by an increased revenue miles contributed by our Xpedited rail services. A number of factors contributed to our 8.2% increase in rate per mile, including one our dedicated operations in regional freight which generally provides for a lower length of haul and higher rates per mile, continue to grow as a percentage of our total truckload revenue. Our dedicated operations represented approximately 23% of our truckload revenue versus 16% in the prior year third quarter.

So this quarter, the average length of haul of our truckload operations declined 5.2% to 671 miles. However if you exclude our Xpedited team and rail business, our length of haul is closer to 500 miles. Since the third quarter of -- number two, since the third quarter of 2004, we have continued to achieve necessary rate increases from our customers as annual freight contracts are renewed; three, the increased freight demand and resulting shortage of truck capacity in many geographic markets during the last month of quarter dramatically increased market rates and finally improvements in our internal process for identifying, billing and collecting tractor and trailer detention charges lead to substantial increase in detention revenue.

In addition, detention charges related to the services provided to serve the companies involved in hurricane relief also increased our overall detention revenue. As you are aware these detention revenues are based on time versus miles.

As many of you are aware over the last 18 months, we have significantly increased our rate per mile as we continue to execute our strategy of 15 truck assets from our heritage longer haul solo markets to markets which offer a greater opportunity to achieve a satisfactory return on assets. Due to this the trucks rates in long haul markets, we have significantly reduced our capacity allocated to this market. It has been suggested that this aggressive pricing has lead to customer issues. Our view is very different. It ensures the success of US Xpress it was critical that we make the change in our freight mix given the change in the economics of the truckload market. We continue to operate and allocate assets to markets that would not allow for a satisfactory return does not make sense. We have been and continue to be committed to providing capacity and servicing our customers but not at prices and terms which do not provide for a return. Operating income for our truckload operations decreased to 11.5 million in the third quarter of 2005 from 13.6 million on the comparable 2004 quarter.

On a year-over-year basis, our operating ratio increased 100 basis points to 95.2. [inaudible] on a sequential basis we improved our operating ratio by slightly more than 150 basis points compared to the second quarter of 2005. It's been noted that we are looking at our operating ratio, it is negatively impacted by the fact that a significant portion of our revenue equipment is financed with operating leases, which in effect result in interest being reported as an operating expense. We estimate that if all revenue were financed with balance sheet debt, our operating ratio would be reduced by approximately a 150 basis points. As everyone is aware fuel prices had a significant impact on a truckload margins this quarter. Fuel prices included fuel taxes rose over 36% in the beginning of the quarter to the first week in October and on average were 40% or 70 cents per gallon higher than the third quarter of last year. We estimate that the negative impact of this increase and fuel prices compared to last year's third quarter negatively impacted our truckload operations by approximately 2.5 million or 8 cents per share and impacted our truckload operating ratio on a comparable basis by approximately a 100 basis points.

Freight demand for the quarter was fairly below last year's level in July and August, but improved significantly in September, compared with the higher levels experienced in the third quarter of 2004. Despite the somewhat soft freight environment we achieved truckload margins comparable last year's third quarter before the impact of fuel. This was achieved despite of [inaudible] significant increase and certain operating cost as a result of the previously discussed 8% increase in rate per load mile and the continuing execution of our freight strategy to [inaudible] from our long haul legacy. The success of this shift is demonstrated in part by the following summery of truckload revenues, excluding fuel surcharge and other miscellaneous revenue for the quarter, along with growth percentages compared to the 2004 third quarter. For our dedicated fleet revenue was 52.7 million, our growth percentages of 43.9%, expedited rail 31.8 million, growth percentage of 28.6%, our expedited team 48 million, a growth percentage of 13.8%, and our regional and over-the-road revenue declined by 21% or 107 million.

Finally, on the truckload side of our business, our equity and earnings related to our 49% equity investment in total transportations in Arnold contributed approximately 5,000-50,000 to our pretax income. On a combined basis, these affiliated companies generated 75.3 million of revenue, while operating at a 95% operating ratio.

Turning to our Xpress Global operations, as a result of the [inaudible] of our airport-to-airport operations through the second quarter of 2005, revenues for the third quarter decreased to 24.1 million, and 41.5 million in the prior year quarter. On a more comparable bases our floor covering distribution revenues were down approximately 6.2% or 1.6 million during the quarter.

Operating loss for the quarter was a disappointing 2.2 million versus an operating loss of 1.2 million in the prior year quarter. This year's driving loss include a lower than anticipated floor covering revenues, corporate and overhead expenses which from a practical standpoint cannot be immediately be eliminated following the shutdown of the airport-to-airport operations and failure to complete necessary rate increases at certain customers.

These issues have been or are in the process of being addressed and resolved. From a balance sheet perspective our long term debt including current maturity and our securitization facility was 170.8 million at September 30, 2005 versus 149.6 at December 31, 2004. Our liquidity remained strong with over 73.6 million in available borrowings under our revolving credit securitization facility and approximately 14 million in cash available at September 30, 2005.

Our cash flows from the operations for the first 9 months of 2005 are approximately 43.9 million, while our net capital expenditures through this period was 42.4 million. Further during the year we have purchased 906,886 shares of common stock at an average price of $15.14 or an aggregate of 11.9 million.

At September 30, 2005 the [average case] of our over the road and trailer fleet were approximately 27 months and 58 months respectively. The anticipation of 2007 over the next 15 months we will be taking delivery of in excess of 2,500 tractors, which should gradually reduce our tractor fleet to an average age in the range of 15 months. As a result, we expect our requirements to purchase factors with new 2007 engines to be minimal in 2007.

Looking forward, the availability of drivers and independent contractors continues to be a significant challenge within the truckload industry, and we do not presently see this changing in the foreseeable future. Further truckload operating cost in addition to fuel costs have increased dramatically over the last few years. The above factors among others continue to significantly constrain capacity growth in the truckload industry. The tightness in cash is further supported by the extends of loads we take out and [inaudible] pretty significantly in the latter part of the third quarter and to-date in October.

Looking forward to the fourth quarter of 2000, given the relatively strong current rate environment and tightness in capacity continues throughout the quarter along with modern steps in our ongoing initiatives the rates, utilization and improved trade mix we expect to improve operating margins versus the third quarter of 2005. Obviously continued acceleration in fuel prices from the current record levels will impact the extent or possibly eliminate this improvement.

We will be glad to respond to any questions you might have at this time. Operator?

Thank you. [Operator Instructions]. And we will hear first from John Larkin with Legg Mason.

Hello Ray.

Hi John. How are you doing?

Couple of questions. It looks like demand is still strong here in the fourth quarter. I guess, the $100,000 question relates to the first quarter of next year, which has always been a bit challenging, especially in one of haul markets. Do you think you have transitioned enough in the equipment down into the regional and dedicated other specialty markets to mitigate some of that seasonality that we have seen historically in the first quarter?

John, I think that first quarter is [you and issue] especially for people that’s been in the long-haul business. We transitioned enough of our fleet, we think our long-haul market into these regional markets, where we probably won’t see the deterioration of the same over the last couple two or three years. After saying that, the first quarter still will be a tough quarter as usually is. I think that there is some other things that will play into this next quarter. One is the number of people exiting the market through either bankruptcies or turn trucks in, repositions have gone up fairly substantially here in the last several months and that’s one thing it's even impacted our own operator count is number of our operators in the markets. We think the supply of trucks is going to be tight enough in the first quarter, which not will be like a typical first quarter of the last two or three years.

I had a question on the 8 cents impact due to the fuel situation in the third quarter and was wondering how much of that was due to the lag in adjusting the fuel surcharges to reflect the increase in fuel prices and how much of that is just due to the fact that you could never recover 100%?

John, I have it computed that number directly, but the cause of the rapid run up we had during the quarter, generally that's when we get the biggest impact. So I say the majority of that is really due to the way the price has increased week after week during July and August versus just a relative average price of 30 cents above the prior period or 70 cents above the prior period.

And actually some of that you are never getting back because if you look at price is fine and usually do it more gradually. Now that was necessarily the case this last quarter, and when they come down they come down relatively fast that lock them out. So it's hard to recoup a 100% of your cost increase.

In a flat fuel price environment, what percentage of the fuel price increase do you figure you will recover with your surcharge as it's structured currently?

I think historically we have been in that 75% to 80% range, but we have focused significantly in the last six months especially improving our fuel surcharge mechanism. We still had quiet a few did raw mistakes and increment. And we have changed that with a significant portion of our account base because with these high fuel prices that you just cannot afford that [fixed] increment anymore.

Yeah, in fact we actually have some customers that if we can't get reasonable surcharges from them, we will exit the business, which is a case where if I don't want top 50 customers, basically chose not to change its fuel surcharge offset. Almost a 100% of our cost, we basically decided we won’t -- all with the customer going forward.

Just one final question on the brokerage business. I guess all of the owners of Transplace, including yourself, historically been prohibited from getting into the brokers business, but I had heard from one of the other owners of Transplace that that agreement has been changed and now that the individual carriers are in a position, they can actually get in the brokerage business; do you plan to do that?

Yes probably so; we've probably been a little bit slower to get in that because our has been transitioning our business, over the last three or four years we have been in a major transition here, trying to get the right freight mix, trying to get out of those long haul markets where the rates were pretty depressed, trying to get into the right type of freight and I think as we develop more and more business in those segments, yes we probably will be in the brokerage business.

Alright thank you very much.

Alright John.

As a reminder that is "*" "1" if you have a question. We will hear next from Nick Farwell with Arbor Group.

Gentlemen, can you hear me?

Yes.

Great, good afternoon.

Hello Nick.

Hi Nick.

I just want to follow-up on couple of questions and one of it's the carpet operating loss. Can you give us some sense of how much of the 2.2 million was, I will call it extraordinary but I’m not sure quite had it defined, sort of it not associated with the carpet business as you disengaged overtime from the airport-to-airport?

Nick I’m -- you know that number is tough to breakdown. It wasn’t the largest factor, one of the biggest factors was the revenue drop of $1.6 million coupled with the overhead and, we had some price increases on the table that didn’t get balanced. So, without breaking down each individual thing, we think those issues have been resolved and obviously, or many of those issues have been resolved, the overhead has come down every month as we transition out of it; I mean we still have some facilities that are too big that we used to run some of that airport revenue through there that we could not reserve for at the time we closed it because of the accounting rules. We still have people collecting receivables. We still have some duplication in other areas, but the large portion of that has been taken care of and more will be taken care of in the future. The other issues that we talked about, they all have been addressed and I guess we don’t -- we are optimistic that we are going to improve the results; I guess that is what I would say.

Is that likely that we might see that in the fourth quarter or is that really an '06 comment, Ray, given the timing of trying to work your way out of some incremental overhead.

I think that is an ongoing process, we will see the reduced overhead in the fourth quarter. I think all the solutions to all the problems we talked about our issues, is really I think you will start to see in '06, but we would hope to make progress every quarter from this point on.

So there is really nothing fundamentally that is affecting the carpet business, other than the factors you already mentioned?

Yeah, the carpet business itself, the industry is doing well at this point of time.

Right. I would assume so given where are in the economic crisis.

And I guess the other thing we have now is our core business, essentially our only business in Xpress Global and we have people focused on the right things and we have good management measurements for each facility, and we got the right things going on.

I noticed that the earnings from the affiliates were down sequentially from 900,000 to 600,000 roughly?

Yes, that’s correct.

Is that -- does that have anything to do with factors beyond perhaps because of the geographic locations being in the South East or the--

Two issues I think effected them, as did second quarter, both of the companies bids, fuel impacted them this quarter more, quarter-over-quarter and also, you all remember that Total was located in Jackson, Mississippi, and essentially their communications and their operations got shut down for three or four days, and that hurt them quite a bit. So --

That’s so bad, the hurricanes have had -- some impact.

Ray Larkin; Yes, they got hit twice so to speak during that period of time, and that effected their results during the quarter to an extent.

You reported tax rates in a quarter 50% for the nine months it's 50% or maybe 51.

51.

Can our guidance for the fourth quarter roughly a 50% number.

Yes.

Okay, and then one last sort of technical question. You commented the cash flow, I think you said where the cash flow from operations was 44 million -- 43.9. Does that exclude the forward payment?

Yes.

Can you remind us how much that was and whether you have actually collected it?

We through so -- I am just trying to refresh my memory of that, 12.750 million was the payment, and of course we had paid our subsequent to that liabilities related there too, but that is not in your results from operations.

Okay.

That is not in your operating cash flow.

Right, okay, that’s what I was asking. And with respect to that Dan you have received that cash from them?

Yes.

Wasn’t a note or something deferred --?

No, we received cash at the date of closing which was the day we signed the agreement.

As I recall you held the receivables, is that not also?

Yes, we have been liquidating this.

Yeah, okay, thank you.

Thank you

Moving on we quarter go to Bill Ganlin (phonetic) with Buckingham Management (phonetic).

Yes, thanks. The comment on the negative effect there from your operating ratio, from the list that you have during the press release, I mean corporate internal overhead and some other aspects that couldn’t have been resolved immediately from getting all the airport-to-airport, can you quantify if that’s on the operating ratio?

We have not tried this, really just on Xpress Global and the amount on the entire company's operating ratio would be relatively small.

Okay.

But we have not quantified exactly what that number was or is.

Okay, thanks.

Thanks.

With Wachovia Securities we will hear from Justine Yagerman.

Hey, good morning, good afternoon guys, how you are doing?

Good.

I saw that you know, dedicated is growing considerably I guess over the last year and that seems to be a general trend that we are seeing, can you talk a little bit to some of the maybe contract wins and kind of cases that you are doing for different customers? What goes into selling that business and maybe a little bit about the margin difference realizing on that versus your regional and long-haul?

Which one would you like me to answer first Justine?

Take one of the three.

Obviously, the growth that we are experiencing in dedicated is something that we find attractive and when we say it's attractive, it has better margins right now than our solo regional business. So as we come across new opportunities, we are taking a good hard look at them and at attack them appropriately. It also gives us the ability to higher drivers that perhaps we couldn’t get before and provide them with the kind of lifestyle that they require and makes it easier from a retention standpoint to keep those guys. So all-in-all we've had good success with dedicated. It's interesting because as the economy is or capacity has tightened up here in the last 45 days, We've seen a significant increase in the sales waterfall report for that group meaning that there is a quite a backlog, we did that we are doing right now that hopefully we can be successful on in the next few weeks. So --

What's the average length of those contracts?

Generally around three years.

And I mean from a strategy standpoint I guess is that an easier way of transitioning some of the long haul fleet, I guess into more profitable business than having to reconfigure I mean like one of your competitors is doing their whole regional business?

Yes, sir. I would agree with that. And Justine we really started that strategy about two years ago when we put the effort management and accountability for the result of dedicated, we have sales people that are focused on dedicated and we have really support for them within our whole organization. So we run it as a true profit center in each individual contract as a true profits center.

Okay, that’s fair enough. Thank you very much.

You are welcome.

With Morgan Keegan we’ll hear from Chaz Jones.

Yeah, hi guys.

Hey, Chaz.

Maybe if I could focus in on rates that your you know, the truckload division last year had a phenomenal fourth quarter and I believe in the second quarter [inaudible] call you know, the comments were that fourth quarter freight cost would certainly be challenging this year, but yet in the third quarter, we saw your rates for loaded mile jump up about 12 cents sequentially and they’re actually ahead of where you were last year in the fourth quarter. So I guess you know kind of my question is what type of rate expectation should we have out there for the fourth quarter because clearly you know, where the third quarter came in it seems that we should be above where you were last year?

I think you know, that's always a hard thing to predict but with what we've seen so far in October in demand you know, we have to see a sequential increase in rates of 3% -- 3 cents or more.

In the fourth quarter?

Yeah.

A year-over-year?

No sequentially.

So sequentially, okay and some of that just related to Ray just you know, the freight environment improving just you know, kind of better deal management?

Yeah, and unlike the haul and we've been transitioning that regional business and that's probably gone little faster through [inaudible] that we form. And I think the key is -- I think we're doing a better job of freight selection.

Right.

You know it does have capacity gets tight and how you select your freight and book to freight in each of the markets becomes critical and you can significantly increase your rate by doing the right thing day in and day out.

Sure and then maybe last question here you know, I realized much of a downward trends in utilization related to the makeshift changes in your business. But how far are we away from the [wakeup] pall, and maybe the downward pressure on utilization transform from leveling out or should we kind of continue it that those measures to turn down here over the near term.

We don’t -- we’re working hard to raise the utilization and reverse the trend, and get the mix and make the haul stabilizes in our fellow business and definitely we’ll start seeing utilization improve somewhat.

Okay. That's all I had. Nice quarter guys. I appreciate your comment there.

Thanks.

We now will go to John Bryan (phonetic) with BB&T Capital Market.

Hey. Good afternoon, guys.

Hey John.

With the only equity investment side, are there other deals which you're looking at? I mean, obviously we hear from other carriers that everybody is seeing three deals a week in terms of people trying to get out of business, but I'm talking about the things like you've invested in. Are there any other opportunities out there that you're looking at?

We don’t have anything imminent right now, but you're right. We’ve three deals all the time. But it's a [dual] deal like that we did with Arnold and Total takes the couple of criteria that has to be met and that's not going to be the case in every deal.

And we’ve been putting all selective on the deal where we’ve gotten entered as you can tell.

Can you share with us what that criteria is?

I mean, we wanted to add to the good management structure, but those were really investing in that management. But had to have the financial balance sheet that enables us to do a deal. In all of these cases the management has been willing to be our partners and invest in the company just like we invest in the company. They have to have a similar vision that we had as it relates to where we want to be a couple of years from now because we are partners. So those are just a few of the thing that are credit for us. So far I can't say anything but just things about people at Total, at Arnold and where we have worked together and the ability to enhance their operations through purchasing and in many cases they helped us on this.

Okay. You just mentioned on the question about dedicated, did you see quite a backlog of new opportunities? Can you give us some idea of the size of that backlog, and I am just talking about is it the same as it was this time a year ago, is it 2X what it was a year ago? But just how good an opportunity is it on the dedicated side?

The backlog that we are seeing on the waterfall report is way over $100 million. But I want to point out that we don’t have that kind of success rate enclosure of that kind of number. So normally we are seeing somewhere closing new business in the 10% to 20% range, and hopefully we can stick to that. Again, we are being highly selective and really looking at what would be the best fit for us strategically in long term.

Okay. And the ones that you are not wining, what's the key -- besides the obvious being something like price, what are the other issues that are keeping you out of that business?

Inadequate fuel surcharge program would be one example.

Okay.

It would be the [inaudible] specialized equipment and we don’t think from the turns adequate to device specialized equipment and all of them has a little different things to them that you have to take a hard look at. And some people are more interested in that than other people, other carriers.

Okay, alright, very good. And then lastly on the remaining piece of in the I guess the floor covering business Xpress Global, here you guys do a really good job in floor covering. Is there -- which is to me just kind of a unique freight type. Is there anything else with similar characteristics that you could become a specialty player in terms of the similar freight characteristics, kind of, bulky items that normally don’t -- they don’t fit well on a truck to maybe people don’t want to be involved in that if you could develop the right kind of scale you could be really profitable in it.

That may be, John, but right our current focus on the floor covering side is to fix what we have, make sure it's a contributor to our profitability, and then we will relocate that. But right now we are focused only on that. And in fact we would willing to grow the contract whichever way we get profitability that we need faster.

Okay, alright, very good. Thanks for your time guys.

Thank you.

As a reminder to the audience, if you do have a question please press "*" "1" on your touchtone telephone. We will hear next from Tom Albrecht with Stephens.

Hey, guys. Can you hear me?

Yeah.

Okay. I just wanted to clarify one thing on this carpet hauling and the former XGS airport part. I taught in the beginning, Ray, you said that the impact in the quarter the overhanging of expenses was about million bucks or about 3 cents a share. But in your answer I didn't hear -- to the other questions I didn't really hear you bring that big.

I think what the million dollar was primary as a change in net income for the entire company for the year and I said, it was really made up the two major items was fuel and $1 million increase in the operating loss.

Okay, alright.

Over, quarter-over-quarter, so I didn’t want to kind of say, that was due to [operating loss].

Okay, alright I appreciate that clarification. And Chaz, asked the question on rates, but I guess more than the numerical discussion of rates, I think there was may be a sense that you guys [traveled too] aggressive in last year's fourth quarter. What are you going to do to make sure you take advantage of the market place but don’t take too much advantage of your shippers here during the fourth quarter?

Tom, I guess, we disagree with the fact we get over aggressive

Okay.

Right here in the fourth quarter, but if you look at the successful event so far this year, we continue to win rate increases but part of this is mix. If you look at the 8%, about 1% of it is detention. There is probably another couple percent that’s based on shorter average length of haul and a lot of is just selectivity of what price did you haul and I think that is one thing that people missed last year, was we got as we were transitioning over that long haul market, we got extremely selective the way we put out trucks and if we can see that we could be profitable, we chose not to put our trucks in [inaudible] markets because we were exiting what we thought was a relatively cheap, unprofitable market, and we didn’t want to go right in to another one. So we got very selective where we put our trucks and that’s the reason you saw the increase of last year and we heard comments, that customers were spanking us during the first and second quarter of this year because we got over aggressive last year. I disagree with that too because we have been in a transition almost for three years, a transition our assets into more profitable markets and as you transition into those markets you are going to have a few periods where things don’t work exactly like you want them to work. But we continued to move assets as you can tell and the markets have given us better yields and as we continue to move those assets, I think you are going to see a lot better things to come from US Xpress especially on the bottom line. But we will continue to direct transition business where we can get the right margins.

Tom another thing that I think is that, if you look at our customer base we don’t have one account that is over 3.5% of our total revenue and if we run into a stumbling block where we can't agree, if we have replacement business that pays us better, that affords us to a better margin and we have the flexibility and the, I guess afford it is, to move that direction.

Okay, Ray, could I get you to just to repeat a couple of numbers, you were going so fast there on the revenue breakdown and growth rate for your core businesses?

To tell you about the growth rate of sales dedicated, the number was 52.7 million roughly for the quarter, about 43.9% increase

Okay.

Expedited rail was 31.8 million, about 28.6% increase; Expedited team was 48 million or 13.8% increase and our reasonable [OTR] was a 21% decline or a 100.7 million.

Okay, I guess the thing that I get a little confused by you continue to bring your length of haul down and you remain excited about the regional market opportunities but the OTR regional is down almost every quarter. Can we read in to that, it's the vast majority of that what you say 107 or 100.7 is still OTR business and really not true regional?

No. The mix of the two is just how we add the group.

Alright.

A big chunk of what you say and is to replace is what we call OTR business which is typically that 800 miles or greater.

Right.

And I think three or four years ago we're talked about the pointer business and that 700 miles or 800 mile category, they basically traveled the truck up for two days. That’s the type of business that we are crossing at higher levels, of course where we want it to stay, we're staying, it's not that we are moving those trucks in the markets that will give us enough yield where we get the proper revenue per day that we need. The regional market -- and that is a service as complicated as little bit, but the regional markets are typically more. We see the store top business, now we think it's highly consistent, and we see their consistency, and we also see the ability to price it pretty attractively and get a reasonable yield because of it's consistency and that’s really the business that we're focusing on in that regional segment. But OTR is really what we called the old business model that we continue to take business away from, or trucks away from and move into what we consider to be a better, more long-term significant segments.

Okay, I appreciate that clarification Max because I mean I that was what my guess was telling me but the number sometimes didn’t always drive so --

Yeah we used to -- before local -- a years ago we broke out regional versus OTR but as we made this migration and the way we have structured our management that just did make sense, we got them kind of regionally managed, we got small groups managing possibility on things like that, so really made sense sitting together and we look at them on our group of cross basis and possibilities improve the products, so that volume migrated sitting together.

Okay good. Thanks very much guys.

Thank you, Tom.

Now a follow up from Nick Farwell of Arbor Group.

Can you hear me?

Yes

Great. Alright I said a couple of follow ons and one of this I noticed your total number of factors including even owner/operators in the third quarter upticked again well, congratulations. I expect -- do you expect this number of seated trucks to grow again in the fourth quarter given the current difficult environment to find drivers?

We would like to grow modestly, I can't guarantee given the difficult challenging environment that that will happen but we are trying to and this can dedicate contracts or something like that we maybe able to.

Actually the driver market is tough. It is something small carriers and owner/operators are parking their equipment, we are seeing some net gains and I think that’s one of the thing that we saw especially during the third quarter here.

You anticipated my question Max? And would you likely see that help you looking into '06?

We think so but we are not sure to what magnitude yet

What is the status Transplace in its financials at this particular point in time and Ray or Max, how are you recognizing your equity interest in Transplace and do you expected to have any noticeable impact in say '06, one way or the other?

Nick the because of our percentage interest we have, we have accounted for that on the cost basis, which again what's required under GAAP, the size of our investment and the nature of our investment. As far as what we might expect in 2006, I just don’t, I don’t think, we can comment on that right now.

Is it -- have you, as I recall on the cost basis you basically once you lost your incremental cost, you don’t reported until you been, until the Transplace earns back in essence to income, it is your original investment?

I think you talk about the equity basis where -- for your income and loss as your share out there. In our case we have an own essentially it is on our balance sheet that the original cost of our investment and you know, that is always, you always have to consider and you only making adjustment if you have distributions or if you have an impairment issue, then you would write it down at that point of time that you determine you had an impairment issue, but doesn’t that -- or a seller business of sale up your interest, other than that there is really no effect on our income statement and so successfully other than the carrying cost of our investments is really being no impact on our income statement over the last couple of years.

Okay, unless it gets monetized in essence, it won't appear, it’s in your balance sheet, and we won't see on the income statement?

That’s true and because that because how our percentage interest, some on the other partners, it's different the way they do it.

Okay. Is that -- I can't recall are you like 12% to 15%?

Yes, well over 12.

And lastly, I want to get some feel for that is the West Coast last year that the seasonal fall business was very strong as I recall and part I believe because Unipacific was struggling, are you still seeing freight that might have gone elsewhere going on your dedicated rail and or you are seeing that in the spot market?

Actually if you look at the West Coast market, that typically is about a 7-month market. This year it's been relatively soft out there, especially from the transcontinental type freight on trucks, we think that it may be a 7-month market at last this year. Now having said we are probably in second week of the biggest upturn in that market of this year but question is, is this going last how into December, is it going to fade before Thanksgiving, we don’t know but usually that market takes us somewhere around more of and stays pretty strong all way up until early December and that hasn’t happened this year at least for the trucking side that we can tell.

Why do you think that is? That is going more on rail or it is being redirected to other gateways?

I think it's some above, there is more probably going on rail because of a freight differential between truck and rail also think it's been some pretty significant shifting of course that importers are basically using them in this character. And we see it when we work it, no - we look at Charleston, Savannah,

Yes.

Houston, places like that, there is lot more volume in those markets and so those markets used to be relatively bad markets over the last four, five years that almost become pretty solid boom markets for most of the people in the truckload business, so it's exciting on one end, but it's kind of sad on the other if you are still on the long-haul market.

And so when we look at your expedited rail, is that business in anyway benefiting from this perhaps the change in logistics or ports or is it just taking it off the road and putting it on rail?

Well, part of it is we are benefiting in several respects. One is since we have been big in that long-haul market for so many years, and so totally exiting that long-haul market we can still participate. But we participate with much less capital cost involved in that market. We also have a flexibility to move the assets out of market when the market is slow and moving by hand relatively faster the market is pretty strong. So that’s -- we think long term that’s the best way to play the long-haul market, and if it soft we don’t have assets tied up, we don’t have lot of capital tied up with keep our trucks basically really focused at hopefully 52 week year round top business and the regional and dedicated top markets.

Thank you, Max. I appreciate it.

Thank you.

There are no further questions at this time. Mr. Harlin, I will turn the conference back to you for closing remarks.

Okay. We want to thank everybody for participating in the call. Thank you

Thank you.

That does conclude today’s conference. We thank you all for your participation. Have a great day.