US Xpress Enterprises Inc (USX) 2018 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to the U.S. Xpress Third Quarter 2018 Earnings Conference Call. (Operator Instructions) As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Brian Baubach, Senior Vice President, Corporate Finance. Please go ahead, sir.

Thank you, Operator, and good afternoon, everyone. We appreciate your participation in our Third Quarter 2018 Earnings Call. With me here today are Eric Fuller, President and Chief Executive Officer, as well as Eric Peterson, Chief Financial Officer.

As a reminder, a replay of this call will be available on the investor section of our website through November 8, 2019. We have also posted a supplemental presentation to complement today's discussion on our website at investor.usxpress.com.

Before we begin, let me remind everyone that this call may contain certain statements that constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These include remarks about future expectations, beliefs, estimates, plans, and prospects. Such statements are subject to a variety of risks, uncertainties and other factors that could cause actual results to differ materially from those indicated or implied by such statements. Such risks and other factors are set forth in our final prospectus, dated June 13, 2018. We do not undertake any duty to update such forward-looking statements.

Additionally, during today's call we will discuss certain non-GAAP measures, which we believe can be useful in evaluating our performance. The presentation of this additional information should not be considered in isolation or as a substitute for results prepared in accordance with U.S. GAAP. A reconciliation of these non-GAAP measures to the most comparable GAAP measure can be found in our earnings release.

At this point, I'll turn the call over to Eric Fuller.

Thank you, Brian, and good afternoon, everyone. I'd like to start by reviewing our third quarter results and the progress that we have achieved executing upon our strategic initiatives, and then conclude with a review of our market outlook. Eric Peterson will then discuss our third quarter financial results in more detail before opening the call for questions.

To start, we delivered 18% operating revenue growth in the third quarter as we continue to benefit from the strong market environment. Against the backdrop of robust price and volume growth, we continue to implement our strategic initiatives. This is designed to improve the efficiency of our operations as we change the culture of the Company and manage the business by core metrics, including rate, truck count, utilization, and cost.

Clear signs of our improved execution can be seen in our third quarter adjusted operating ratio, which improved 230 basis points year-over-year to 94.5% or 93.6%, excluding incremental insurance expense that we consider unusual, while generating the largest amount of net income in a single quarter in our Company's history.

As Eric will discuss in more detail, our net insurance and claims expense for the quarter was the highest recorded in our Company's history and up $7.6 million year-over-year primarily due to two events. We do not expect this level of expense incurred in the third quarter to continue going forward. In addition, the third quarter was our first quarter with the full implementation of event recorders in our tractor fleet, which has already begun to show small improvements in incident rate per million miles. This improvement has yet to impact our insurance costs, though we anticipate that it will lead to lower insurance costs over the next several quarters.

Turning to our segment level highlights, we continue to realize momentum in the truck load market. In our over the road division, average revenue per tractor per week, excluding fuel surcharges, increased 12% in the third quarter of 2018, as compared to the third quarter of 2017. The increase was primarily a result of an 11.3% increase in the division's rate per mile. It is worth noting that utilization was essentially flat in the third quarter of 2018 from the year-ago period, with headwinds from continued support of our dedicated division.

During the quarter, our over the road division supported contractual commitments in our dedicated division, which adversely impacted this division's utilization. Initially, we thought the support would be reduced toward the beginning of the third quarter. However, it progressively increased and peaked during the quarter. Over the last six weeks, the support provided to our dedicated division by our over the road division has been reduced significantly due to increased traction in our recruiting efforts to fill these dedicated positions.

Additionally, the market for drivers remained challenging through the third quarter, which resulted in a slight decline in our average tractor count as compared to the second quarter of 2018. Tractor count in our over the road division troughed in the back half of the third quarter as we experienced a slight deceleration in the pace of hiring, which has since reversed.

Looking to the fourth quarter, we have seen a marked improvement in hiring and retention as we continue to execute upon our initiatives that are focused on being a valued partner to our professional drivers by offering them increased miles, modern equipment, and a driver-centric operations team. Our truck count so far in the fourth quarter has been higher than at any point experienced in the third quarter.

Turning to our dedicated division, the average revenue per tractor per week, excluding fuel surcharges, increased 5% in the third quarter of 2018, as compared to the third quarter of 2017. The increase was primarily a result of a 10.3% increase in the division's revenue per mile, which was partially offset by a 4.9% decrease in the division's revenue miles per tractor per week. The division's results continue to be impacted by certain accounts' shipping patterns performing different than expected, which was first experienced in the second quarter of 2018.

We have made progress addressing the issue as our rate per mile in our dedicated division increased by 2% on a sequential basis, which was primarily the result of adjusted rates being implemented in early August. And we experienced a sequential improvement in utilization to a decline of 4.9% in the third quarter from the 9.8% utilization decline that we realized in the second quarter of 2018. We are working with our customers to further identify opportunities to increase utilization or amend rates accordingly.

Lastly, brokerage segment revenues increased 54% to $65.1 million in the third quarter of 2018, as compared to $42.3 million in the third quarter of 2017. The increase was primarily the result of a 16.1% rise in load count and higher revenue on a per load basis, which was partially attributable to higher fuel prices. The Brokerage segment continues to provide additional selectivity for our assets to optimize yield, while at the same time offering more capacity solutions to our customers.

Turning to the market, conditions remained strong in the third quarter as we saw our rates increase on a sequential basis since the second quarter and are continuing to increase into the fourth quarter. 2018 volumes in pricing are continuing at levels representative of one of the strongest market environments that we have experienced in the last 15 years.

Looking out to the first quarter, we expect normal seasonality and remain optimistic on the outlook for our business and the ability to continue to drive margin improvement through 2019. I would now like to turn the call over to Eric Peterson for a review of our financial results.

Thank you, Eric, and good afternoon. As Eric discussed, we are pleased to announce record net income and look forward to the prospect of further realizing the benefits of our initiatives as we believe there is significant opportunity ahead for continued profitability improvement.

I'm going to spend a few minutes summarizing our results for the quarter, and we'll focus on the core metrics we use to evaluate and monitor our progress. Total revenue for the third quarter of 2018 increased by $70.1 million to $460.2 million, as compared to the third quarter of 2017. The increase was primarily the result of an 11.2% increase in our revenue per mile, a 54% increase in our brokerage revenues to $65.1 million, and a $12.6 million increase in fuel surcharge revenue. Excluding the impact of fuel surcharges, third quarter revenue increased $57.5 million to $413.9 million, an increase of 16.1% as compared to the year ago quarter.

Operating income for the third quarter of 2018 was $22.9 million, which compares favorably to the $11.5 million achieved in the third quarter of 2017. This improvement was achieved despite incurring $7.6 million of incremental insurance and claims expense in the third quarter, as compared to the prior year period. This was partially offset by a $4 million gain on life insurance reflected in a reduction in salary, wages and benefits. The increased insurance and claims expense during the quarter was primarily related to two events, and we do not believe this increase is indicative of our future run rate.

As Eric mentioned, our adjusted operating ratio was 94.5 for the quarter, representing a 230 basis point improvement as compared to the third quarter of 2017. This resulted in a continuing year-over-year improvement and is a trend we expect to continue through 2019. Net income for the third quarter of 2018 was $16.1 million, compared to a net loss of $0.7 million in the prior year quarter. This is the highest amount of net income we have earned in a single quarter in our Company's history. In addition to improving our operating ratio, our interest expense was $8.1 million lower as compared to the same quarter in the prior year, and we received a favorable determination on a $3.3 million discrete tax item resulting in earnings per share of $0.33.

The effective tax rate for the quarter came in at 27.5%, excluding the $3.3 million discrete tax item. Discrete tax items have and will continue to affect our effective tax rate in both positive and negative directions. We anticipate our effective tax rate to be between 27% and 29% for the fourth quarter.

We also anticipate ending the year with net capital expenditures between $150 million and $170 million. This is approximately $20 million lower than our previous guidance as a result of better visibility on timing of transactions as we closed in on the end of the year.

To conclude, I thought it would be helpful to provide further insight into the variance of our results relative to our expectations as you think about modeling our business looking to the fourth quarter. Overall, when I think about the third quarter relative to our initiatives and where we thought we would be had you asked me two quarters ago, we are essentially in line with operating income expectations with the exception of the excess insurance and claims expense we incurred during the quarter, which we consider to be $3.6 million net of the life insurance benefit.

When developing initial expectations prior to our IPO, we analyzed our rate per mile from our customers in conjunction with our cost per mile for driver wages and independent contractors as these line items have an interdependent relationship. Our rates, driver wages, and independent contractor costs are all higher than expectations. Importantly, our rate has outpaced the increase in our driver and independent contractor costs and has been a net tailwind to our financial results.

During the quarter, tractor utilization was approximately 100 basis points lower than expected in our over the road division, and around 450 basis points lower in our dedicated division. However, a portion of this unanticipated shortfall in the dedicated utilization has been covered with incremental rate increases implemented during the third quarter. This is a component of our year-over-year increase in our dedicated division's revenue per mile of 10.3%.

Our average tractor count was slightly lower than expected for the third quarter, due to slightly lower recruiting levels than expected. We have seen an improvement in both hiring and retention thus far in the fourth quarter, which we expect will increase our overall tractor count to levels slightly above second quarter levels. All other costs, except insurance and claims, were essentially in line with expectations. Fuel and maintenance were slightly higher, while equipment and other general expenses were lower.

Lastly, our insurance and claims costs were above expectations and can be volatile due to the nature and unpredictability of self-insured claims. Our insurance and claims costs exceeded our expectations and we do not expect this level of expense to be ongoing.

With that, I'd like to turn the call back to Eric Fuller for concluding remarks.

Thank you, Eric. While we delivered strong profitability improvement through the continued execution of our strategic initiatives, I'm not satisfied with our results and see much opportunity for continued improvement. As we discussed in our IPO road show and last quarter's earnings call, we have a set of strategic initiatives in place that were developed with an emphasis on managing the business by core metrics, including rate, truck count, utilization and cost. We have designed and implemented initiatives to improve these core metrics and ultimately deliver an operating ratio meaningfully better than the peer average over time.

While we made progress this quarter, we have much work left to do in order to achieve our goal and drive optimal performance over time. As we continue to work to accelerate our improvements across the organization, we started a search for a Chief Operating Officer in July, and are pleased to announce that Matt Herndon, previously Chief Operating Officer of PAM Transport, will be joining our team effective November 5th. This key hire along with our recent announcement of Justin Harness assuming the role of Chief Marketing Officer, will continue driving our cultural and tactical transformation in line with my strategy over the last three years.

We believe 2018 will be our most profitable year in our organization's history. And we believe 2019 earnings will exceed those of 2018. Thank you again for your time today.

Operator, please open the question--call for questions.

(Operator Instructions) Ravi Shankar, Morgan Stanley.

So Eric, your comments on 2019 sounded relatively constructive. But can we just get your view on how you see peak season 2018 shaping up? It's fairly late in the year. And then, we think we should have seen a few of the numbers already, but haven't yet. What's your outlook like? What kind of conversations are you having with your customers on peak season?

Yes. Hey, Ravi. This is Eric Fuller. Yes. I think we typically see our peak season starting about now. Typically, peak--we look at peak as being in that November--usually the first or second week in November, and it will run through the Christmas season. We don't see anything that tells us any differently this year. In fact, our dialogue with our customers, and in fact a lot of our peak season freight has already been contractually agreed to and already confirmed months before. And so, we're really just kind of waiting until we start to see that business pick up, which should be within the next week or two. But we don't see anything that tells us anything different than what we had anticipated relative to the peak season. So as far as we're concerned, things look like they are in line and on schedule as it relates to the peak season and the fourth quarter.

And just on the dedicated side, I mean, you guys kind of improved the impact from that one customer that was hurting you. But where do you think that completely normalizes? Is this something that's going to take a year while you anniversary a contract or something?

I don't think it's a year. But I think that we are continuing to have some dialogue. We've gotten some further improvement in that business over the last 60 days or so. But we are continuing to work, both internally on our operations and externally with the customer, to try to improve the margins of those accounts. And I think that over probably the next say 90 days or so, we--I hope to find some sort of overall resolution so we can get back to our expected margins.

And just lastly, Eric Peterson, I can ask you obviously we don't have too much of a history here, especially given how much the Company has changed in the last few years. So how do we think about the third quarter to fourth quarter sequential walk when it comes to kind of OR and seasonality?

Yes. I think what we--the way I look at it--and I think it's the right way to look at it this year especially, is we usually say that for the year, you look at your first quarter OR and for the year you'll end up approximately 200 basis points better. And the way that works out is on a seasonality basis fourth quarter is usually better by--better than the first quarter. And that's the type of--that's the kind of--that's the way I'm seeing this year, too. So I'm anticipating our fourth quarter earnings obviously to be better to achieve that.

David Ross, Stifel.

Could you talk a little bit about I guess the network and the accounts? If you want to get from where you are now in the operating ratio to where you want to be, which is probably doubling the margin from here, how much is that--how much of that is rate not where you want it versus costs or the network not where you want it?

Yes. I think on a go forward basis obviously rate is an aspect of it. But I'd say neutral to rate. So if you take kind of rate out of it, I think there's obviously some cost components. As Eric mentioned, the insurance piece was obviously impactful. We are continuing with our event recorders to start to try to drive our insurance costs down. So that's a big aspect of it. I'd like to see us get back on track with our utilization, obviously. I felt like our utilization was a disappointment this last quarter. So I think that we have some further improvements in utilization, both in our over the road division and our dedicated division, that I think we can start driving some improvement there over the next couple of quarters.

And then, we've got truck count, where I believe we can get some growth. We are seeing a little bit of growth this quarter relative to where we were in the third quarter. And we believe we kind of hit our trough in the third quarter and started seeing some growth in the back half of the third quarter. And then, a little bit more truck count growth this quarter. So we think we can get--while I don't think it's going to be some large truck count growth, I do think that we can have some marginal truck count growth over the next couple of quarters that will help to lead to some improvement in our earnings.

And then, during the IPO process, we talked about the $10 million self-insurance level as being too high and you were looking to get that down. Is that something that is now on the front burner? Or is the recent claims experience going to make it harder to get that down?

Thank you. That was a timely question. Yes. As of September 1st of this year, we just found our new policy. And our exposure will now be limited to $3 million and going forward down from $10 million.

Okay. So the--I guess the accident or incidents in the quarter happened prior to September 1?

That's correct.

Ken Hoexter, Merrill Lynch.

Eric, you just mentioned at the end of your comments that you expected 2019 to be up from 2018. Can you put some parameters on that? Just obviously you--in 2018 you had a--you benefited from a massive interest expense savings. So I just want to--are there--is there a range you're ready to put on that outlook yet?

Yes. I'm not putting a range on--this is Eric Peterson. I'm not putting a range on the outlook. My comment was more on the operating income line and operating ratio line. It wasn't taking into account interest expense or taxes.

Okay.

So the pickup in interest I'm not giving myself credit for.

Okay. I mean, I would imagine just given your operational improvements you still have, I mean--when you say improvement, I would imagine you're talking hundreds of basis points, not plus revenue growth given where the yields are. But I guess just--it seems like that's almost a given from what you are operationally trying to still achieve. But no parameters on that yet, right?

Yes, Ken, this is Eric Fuller. I think the best way to look at it is really that comment was more relative to our operating ratio. So as we look at '19 versus '18, we believe that our operating ratio will improve relative to '18. I mean, I think that we will see some operational improvement. And again, those things that I just mentioned previous that we believe that not only are we going to get improvement in the utilization and the truck count and some of the cost items, but we also do think that there will be a decent rate environment in 2019 as well.

Okay. And then, I guess you mentioned your CapEx. You are taking that--your target down. Given your savings, you're $20 million lower than it was previously. Is that thoughts on the market maybe, Eric, or is that a delay in getting assets now that you look at how much fewer assets you've brought onboard so far? I just want to get what your--what we should read into that and your thoughts on how the market's developing at this point.

Yes, I would say not to read too much into it. A $20 million variance on a range is--it's really insignificant, if you put that in the number of trucks it represents relative to our fleet. It could be a couple percentage points of our overall tractor count. And what we do, like it's just more of a better visibility coming to the end of the year. But it's not--to me, $20 million is not significant.

Okay. When you look ahead, I guess if you're starting to talk about your CapEx and rolling forward, do you expect a similar level of replacement? Was replacement higher or lower this year than you would have thought? Or anything--your thoughts on growth as you enter next year?

Yes. I think when you're looking at your CapEx next year--and we'll give more guidance on that during our call in the first quarter on what we're anticipating for the year. But I think a lot of that is going to depend on our ability to recruit drivers and retain on those initiatives. And so, we'll be watching the operations and to the extent we're able to get growth you'll probably see my CapEx jog up a little bit. Or--and to the extent that we stay flat, you'll probably see it a little lower. But that's generally what's going to drive where we land in that range.

And I guess just to dig into that a little--maybe one step further, because you mentioned driving--recruiters were still--or drivers remain still tight. Yet we heard this morning from another carrier that the market seemed to loosen a touch. Maybe you can expand your thoughts on does driver pay need to go up significantly? Is there something in the market given housing weakness that is making drivers more available? Any thoughts on the driver market?

Yes. I think part of what's going on in the driver market is a lot of people over--starting at the beginning of this year a lot of people--a lot of drivers moved to smaller carriers or even became independent and moved into the spot market because the spot market was so robust. As the spot market has somewhat pulled back a little bit, I think you're going to find people leave that spot market pool and look for more stable carriers to go work for. And the large carriers are the obvious answer.

So I don't think there's necessarily new people coming into the industry. And that's not what we're seeing. It's more in that experience bucket is that people are moving within the industry and I think in large part they're moving from people who maybe are more in that spot market. And as they, again, see the market may be retracting a little bit, they're looking for a little bit more security and those large carriers provide that security. And I think that's what we've seen over probably the last 60 days.

Okay. And then, just lastly, I just want to understand, Eric Peterson, your comment on the volatility on the tax line. You had the discrete items this quarter. I mean, that was a big contribution to EPS. I presume we just pull that out to normalize it. But that's not something you expect going forward, those kind of swings, or you do expect large swings on that tax?

Yes. There's the possibility I guess of other statutes running out as we go in--we enter 2019. But I don't anticipate any known discrete items to change in the next--in the fourth quarter.

Brad Delco, Stephens.

Maybe the first question, to the extent you feel comfortable giving some color on where your OTR OR is relative to dedicated, or is one performing well versus the other? Just give us some sense of that.

Yes. As you know, we don't break out those individual groups. But if I look at it on a comparison basis, I think that this year has really provided a lot of opportunity in the over the road division. You look at rates being up where they've been up for this entire year. We've had some good opportunities in over the road. And as we look forward, I think we'll continue to see potentially some better opportunities in over the road, if we're at historical margin levels in dedicated. I think that on a go forward basis, if we can get larger margin expectations in dedicated to the tune of 15% to 20%, then obviously that's going to be an area where there's going to be more opportunity on a go forward basis.

But right now, I'd say if you're really comparing the two, there's probably not a lot of difference. But right now, over the road has probably outperformed for most of the year dedicated.

Got you. Maybe asking in a different way, can you give us a sense of how far dedicated is off from your longer term averages?

Well, I think if we can get our dedicated division back to utilization levels comparable to where we were last year, then we feel very comfortable with the margin levels in dedicated. And probably at that point, you're probably seeing a little bit better opportunity in dedicated from a margin perspective than what we are currently seeing with our over the road division.

And then, Eric Fuller, again, sorry. You made a comment in your opening remarks. I think you said you expected normal seasonality through 1Q '19. So can you just give us a little more detail? What does that really mean for fourth quarter to first quarter I guess?

Sure. I think we think fourth quarter is going to be exactly what we expected and what a normal fourth quarter is, which is the peak season between November 1st through right up until the end of the year. We're anticipating a pretty strong retail season in the last two months. And so--and from the visibility we have with a lot of projects and different things with customers, then we anticipate that being a normal and actually a fairly robust fourth quarter.

As we get into the first quarter, we think 2019 as a whole is going to be a good year for us. But we all know that first quarter as compared to fourth quarter, there is usually a little bit of a step down. And that step down comes usually in demand. And so, we think that we'll see the normal seasonality in the first quarter of '19, but I don't think--I think we will see a first quarter more comparable to the first quarter in '18 than maybe what you'd see in an historical first quarter. We think that the first quarter, while it will be a little step down from the fourth, will not be a significant step down. I think it will just be a small seasonal step down.

So we're still forecasting a fairly robust first quarter and really a robust 2019.

Maybe just to clarify, it sounded like maybe you were trying to say that you think OR year-over-year will be better in fourth quarter--or sorry first quarter year-over-year, but maybe sequentially worse in--sorry, I'm going to call Eric Peterson to this and just say that we could assume normal seasonality from there is for the year to be 200 basis points better. Is that how we should think about '19?

I think that's a fair assessment. I think that we stick with the statement we made in the last conference call, is that we believe we will see year-over-year improvement. I believe last comment was six quarters. So I think we believe that we'll see year-over-year improvement for the next five quarters.

Okay. And then, maybe kind of one random one for you, Mr. Peterson. Gains on sale in the quarter, I don't know if I missed that somewhere. But could you give that number?

Yes. We have that--you have to get that out of our statement of cash flows, which is in the back. And I don't have those broken out for the quarter. But they were relatively consistent with what we've experienced in the first and second quarter. You can back into it real easy.

Brian Ossenbeck, JPMorgan.

Going back to the insurance claims. [Unintelligible] you got your attention changed. You mentioned that there is not expected to be an increase in costs. In fact, they start to improve. So can you just walk through them? You had a pretty substantial event it sounded like--the two events in the quarter. Why shouldn't we expect premiums to increase as a result of that? Is it really the event recorders that started this quarter offsetting that, or is there something else I'm missing?

No. When making the change in the programs, the premiums will change. It's a multi-year program. And so, my premiums, they will go up a little bit net-net. We think it--we believe it's a win.

Yes. And we just believe that this last quarter was such an extraordinary insurance cost relative to what we have historically seen, that we just don't think that is a normal cost from an insurance perspective.

So ex the claims, normal trend from here would be a little bit higher premiums offset by whatever you might realize from the safety devices. Is that a fair way to sum it up?

That's correct. And to the extent the premiums go up, I would expect the exposure over $3 million compared to the previous $10 million that--we'll get some of that back there, too. So I can't just look at it as a net premium increase.

On the balance sheet, can you just remind us what the pace of deleveraging is? Do you have that targeted? I think it was around two turns. But over time, where do you think that can go in the near term? Are there any maturities that make sense that you're looking to take out, or based on where interest rates are headed or you expect them to be headed, what should we expect on that side?

I think we're perpetually refinancing as we rotate our equipment in and out of the fleet. And so, to the extent--on the deleveraging side, being in the low 4's at the time of the IPO, and then after the IPO being in the low 2's. That's the neighborhood that we're in now. And we anticipate continuing to make progress there. At some point, it just becomes a math formula of where our earnings end up because we're deleveraging not just through paying down debt, by increasing our earnings.

I think if you look at what we're doing as an organization is, if you look at what we've been executing over the last two years, it's been systematic. It's been very intentional, which makes it sustainable. We're not just looking at these short-term gains. But we're executing on our initiatives. They're going to go through 2019 and that's why we think we'll continue to improve our earnings, which is ultimately going to delever the organization. As we're improving our earnings, that's where we're going to start generating more cash as we approach a 1x levered organization. But that's our strategic longer term. As far as telling you the quarter that's going to happen, I'm not prepared to do that.

And then, the last one, Eric Fuller, if you can just give us a sense of what are you hearing and seeing on the regulatory side out of D.C. these days? Clearly, there's a lot of topics and in the headlines coming out of FMCSA. So I just wanted to get your overall sense of how that's unfolding. Anything big that you're expecting? Any timelines to watch? And how do you think that will ultimately affect capacity in '19 and '20?

Sure. I think any big regulatory changes, especially the hours of service changes coming out of FMCSA, are probably more 2020 events or late 2019. We don't anticipate there being any significant changes any time soon. And so, I don't see that really affecting the next year. I think that if something does occur, you're probably looking out probably 18 months from now or so. Don't really anticipate any major regulatory changes over the next four to six quarters.

Scott Group, Wolfe Research.

Just wanted to follow up one last time on the insurance side. Is there any way to quantify just the two specific accidents in the quarter, is the first part. And then, if this new insurance policy had been in place all year with higher premiums, but lower self-insurance, how different would the overall insurance cost be this year?

Yes, I think not going into the specific claims, I'd say it was the majority of the $7.6 million was on the two events. And as far as net of the premiums and the savings on the old policy versus the new policy, I'd have to go back and look at that. But I'm not prepared to talk about that right now.

So give or take--so insurance costs are going to be up give or take $8 million, $9 million this year. Do you think that would be similar, significantly less?

I said that I wasn't prepared to go through that right now. I think ultimately if you looked at what we did as far as with our new policy that we put in place is, we're trying to manage the overall volatility in our earnings on a quarterly basis. Because having a 40% increase on one line item in a specific quarter, that's too volatile. So we went through--I'll tell you what we did when we went through this process. We did a very data driven--consistent with our management team that we have in place, we did a risk-bearing capacity analysis, looked at risk adjusted discount rates when we were putting this new program in place.

I think we determined the risks that we were taking before with the $10 million on a claim probably wasn't really symmetrical with our overall credit and earnings profile and leverage. And so, with this new program in place we think it's much more prudent for predictability in earnings on a go forward basis. I will say this. When you're looking at our quarterly insurance expense, we'll have some spikes just because of the nature of self-insurance in our industry. But if you look back over two to three years, look back even three years, our insurance line item on a per mile basis and percentage of revenue are fairly consistent. And that's why I don't think looking at insurance on a quarterly basis is really indicative of our overall earnings profile.

Okay. And then, for Eric Fuller. Your comments around utilization. Do you think we start to see that over the road utilization reaccelerate in the fourth quarter, or is that more next year? And then, can you share your contract pricing early expectations for 2019?

Yes. So utilization also you've got to look at it from a seasonality standpoint. So I think sequentially we started to see improvement in our utilization in part because we have seen over the last say four to six weeks some recruiting traction in our dedicated division. And so, we're able to get some of those trucks that we had been supporting in dedicated with our over the road trucks. We're getting those back into over the road. And so, that's going to help our overall utilization and our over the road utilization. So we should see some improvement there over the next--going into this quarter and then on a go forward basis.

I think the tough part is going to be as we get into next year, you've got a little bit harder year-over-year comps as it relates to the utilization piece, specifically in over the road. But I think we can still see some small marginal improvement on a year-over-year basis in those numbers.

I think where I anticipate seeing probably better improvement is going to be on the dedicated side. I think that as we start to get a little bit more traction working with our--both with our operations and with our customers to see improvement there, that we will see improvement throughout '19 on that utilization piece.

And then, the pricing for next year--contract pricing?

I think we still feel that we're going to be in that 5% to 10% range. And so, I think we're still where we are today. And with the insight with our customers and conversations with our customers we still feel it's going to be in that 5% to 10% range.

Ladies and gentlemen, we have reached the end of the question-and-answer session. And I would like to turn the call back to Management for closing remarks.

Okay. Appreciate everybody attending. And we're looking forward to--obviously to discussing our fourth quarter here in a few months. So thank you.

This concludes today's conference. You may disconnect.