XPO Inc (XPO) 2009 Q1 法說會逐字稿

Greetings and welcome to the Express-1 Expedited Solutions first-quarter 2009 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. (Operator Instructions). As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Mr. John Welch, Controller of Express-1 Expedited Solutions. Thank you, Mr. Welch. You may begin.

Thank you, Manny. Good morning, everyone and thanks for joining us on our Express-1 Expedited Solutions first-quarter call. We are always pleased to share information about our Company. With me on the call this morning is our CEO, Mike Welch; Jeff Curry, President of Express-1; Gerry Post, President of Concert Group Logistics; and Tim Hindes; President of Bounce Logistics.

Before I turn the call over to Mike and the rest of our team, I would like to note that this conference call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act. The Company has based these forward-looking statements on its current expectations and projections as of today.

These forward-looking statements are subject to known and unknown risks, uncertainties and assumptions that may cause the Company's actual results to be materially different from any future anticipated results, which may be expressed or implied by such forward-looking statements. Factors that might cause or contribute to such a material difference include but are not limited to those discussed in our Form 10-K for the year ended December 31, 2008. So with that, I will now turn the call over to Mike Welch, our CEO.

Thanks, John and good morning, everyone. First, I would like to thank you and your finance team for your work on the Q and the proxy. We have not missed a beat with our SEC reporting since our former CFO, Mark Patterson, left. I would also like to thank Mark for all his hard work and dedication over the past three years. Mark has agreed to work with us as a consultant, primarily focusing on M&A opportunities.

The first quarter of 2009 was one of the most challenging quarters for the transportation industry in recent memory. The economic recession has had a negative impact on our entire industry resulting in falling demand and increased capacity. Falling fuel prices have also negatively impacted gross revenues. Our 2009 first-quarter revenue was $20,072,000 compared to $23,716,000 during Q1 of 2008, which is a year-over-year decrease of 15%. Net income for the quarter was $5,000 compared to $643,000 for the same quarter in 2008.

Looking ahead in 2009, we feel that the economy will continue at its current sluggish pace. During the months of February and March, we made many reductions to our cost structure, which we believe will achieve approximately $2 million of savings for the remainder of the year. These changes highlight the strength of our asset-lite model. Unfortunately, transition costs involved with our right-sizing project prevented material savings within Q1 of 2009.

We continue to be excited about our model and operating companies. Concert Group Logistics' and Bounce Logistics' diversified customer base helped temper our overall Q1 revenue reduction while Express-1 was able to acquire First Class Expediting Services out of Rochester Hills, Michigan. First Class was successfully transitioned into Express-1 and has allowed us to expand into the short-haul expedited market niche.

We also completed the closure of our Evansville operation and do not anticipate any material costs moving forward. We are excited about meeting the challenges of our current economy. Our strong balance sheet and cash position enables us to take advantage of potential tuck-in acquisitions and opportunities. Our sales and management team continue to grow our new account base despite a difficult environment.

In closing, I would like to thank our employees for their continued dedication towards XPO. I will now turn the call over to John Welch, Controller of Express-1 Expedited Solutions. John?

Thanks, Mike and good morning again. As Mike mentioned, revenues were down by 15% in the first quarter of 2009 compared to the first quarter of 2008. Almost one-third of the decreased revenues resulted from fuel surcharge revenue decreases during the quarter due to the falling price of fuel. Although this resulted in a revenue loss, it also resulted in a corresponding reduction in our fuel costs and overall is viewed as a positive trend.

Fortunately, the startup of Bounce, an acquisition of Concert Group Logistics in 2008 tempered the overall revenue loss during the first quarter of 2009. This diversity will continue to be an advantage for our Company as we navigate through the year.

Our asset-lite model continues to serve us well in this economy and represents more than 95% of our total capacity. Asset-lite means that we rely on transportation services that, from a cost perspective, are primarily variable in nature. These modes of transportation include independent contractors and brokerage partners, both of which are paid variably based on their completed runs. Although this model doesn't protect our overall gross margin in dollars due to volume fluctuation, it does insulate our overall gross margin percentage in that we don't incur costs for underutilized capacity.

Accordingly, our direct costs or cost of transportation went down on a pro rata basis as compared to our revenue, but we were able to somewhat protect our gross margin percentage on a quarter-over-quarter basis. Our overall gross margin percentage was 16% in 2009 versus 17% for the same period in 2008.

Selling, general and administrative costs increased by $93,000 on a quarter-to-quarter basis. This increase relates primarily to additional costs incurred by the Bounce operation that was only operational for one month in the first quarter of 2008. If we take out the impact of the Bounce costs, our overall SG&A costs decreased by $47,000 on a quarter-by-quarter basis. During the quarter, the Company implemented cost reductions to more efficiently handle the decreased business volumes. We anticipate these reductions to decrease our total costs by approximately $2 million through the remainder of 2009.

Primary reductions include a reduction in staff, a salary freeze for all employees, salary reductions for senior management and other selected employees, compensation reduction for Board members, suspension of benefits, including the bonus plan, 401(k) match and ESOP contributions, reductions in travel and entertainment activities and reductions in other identified expenses.

Many of the expense reductions occurred in mid-February and costs associated with the adjustments, including severance and benefit payouts, prevented the first quarter from benefiting materially from the changes. However, we have begun to see the anticipated benefits early in the second quarter. We believe that our ability to continue managing our SG&A costs will be a critical component of our financial turnaround in 2009.

Overall, the Company generated net income of $5,000 for the quarter compared to $643,000 for the same period in 2008. Although 2009 may not provide substantial volume increases, we believe that our continued focus on running efficiently and looking for opportunities will help us survive and thrive as we emerge from this economy in the future.

From a liquidity standpoint, the Company's balance sheet remains healthy and will continue to make strides in managing our outstanding accounts receivable. As the automotive business has declined so has our revenue and related accounts receivable associated with the industry. We no longer have any customers that represent over 5% of our outstanding receivables.

Overall, cash flow remains healthy as we funded our final earnout with Concert Group Logistics and the purchase of First Class Expediting through our credit facility. At the end of the quarter, we have available capacity in our line of credit of $4.3 million with no material capital expenditure plans. Additionally, the Company continues to be in compliance with all its debt covenants as of March 31, 2009.

It is also important to note that, since March 31, we have canceled or expired 2.2 million options and warrants. This represents a 40% reduction in our outstanding options and warrants and significantly reduces our potential for future dilution.

Thanks again for attending. I will now turn the call over to Jeff Curry, President of Express-1.

Thank you, John and once again, like Mike said, I appreciate the fine job your team did in the first quarter to prepare us for today. Our first quarter at Express-1, the revenue dropped about 16% from the fourth quarter in 2008. The drop in the revenue was largely due to the continued decrease in demand due to the poor economy and the normal seasonal reduction that we see in the first quarter.

We continue to diversify away from automotive-related revenue, which represented only 15% of our total outstanding receivable base and reflected a decrease of about 50% from the fourth quarter. General Motors and Chrysler represented less than 3% of our total outstanding accounts receivable at quarter-and.

Our asset-lite model was evident in the quarter as our total cost of transportation, made up largely of owner/operator pay, dropped by about 16% from the fourth quarter. The corresponding drop in our cost of transportation kept our gross margin approximately the same as it was in the fourth quarter at around 23%.

It is also significant to note that we have not adjusted our owner/operator rates down in order to drive the cost of transportation down. We are committed to keeping our fleet of owner/operators as healthy as possible during this period of decreased demand. We terminated some leases with owner/operators that were not meeting performance expectations and are running with a fleet size sufficient to handle the current demand.

During the first quarter, we put a plan in place to reduce our G&A expense that we think will result in strong operating income for the remainder of the year. This plan included the elimination of the 401(k) Company match, layoffs, elimination of the ESOP contribution, some reduced work schedules and reduced salaries of the more highly compensated employees. We did not lay off any of our sales staff and remain committed to placing an emphasis on growing our marketshare in this down market.

It should be noted that these cost reductions did not take full effect in the quarter. However, the month of March though was our strongest bottom-line month of the quarter. One of our primary business metrics is runs per full-time employee and our goal is two runs per employee per day. In busy times, that metric could reach 2.5 before more employees were needed to relieve the added work. When demand decreased in the fourth quarter and heading into the first quarter, the metric dropped as low as 1.2. Our cost reductions have brought this metric back up close to our goal of two. Our headcount in the quarter was reduced by about 15%. Again, this reduction caused no drop in customer service or sales staff. We will continue to monitor G&A throughout the year and make adjustments in areas that do not lead to clear return on our investment.

As noted in our 10-Q, our business mix has improved as we have growth in business from aerospace, pharmaceutical, printing, the utility sectors and growth with some major 3PL. As a credit to our sales team, sales would have been lower if they had not captured new business in these non-automotive sectors.

Our international business totaled about 15% of our revenue in the first quarter as compared to about 5% in the first quarter of 2008 and has become an important part of our business and service offering. We also created a special operations unit that handles unique business opportunities. This business included an entree into government work and partnering with a refrigerated company to service pharmaceutical shippers. The special operations group manages a variety of business outside of the standard ground expediting, but handles the business with the same premium freight mindset that drives our expedite business.

In the quarter, we purchased the assets of First Class Expediting Services in Rochester Hills, Michigan. First Class specializes in regional expedite service in the Detroit metro zone. We were successful in converting all the backroom support to our Express-1 staff and reduced First Class' payroll substantially, which resulted in making them a profitable business unit. First Class has also served as a model for possible future acquisitions of smaller expediters in metropolitan areas.

Our goal at this time is to be ready for when things turn around. Keep an eye open for tuck-in acquisitions and to not greatly sacrifice the bottom line for top-line growth.

Again, the positive highlights for this challenging quarter were stronger results that were realized at the end of the quarter, cost reductions that were put in place that will maintain profitable operations. The operating model reacted as expected in a down market and gross margins remain stable. International services contributed 15% of revenue, up 10% from the same period last year. The First Class acquisition proved successful and our business mix was diversified and the automotive business was a much smaller portion of our revenue. Our primary challenge remains revenue growth. However, as I stated, our sales and customer service staffing has not been reduced to cut costs. Acquisition opportunities exist in this down market and our strong balance sheet may allow us to be opportunistic. I will now turn the call over to President of CGL, Gerry Post.

Thank you, Jeff and good morning, everyone. On the heels of a sharp decline in business levels at the end of 2008, we saw a further drop during the month of January to levels not experienced since early 2006. However, revenue in February and March improved by 18% and 25% respectively over the prior month and we ended the quarter with just over $9.6 million in revenue. This is only 8% less than the same quarter in 2008. Certainly a less dramatic drop than is being reported by most other transportation companies.

Internal growth from stations that have been in the network for more than one year declined by 8% from the same period in 2008. At the end of the quarter, we opened a new independent station in Albuquerque, a market not previously represented by CGL. Under the present conditions, we anticipate them to have a slow and steady growth throughout the year. We also closed the independent station in Portland, Oregon, ending the quarter with 26 stations as compared to 24 for the same period in 2008.

During the quarter, we ceased doing business with three of 2008 top 10 revenue clients due to extreme pricing pressure from competition. While these clients combined represented 10% of our 2008 revenue, their gross profit contribution was less than 5%. This will actually positively impact our gross margin going forward.

Gross profit for the quarter was $887,000, which is 10% less than the same quarter in 2008 and 19% less than the previous quarter. This is attributed to a combination of lesser revenue and exceptional gross margin performance during the fourth quarter of 2008. We realized improvement in our gross margin as the quarter progressed, primarily due to the aforementioned loss of clients and our continued efforts to reduce purchased transportation through technology, education and better communication.

Our top 10 clients during the quarter generated 40% of our revenue, which is considerably greater than previous quarters. This is a result of several new client projects started in the quarter that will continue to contribute additional revenue into the second quarter. While general business has dropped, these projects generate bursts of revenue and gross profits that help soften the overall decline.

Active clients, which are those clients having transacted business with us during the previous six months, declined by 4.5% from the fourth quarter of 2008, but are up 3% over the same period in 2008. This is encouraging because it means that, even in these tough times, we continue to expand our customer base; albeit their volumes may be less or businesses shift into our lower-cost transportation services.

International revenue held consistent at 26% of total revenue. International air revenue declined by 9% and ocean revenue increased by 21%. This follows a subtle shift by clients to lower-cost transportation options.

General and administrative expenses for the quarter were 8% less than the same period in 2008, consistent with the reduction in revenue. Cost reductions were initiated during the quarter in order to scale expenses to revenue and gross profit levels. These reductions included layoffs. We reduced our full-time staff by almost 25%, salary, benefit and hour reductions, as well as other noncritical expenses. The full impact of these reductions will be realized in quarter two and subsequent quarters.

Under our non-asset-based structure with significant variable costs, we have demonstrated how we are able to quickly adjust our G&A expenses to the levels of income. This allows us to remain profitable in good and bad times. Thanks to the commitment and sacrifices of our dedicated employees and as business conditions improve, we are confident that we will regain the growth momentum we have enjoyed in the past. Thank you and I will now pass the call to Tim Hindes.

Thank you, Gerry and good morning, all. Bounce had a nice quarter with good sales growth in Q1. We added over 50 new customers during the period and this has strengthened our market position and we believe it is going to treat us very well when the economy turns around and we are still adding.

To prove the point, our daily shipment count now exceeds that of our peak months of 2008 when we look back. While that's the good news, our shipment count is up, the revenues are well below the peak 2008 months due to the truckload pricing being significantly lower. As an example, I will give you -- in October, our average sell rate per mile, what we would charge the customer, was $2.49. Our average cost per mile, purchased transportation at that time was $2.08. As of this writing, with similar length of haul, it is running at $1.66 and $1.37 respectively.

So we expect the underwater pricing -- it will continue until the combined tight credit markets and weak demand result in further fleet reductions and possibly carrier bankruptcies. The reduction in capacity will naturally correct the imbalance we see today and the rates we believe will begin to escalate rather quickly.

With one year under our belt, we are now modeling strategies aimed at growth. We have established a nice platform on which to build and right now scaling the business is my primary focal point. Thank you for your interest in the Company. I will now pass the call back to Mike. Mike?

Thanks, Tim. I'll now turn the call over to the operator for questions. Operator?

(Operator Instructions). Robert Niewijk, Katana Capital.

Good morning, guys. Your title on the press release really says it all. If you guys can be earning a profit at the end of the world, even $5,000, you are doing a great job. So keep it up.

Thank you.

One of the reasons that we have been highly skeptical of the Green Shoot stock is precisely because transportation companies are still just getting killed. And you listen to any of them talk about demand and it keeps going down. I would just like to hear more from you on specifically first quarter and what you are seeing going forward versus say fourth quarter. A lot of companies hit the wall in the fourth quarter, but you seem to have had quite a shift down in demand even since fourth quarter.

This is Mike, Robert. I guess the best way to look at it, as we have seen, it certainly has been slow. It was much slower or quite a bit -- the bottom we feel was January and February where it was down significantly. We are seeing a slight uptick, but nothing of anything to brag about. Our fourth quarter, most of our strength was early in the fourth quarter, the first half. We started seeing the slowdown probably in November where it really started hitting us. And we were fortunate enough, October generally is our best month anyway, so that drives a lot of our profits.

But you are right. We were at a transportation conference and one of the points that was made is usually the transportation industry leads the country out of the recession. At this time, the transportation industry hasn't seen any significant good news as far as amount of business out there.

Okay. You talked in I don't know if it was fourth quarter or the third quarter about demand was falling, but you were already seeing a reduction in some capacity from others and a bit of a reduction in competition. Do you have an update on that?

We are not seeing any major bankruptcies as far as competitors across the board in our business, but what we are seeing is continued reduction in capacity. Whether it is from the truckload sector, the expedited sector, we are definitely seeing decreases in the fleet sizes of competitors.

Okay. How about -- what was your change year over year in driver count?

Right now, year over year from our top, we are probably -- Jeff, do you want to answer that? It's in the 20s from our very high --.

Yes, we have never given the exact driver count, Robert, on the call, but we are down about between 20% and 25%. As I said in my script, we selectively let some of our weaker performers go. And the nice news, the good news is that a lot of that attrition is in the small truck category and those tend to be easier to recoup when things return. But we have had some loss there in correspondence with the drop in demand.

Okay. It looks like there was a change this quarter, a lot of previous quarters as demand industrywide was falling. Your volume held up pretty well, but then the gross margin split. And this time, it was the opposite. Did you guys actually shift strategy or did pricing finally bottom in the industry or what happened?

I think in general our corporate culture is not to get real down and dirty with pricing. And I think we have stayed really committed to that and there is only so far you can go. Jeff mentioned from the Express-1 point of view paying the drivers and not driving their pricing down so much. So we have tried to stay out of some of the real, real ridiculous pricing that is out there. And you can see that based on Tim's illustration and how much pricing has dropped in the truckload brokered section of the business.

So I think it is more of a corporate focus on making sure that we can keep our fleet healthy and not to get ridiculous with pricing. And Gerry even hit on that with CGL where we did lose a couple of major accounts, but the reason being is the margin would be so low, it wasn't really worth doing. And the same thing that happened with us in Evansville on our dedicated project. We decided not to do the business for free.

Right. Okay. Next, M&A. Anymore -- not specific opportunities, but what are you suing at this point in terms of the likelihood of picking up more like you just did?

Well, we are certainly getting a lot of calls, talking to a lot of different people. Those are opportunities. Hopefully with the ones that we do talk to, we have some interest in. There is certainly a lot more calls and things, but it is very difficult still in this environment to find a company that is still doing halfway decent where you can roll it into an Express-1 or a CGL or a Bounce. So we are cautiously optimistic about some possibilities going forward.

Okay. Final question for me and then I will get off. The warrants. I am looking at your schedule of expirations for warrants right now and second quarter, they were about 1.8 million that were set to expire and you are giving a number of 2.2 million. Does that mean there were additional ones that were canceled?

John, do you want to cover that?

Sure. Yes, Robert, that is what happened. So we had our 1.8 million warrants expire in Q2 and in addition to that, with Mark Patterson leaving and some other executives that left over the first quarter, that represented the balance. So that was about 400,000 options that were also canceled.

Okay, great. That is all my questions. Congrats, again and I will see you in St. Joe's sometime in the next couple months.

You are coming at a good time, right.

That's when I come.

All right. Thank you.

Rich Murphy, Cross River Partners.

Hey, guys. The $2 million expense saves, is that spread over three quarters, 660,000 or is that something we'll see more front-end loaded?

Rich, it is more spread over the three quarters. A lot of it had to do with, like was mentioned, 401(k), bonuses, reductions in workforces, those type of things. Those are going to be spread fairly evenly.

Okay and that's going to be in the SG&A line primarily?

Primarily, yes. There is some below, but most of it in SG&A, a good portion of it.

And I saw the expenses drop down to about $16.8 million, a 24% drop quarter over quarter. Where are you on a sustainable level? Can you latch onto -- as revenue picks up, can you scale that back up or I mean how much further down can that expense line go?

John, do you want to handle that?

Yes, are you talking about direct expenses, Rich?

Yes, total direct expenses, they dropped off almost $4 million.

Right. And we see that as a big asset to our asset-lite model because those expenses, remember, are primarily variable in nature. Okay? So when we have runs, we pay independent contractors. If we don't have runs for the independent contractors, there is no payments going out. From our perspective, it is pretty easy to manage that cost going up and down because it is primarily variable in nature.

And finally, on the M&A side, given where your stock is, your debt is back to $5.3 million. Are we going to see -- what is your penchant for -- how are you going to finance any acquisitions? Are they going to be small like the last one we saw?

Yes, Rich, we have I think a little over $4 million available with our line. We are looking at tuck-in type acquisitions if they come, obviously with the debt structure that we have now. So it is really we are looking at those type of things. Really, if you want to look at it, we have three great platform companies. We have Bounce Logistics from the truckload premium brokerage side, Concert Group from the freight forwarding side and Express-1 from the expediting side. So we are looking for those opportunities to tuck in to one of those platforms.

And finally, this is probably for Jeff, the Express-1 revenues, you said it declined 16%, was that sequential?

Yes.

Okay. I don't know if you have -- on the fuel surcharge, would that be in the Q as far as what that was? Was the drop greater or less with fuel or how do I look at fuel surcharge going forward?

Do you want me to handle that, Jeff? I don't think we have talked specifically in the Q about fuel surcharge. We talked in the conference call today about fuel surcharge revenues representing about one-third of our reduction in total revenues.

Okay. I see. Okay. Great quarter. I want to reiterate what the prior gentleman said about -- in this environment, I look at a lot of trucking companies and to be profitable is a badge of honor. So congrats on the quarter, guys.

Thanks, Rich.

David Campbell, Thompson Davis & Co.

Yes, thanks. Good morning, everybody. I just wanted to ask, on SG&A, it is going to be down $633,000 here, roughly spread over the last three quarters. Is that relative to the first quarter? What should we use for a base or should the fourth quarter be the base?

Want me to handle that, Mike?

Yes, I think so.

Again, it is not all coming from the SG&A line item, but we are expecting -- we are running the first quarter at $3.2 million and we are anticipating that number to be approximately $2.7 million in the final three quarters of the year. That's somewhat of a moving target. If you run the numbers, you will, say, well, that doesn't add up to $2 million. As you might have guessed, the remaining expense reductions would be up in the direct expense line item.

Okay. Largely in the expedited services?

Yes, most of that was the savings on the Express-1 side.

Correct.

Okay. So you are now calling expedited Express-1. Is that --?

Well, the Express-1 is the expedited company, yes.

Yes, okay. And as far as acquisitions, first of all, what did you -- can you tell us what you paid for First Class or will that be in the 10-Q?

It is in the Q, but we paid $250,000 and we received just under 50,000 of assets on that, David.

Okay. And you mentioned it is hard to find candidates to merge with. Is that because they have a lot of problems and you don't want to take on problem companies or is it mix of business, just what are the principal problems?

One I would say is the expectation of the seller. Many of these companies have been very profitable and solid in the past, especially if you look back to the year 2007. In today's environment, as you know, valuations have dropped greatly. The Company's profitability has dropped greatly and sometimes there is a disconnect between their real value today and what their expectations are. So I think we have seen that as probably the biggest one.

On the flip side, there are some good companies that have basically just lost such a big chunk of their overall revenue that it is just more trouble than what it is worth. That being said, there is still many companies out there that we have talked to and we will continue to talk to that we would have an interest in. So, much like First Class.

The bankruptcies of a truckload company, asset-based truckload company is not really any benefit to you potentially?

Well, Tim, do you want to handle that as far as Bounce, what you feel -- how you feel that would work?

Yes, it depends on how much capacity it would take out. A very large -- if there is a very large carrier that would go out to take enough capacity out, that certainly would help us and we believe if the pricing continues at where it is at, it can't stay at this level forever. We will start to see more and more people go out.

So if the pricing go up, so will your costs go up. But you are just going to make the same margin on higher revenues.

Right, you will make the same percentage margin on higher dollars.

Right. Right. Right. And what about line-of-credit payments in the rest of this year? Do you have any estimates of what they may be?

John, would you take that question?

Yes, David, we don't have any significant capital plans, so no significant CapEx. It really depends on what happens with operations. I mean with these cuts that we are making, we should be able to return to substantial profitability and we should be able to pay off our line of credit. We have paid off our final earnouts for Express-1 in 2008. We paid our final earnout for Concert Group Logistics just last quarter, so we don't have those liabilities and cash flow needs at this point. So right now, it all depends on what we generate from operations.

And the notes payable are at $300,000 a quarter roughly?

That is correct.

Okay. So can you estimate what the second-quarter so-called transition costs were in the first quarter?

We can, but we haven't summarized those and don't have those detailed out. So I guess to answer your question, no, I don't have that available.

Okay. I am sorry to be taking so long here. You said that March was the best of your three months and as far as bottom line is concerned, so there was a seasonal pick-up in revenues relative to January and February?

Yes, specifically, our January and then early February were we feel were the bottom as far as the revenue potential. It was pretty bleak, so we are seeing a slight unthawing of the overall business across every business unit, David. So yes, we are hoping we saw the trough in January and early February.

And that would be in all three business units?

Yes.

And what was the international revenue contribution in '08 in the first quarter in Concert Group.

Gerry, do you want to handle that?

First quarter 2008?

Yes.

If you give me a moment here, I can get that for you.

Dave?

Yes.

Maybe give Gerry a little time here. This is Jeff Curry at Express-1. You had asked a question earlier about bankruptcies and the reduction in capacity and so forth and what advantages that might bring us.

Right.

Am I restating that okay?

Right.

There is another thing that may come into play. As we survive this and come out at some point when this thing starts picking up again, the economy that is, just this morning, I was met at the door as I was walking in by a gentleman who had a class A license, not a mark on his drivers history, years of experience and he drove here to meet with us to talk about an opportunity to join our fleet. So there may be an opportunity here if it is not growth in the fleet at this time because of lack of demand, certainly an ability to enhance the quality of the driver that is in the fleet as evidenced by that gentleman that met me at the door today as I walked in here. We may see more of that. And that certainly could help us grow with some real quality people as demand picks up.

So he was a man with a truck who was driving for other --?

He was actually let go from another carrier who is having hard times who had been around and he had been with another one -- another one that had hard times as well. So he was desperate to find a good solid company. Three years ago, they really wouldn't have asked how solid is your company. They would have asked how many miles can I get, but now they really care about how financially sound the company is that they are getting involved with.

This is Gerry. That number was about $2.5 million.

$2.5 million in '08?

Right.

Okay. And you were talking earlier, I think it was Jeff, about the miles per -- runs per employee that got down to 1.2 runs at the low point and are now around 2 runs per employee. Does that sort of mean that you could add, do a rough guess, 30% to 40% to revenues in Express-1 without adding people?

That is a good guess, yes. I would say so. We have gotten up to about 2.5 I said in my script where that was sort of the breaking point. We are up close to our goal, but not quite there with the restructuring we have done or the cost reductions we have done. So I think that is a reasonable guess at this point.

That would be relative to first-quarter run rates?

Right.

And the reason you would have to add people is just the cost of managing the additional staffing or managing different more revenues?

Yes, you are just managing more activity. You are tracking more loads, you are calling more customers, you are fielding more calls for orders. You have got more trucks that you are signing on. So it just increases the activity, but I think your estimate there is pretty good.

So we have got to get there. Got a long way to go.

Yes, we have got to get there. Sales group is working hard though.

Well, thanks for the help. I appreciate it.

(Operator Instructions). Helane Becker, Jesup & Lamont.

Thank you very much, operator. Hi, gentlemen. Just thank you very much for taking my question. Just with the decline in revenues that you have seen in some of your businesses, do you have to make an adjustment to goodwill at some point?

Do you want me to take that one, Mike?

John, you can handle that.

Unless you want to talk about goodwill impairment.

No, I think that is better left to the accountants.

Okay. That is something that we look at on an annual basis. Third quarter is always the quarter that we look at impairment testing. Now the reg states that we need to look at it at least once a year or when things have changed, triggering events have occurred that would lead us to believe that there has been impairment. Now we did discuss this a lot with our CPAs and some other people in the transportation industry. And at this point, we don't think an appropriate triggering event has occurred in such a manner that we would actually have an impairment of goodwill.

Now with that said, if this economy lasts much longer and we go through our impairment testing in the third quarter, it is possible that we could have an impairment. But at this point, we really can't speak to that, but that is something that we have considered and we are constantly looking at. If you don't hear from us before the third quarter, that will certainly be tested during the third quarter.

Okay, yes, I was trying to get a sense of the timing. Thank you. And actually David did a very good job of asking all of my other questions and you did a great job of answering. So thank you.

We have no further questions in the queue at this time.

Once again, everybody, we would certainly like to thank you for your support of our Company. I also wanted to say one last time I am proud of our people, the efforts and the sacrifices and the dedication that they have shown. It is always easy to be up and happy when things are going great, but in this down economy, I think, once again, our people prove why we will continue to be successful. And I want to thank them for that. So with that, again, thank you and have a great day.

Thank you, ladies and gentlemen. This does conclude today's teleconference. You may disconnect your lines at this time. Thank you for your participation.