Covenant Logistics Group, Inc. (CVLG) Q2 2014 Earnings Report, Transcript and Summary

Excuse me, everyone, and welcome to the Covenant Transportation Second Quarterly Conference Call. We now have all of our speakers in conference. [Operator Instructions] I would now like to turn the conference over to Richard Cribbs. Mr. Cribbs, you may now begin.

All right. Thank you, Noelle. Good morning, and welcome to our second quarter conference call. Joining me on the call this morning are David Parker; and Joey Hogan, along with various members of our management team. As a reminder, this conference call will contain forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Securities Exchange Act. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Please review our disclosures and filings with the SEC. A copy of our prepared comments and additional financial information is available on our website at ctgcompanies.com under our Investor Relations tab. Our prepared comments will be brief, and then we will open up the call for questions. In summary, the key highlights of the quarter were as follows. Our asset-based divisions' revenue, excluding fuel, decreased 0.8% to $124.4 million due to a 7.8% decrease in average tractors, partially offset by a 6.8% increase in average freight revenue per truck and an increase in our refrigerated intermodal freight revenue. Versus the year-ago period, average freight revenue per total mile was up $0.076 per mile or 5.2%, and our miles per truck were up 1.5%. Freight revenue per tractor at our Covenant Transport subsidiary was up 10.3% over the prior year quarter, while our refrigerated subsidiary, SRT, experienced an increase of 3.6%, and our Star Transportation subsidiary experienced a year-over-year decline of 2% primarily due to the renegotiation of certain dedicated contracts in July 2013 that effectively moved freight revenue to fuel surcharge revenue that offset fuel expense. Compared to the year-ago period, the asset-based divisions' operating costs per mile, net of surcharge revenue, were up approximately $0.051 per mile mainly due to higher driver wages, workers' compensation insurance and capital costs. These increases were partially offset by lower net fuel costs, including recognizing a benefit of $0.9 million to catch up on a specific fuel credit. The asset-based operating ratio improved 210 basis points to 93.2%. Our Solutions logistic subsidiary increased revenue by 25.6%. Although we achieved a reduced purchase transportation expense percentage, other operating expenses increased as a percentage of revenue, providing a basically flat operating ratio deteriorating only 30 basis points to 95.8% from 95.5% in the year-ago quarter. Additionally, our minority investment in Transport Enterprise Leasing produced a $0.9 million contribution to pretax earnings or $0.03 per share. Since December 31, 2013, total indebtedness, net of cash and including the present value of off-balance sheet lease obligations, has decreased by approximately $22 million to $284 million. The average age of our tractor fleet continues to be very young at 1.8 years as of the end of the quarter, down from 2.1 years a year ago. With available borrowing capacity of $35.7 million under our revolving credit facility, we do not expect to be required to test our fixed charge covenant in the foreseeable future. Versus the prior year quarter, our consolidated operating ratio improved by 190 basis points to 93.4%, while net income improved to $3.8 million compared to net income of $1.9 million last year. The main positives in the second quarter were: a significant improvement in the operating profitability at our Covenant Transport and Star Transportation subsidiary; also sequential improvement in the results at our SRT subsidiary following their major system conversion during the first quarter of 2014; a 5.2% increase in rates versus last year; a 1.5% increase in average miles per truck; and a decrease in our total indebtedness. The main negatives in the quarter were: the 7.8% decrease in fleet size versus last year; and increased operating costs on a per mile basis. Among asset-based service offerings, since the end of the first quarter, we reduced capacity allocated to all 3 of our truckload subsidiaries. However, we are encouraged that our fleet size seems to have stabilized evidenced by averaging basically equal fleet size for each of the April, May and June months at 2,569, 2,561 and 2,571 trucks, respectively. This evening out of fleet size was assisted by an approximately 12 percentage-point year-over-year improvement in driver turnover. The industry's driver shortage continues to be its most significant challenge, therefore, we continue to test our sales to improve the quality of life and achievable compensation for our valued professional drivers in an effort to attract and retain the very best drivers. Freight yield results for the first 3 weeks of July 2014 continue to outpace expectations as the freight environment has not yet slowed from June levels and our customer base has grown. Thank you for your time, and we will now open up the call for any questions.

[Operator Instructions] Our first question comes from Brad Delco with Stephens.

I wanted to ask you a little bit about the quarter. Strong rate improvement, but when I look at it, insurance costs were a little bit higher sequentially than where you guys have been running. And typically, when you see tough insurance quarters, it impacts profitability, so I guess I commend you for the results. But where do we think that number should be running? And was there anything in particular that occurred during the quarter that caused you to reserve more on the insurance side?

We actually did have a few more accidents than what we've been experiencing recently. And so it was just actual accidents, it wasn't really a change in reserve practices or loss development factors or anything like that. And I feel like at this point, it's a little bit of an anomaly. Sometimes it's what you don't say instead of what you do say in these releases. And over the last few quarters, we've been able to say that we had record DOT accident in kind of history. Each quarter, for probably 5 or 6 quarters and maybe save 1 and this quarter, we weren't able to say that. So a little worse quarter than what we've been experiencing. Again, I don't think that that's going to be routine and I expect that $0.095 number and the higher workers' comp number, too, to both decrease again, and that will not be where we will average. So somewhere probably in the 8.5 to 9 range.

Okay. Great. That's good color, Richard. And then, David, for you, I mean, the environment clearly seems to have changed. You guys got a lot of progress on rates this quarter. But I would imagine that there's still some more to come based on just the timing of when some contract's going to place. Can you kind of talk to us about where you think the rates are for the market right now? And what percentage of your freight essentially was operating under these new rates in the quarter, and where you think that could be third quarter?

Our -- as I think about all the CTG, we have a big -- that middle of March to middle of May is a big timeframe for us. A lot of our large accounts happened during that time, and you saw that in particular in the second quarter. So going forward, what ends up happening, we still have 2 or 3, but it doesn't grow as dramatically as what you've seen. It starts tapering off for the next 2 or 3 months or settling down with smaller top increases, and then you get back into the peak season and a lot of things start happening during the peak season that assist you into that fourth quarter kind of number. So the big, big pop in rates is there. You're not going to see those decrease, but you're not going to see those 6% or 7% increase in rates either.

But maybe, sequentially, but in terms of the quarter, I mean, I'm sure that gathering from others that roughly, let's say, 50% of your freight in the second quarter on average is running under sort of new contract rates, and you probably ended the quarter with 2/3. Is that a fair way to think about your business?

I would say that we ended it, the quarter with 75%.

Yes, several of the SRT contracts didn't become effective until May 15, June 1, that kind of the timeframe, so they were a little later. And just as a little color on that, the June rates were about $0.02 a mile greater than the average for the quarter. So it gets a full amount on the batch for the whole quarter of third quarter.

And then, David or Joey, it seems like based on sort of the results here, and I think kind of the commentary based on July, there are good things that are happening in Covenant and it sounds like it's more than -- you're certainly better, I think, from the environment book. What are some things that you guys are doing internally that maybe you're driving these results? And particularly, something that was impressive was the 12% improvement that we heard on the driver turnover year-over-year. What's really driving the shift internally in terms of these improvements?

Brad, this is Joey. I think we get asked that question, or I do, quite a bit. And I think there's a couple of things that I point people to. It's not what I would say, really, any rocket science. First of all, it's just a lot of hard work and time. Second, I think our planning process really just kicked off about 2.5, 3 years ago. Very intensive, we’re finishing up our third one now. I think that's helped us focus on really where our internal opportunities are. It promotes collaboration and communication across the entire enterprise. And I think that's helped us a lot. And I think it's helped us a lot to stay focused on what's really important and I think that's one. So I would say our planning process. And then number two, focus of, let's call it the management team. And David is sitting here, and I'll give him a lot of the credit, but kind of turning David loose on what he does really well is pushing all the organizations in the business development side. And I think he's just -- he's made a big impact in that regard, making sure we're all pointed to growing the business, if we can, to grow it profitably and making sure we're getting paid fairly for what we're doing. And I would say those 2 things, focusing me on what I probably do a little bit better than been trying to do too much. And then lastly is just a big push across the enterprise. Again for a company our size, let's call it smaller company, well, we got 6 companies, 6 independently running operations inside of the group, and that presents challenges but also can present opportunities. And I think that pushing those people, and that's what David and I try to do together, pushing all those companies to maximize efforts across. And what we mean by this is pretty simple. Any stick of freight that comes in through any medium, through any process, through any company, somebody is going to get it, and we're not where want to be on it yet. Be it -- we're not where we want to be on that yet. Number two, any driver that wants to work for any company through any medium, whatsoever, that we grab them and we put them in a place they need to be. That's going to make that driver now most successful, not necessarily potentially where they were recruited from. Because at the end of the day, if they're successful, the group will be successful. And so I would kind of say it in those 3 things between planning, focusing of strengths and weaknesses at the management team level and then collaboration across the group.

I'd add -- I think we've added improved communication to all levels of the organization. We've talked at times about following the 40x process of having a focus for each of our entities, a true, most important goal for each of those, and all of the departmental employees all know what that goal is and they all have KPIs and lead measures and actions, steps that they must take that relate to that goal and they're all very aware of that and focused on that. And I think that's made a big difference, as well.

Got you. And where do you think we are in that process? I mean, clearly, you've been sounding like you guys are done, but how far of the way are we through this process?

I would say there's just so much more in us. Some people were commenting last night and I just -- I kind of told them, I said, there's a whole lot of gas left in the tank, it kind of describes who we are. And I don't know, we tend to talk baseball a lot. I'd say we're probably -- we're getting close to touching second base, but there's still so many opportunities. Now we've got everybody on the same platform as far as freight, that we're going to be able to do it with freight down the road, profitability, drivers, those things. Now that we've -- that's been 5-, no, 6-year process, it's been a long arduous process. And getting that done, I think, one, we're not even out of the batter's box in my opinion on that one. But as far as the collaboration and working together, recognizing the things that we need to work on better together, we have because that's the big part of it, and we just recognized it. And then I think it's -- just a lot is left, a whole lot is left in that.

Our next question comes from Reena Krishnan with Wolfe Research.

So first of all, I just wanted to see -- understand was there any sort of lingering impact from the transition to the new system on the SRT division this quarter?

Yes, I mean, the first quarter happened in February, and we all know that that's the worst part. But yes, there were -- I would say that there were probably at third base, using the baseball analogy, on-bat during the second quarter. But there's still training that is going on, and they're still -- we're still introducing them to new reports to be able to run their company better. Going forward, I think the next second half of this year, we will get there, but yes, we're at -- we're kind of third base on that, and there's a lot more opportunity to run their company. So those kind of things. The system is not hurting them at all. I'll get matching troughs in talking to customers and making sure they get the freight picked up and delivered, but there is just a lot of accessorial ability that, that system has, that they're just now starting to get acquainted with.

Reena, let me kind of say just real quick on that, and for our SRT folks who are listening on the call, which there will be several, is that they've done a great job of battling through this. And we talked about it couple of weeks ago. If you look at miles per truck for SRT, it's doing at/or better than it did a year ago. Service is -- in their own words, SRT's personnel, its own words, is better now than it was a year ago. Driver turnover in the second quarter was better than it was a year ago. Accidents rates were about the same, let's call it, but it was no worse, was no better. So put all of 4 those in the hopper. The 4 biggies, how you're moving your trucks. Are your drivers happy with the product? How are you servicing your customers and are you doing it safely or not, at or better than year ago. Now we're not as efficient yet. That's kind of what David was talking about, how we're getting there. We're not as efficient as we want to be yet. Still have maybe more. We've thrown a lot of people at it, working on hard hours, a lot of hard days, and so -- but the key metrics, better, at/or better than year ago, and that's 4 months after conversion. And that's pretty strong. It made conversions with -- frankly, that's very, very, very strong. So that's why it gives us a lot of hope and confidence as we move into the second half of this year.

Okay. Great. And that's really helpful. I was just trying to understand it because -- I'm just trying to understand what more improvement we could see as the team becomes more comfortable and continues to improve with that system in place. The other thing I wanted to ask is so you guys guided to 4% to 6% decline year-over-year in the fleet, operations and maintenance costs were kind of flattish on a cost-per-mile basis, but we saw, obviously, a huge increase in the salaries and wages. I'm just trying to understand in the context that you gave, maybe the fleet could shrink a little bit more from here or stay flattish, how we should be looking at those 2 items going forward. I mean, is it -- with operations, I mean, it's flat in the quarter. I'm not sure if that's reflective of just the fleet upgrades, or you guys aren't really recruiting. If you could just help me understand that a little bit more.

Okay. Let me jump there, and Richard can jump in. I think you're seeing the fleet size about where it's going to be. I really believe, based on everything that's happened to us in the second quarter, the plans that we've got going on now, I think you're going to see the fleet size, I think it's bottom. They're going to grow a lot, and I'm not going to say that in this market, but I think we've hit the bottom. So -- and that's got Richard in the script. He was just trying to guide everybody to it. It has stabilized the last 3 months, and I think you're going to see that. Number two on the ops and maintenance side, we did have a lot of equipment within our fleet, which we call it 2 out in the quarter. And I think you're going to see that slowly get better as we move through the rest of this year. As we've got the some trucks out of the fleet and a couple of the subs that -- just for too high maintenance costs. And I think from the -- now the one piece of cost that is going to be, I'm not going to call it volatile, is more up than down as salaries and wages. I mean, that's something that's up pretty meaningfully versus a year ago, and I think you're going to see it continue, I'm not going to say decline. We're going to have the -- in the third quarter, a full-quarter effect of some raises that Covenant and SRT did in the second quarter, a light second quarter. So that's going to kind of grow in the third quarter from the second quarter, I expect. But I think fleet size is stable. I think ops and maintenance will continue to go down. I think fuel, our net fuel costs is going to continue to get better, believe it or not, and just because of the fleet replacement cycle of what we're taking out and what we're putting in the fleet. So as far as cost is concerned, I think we're in a pretty good spot. Driver wages is going to put a lot of pressure on the cost structure, but maintenance could come down. I think fleet, fuel costs will continue to be good. There will be some capital investment as we continue to replace the fleet. But I think from the cost side, I think we're in a pretty good spot. Richard...

Yes, I think on the driver side, I think that we definitely stabilized. We saw a small, small, small amount of growth in June. And I think that there is a little opportunity on the owner-operator side. We're starting to see that develop again with our lease, lease purchase plan that's a really strong program right now. And so I think there still could be a little growth there, and if we could maintain the company employee side, I'm still hopeful. We've made some really nice driver pay changes, as well as quality of life around home time and detention pay and those type of things that went into effect June for Covenant, and actually don't go into effect until early third quarter for SRT. And so those driver pay will be up, will be increased third quarter over second quarter. But also think, it should help us at least retaining the drivers that we have and then I still have hope that we're going the grow their owner-operating group.

Okay. Great. That's really helpful. Just I guess, a few more questions just on -- as it relates to CapEx and gains on sales. Well, how should we be thinking about gains on sales and the income you get from your equity affiliate? Going forward, I mean, this year, is this quarter result -- or in 2Q, was this slightly higher than where it’s been typically? So I just wanted to get some color what should be the right run rate, on how should be thinking that over the second half of the year?

Yes, it was a little high at $1,061,000 in the second quarter. I expect that the rest of the year will average closer to more of our average of $700,000, $750,000 a quarter going forward. And on the CapEx side, we spent about $13 million net of proceeds this quarter, and I expect that to be up a little bit in each the third and fourth quarters above that number.

Okay. And then just on the equity income, Richard, if you wouldn't mind giving us some color there?

Yes, I think it's still growing, and we have a lot of things in the hopper right now and some good opportunities that we're working on. And so I can still see that continuing to increase. It's still a growth business. I don't think the growth will be 100% growth year-over-year like it's been for the last 2, but I still think it's probably 25% to 50% growth year-over-year as we keep moving forward.

Our next question comes from Ryan Cieslak with KeyBanc Capital Markets.

I guess, the first question I had, I just was curious maybe, David, if you could talk a little bit about how the quarter sort of progressed from April into June, and it sounds like we're seeing some still strength there into July. I'd just be curious to know really what's driving that at this point, maybe relative to what you see is a little expectation, typically are here in July?

Ryan, it's interesting because we all know we came out of a horrible weather in the first quarter and that took us to about the 15th of April. And then I remember talking to one of the analysts on the phone here around the 1st of April, and we were saying, we were all wondering, everybody on this phone was wondering is the first quarter real under this tight capacity. And I told him, I said, well, no, around -- in my opinion, around the 15th of April, how we're going to feel and is this true in what we've been experiencing in February and March, if it's real or is it all just the weather-related and railroad problems in Chicago and those kinds of issues. And the -- as the quarter progressed, the tight capacity remained. I mean, it wasn't -- now it's a healthy tightness. We are still getting bottom-chewings everyday from customers, but it is not -- you're blowing up the supply chain, and we're just absolutely dying, but they are still having major -- there's still having issues. Let's not use the word "major issues" like it was in the first quarter. But there are still big concerns about capacity throughout the United States, and we may have a city here and there, and it's literally down to a city. It maybe Seattle, Portland that I'm not overly excited about. We're moving our trucks everyday, but it's not like we have a bunch of excess freight. But other than that, virtually every section of the United States in the second quarter had been strong. Now I can't say that, even though it was, I can't say that the end of June was overwhelmingly better than the end of May. But it was a little bit. Maybe 3% or 4% is the kind of number better than, but it was consistently good virtually every day of the quarter. And so far we're seeing that thing. You get out of July 4 and get over that couple of days of holiday and get the trucks back on the road, say, by the 8th or 9th of July, and it has been very, very solid for the last 2 weeks. I can't complain at all. I mean, we had sort of strong weeks at the end of June and actually had a better week than the end of June in the month of July. So I'm very, very pleased that about what I'm saying about freight, and I don't see us -- as long as we maintain the 2% GDP, I don't see it changing. I mean, 2 plus 2 equals 4, and there's not enough trucks out here to haul the freight that's available. I just want to say so, therefore, you're going to continue to see pricing move up. You're going to see rates continue to increase. And you're really playing that battle of making sure that you're treating your customers correctly. And as I'm talking to Brad earlier on his question about the rate side, are we through? Well, we're not through. And there's that balance between do I go and talk a second time in 1 year, or do I wait for a year? And there's some customers that answer yes, and your major customers, you don't want to because the day will come whether it's now -- I truly believe that it's 4 or 5 years ago, the outstanding time for the trucking industry because of the dynamics that are affecting us. But at the same time, you want to make sure that you treat all the customers correctly.

Okay. And then, David, the length of haul in the quarter here was up pretty meaningfully. We've heard from some other carriers that given the rail service issues there's been some incremental opportunities in those longer length of hauls. I just would be curious to know if that's something that you guys are seeing and that's what's really driving that number. And then if so, how sustainable is that freight once the rails actually start to get some better service here going forward?

The only place that I can say that we have seen this entire year major issues with the railroads on services best is the Northwest market, from Chicago to the Northwest, or virtually anything that a lot of the intermodal is going to -- that picks up in North Carolina and goes via Chicago to the Northwest. And that has been a major issue, and we've had a couple of the customers that have taken freight off of the rail and put it in by truck going into that region of the country. Other than that, that's really the only region that I can say that the railroad has not returned back. As I think about the intermodal, we're up to about $1 million a month of intermodal and the Chicago to L.A. and Dallas to L.A. and Kansas City, and's those kind of lanes are back to normal service that we're getting there. So I have -- I don't see no issue on that. And the thing that I do see more than anything that is happening, the Transport, the Covenant Transport side on the expedited. And thank the Lord that our teams are basically even. We'd like to grow them even more though. We're not -- we have been able to at least maintain the amount of teams that we've got, is that, that team market has exploded. And we really saw the fourth quarter last year, and it continues. These teams are the most special, precious individuals that anybody could ever ask for. And we just got to make sure, not at gouging, but the way they cost a lot of money to operate and that we are getting the returns on these teams that we should be because the supply chain is absolutely demanding. The hot service has been our make-up service. So there's that balance there. So that is what is driving up the length of haul. It's not because railroad is blowing up. It's because there's not enough teams at the industry. And so us that have them are being asked to haul that freight, and we just need to make sure that we're getting paid correctly.

And Ryan, I think you also have to look at the growth of e-commerce. That's not going to move on rail. That is -- it needs that hot service, and as that continues to grow, you're going to see the need for more of that type, expedited truck freight, as well as -- I'll even throw another industry out there, the growth in natural foods and for the earth pairs and whole foods and those type of companies and the Walmart, has the same type product within their store. And that type of natural, less preservatives and all kind of stuff on the produce is really growing that need for expedited freight, as well.

Okay. That's actually really great color. I appreciate that. And maybe just the last one that I had is thinking about the peak season this year as we get into the fall. It maybe a little bit too early, but what are you guys doing? And how do you think that this peak could shape up in terms of how you're partnering with your shippers, particularly in the context of increased capacity concerns that we've seen here year-to-date. And really more, I guess, the question is would you think about yields and pricing? Is there a greater opportunity this year to sort of get the yields up maybe on a spot basis or nice special project-type basis in the later part of this year?

The answer is yes to all that. I mean, it is, it is. One worry that I've got is that we went in 12 months ago and we were all okay and we continued our march of getting our company straightened out and we were happy with miles and rates and what our rates were doing 12 months ago. And then we went into peak, and peak changed the world. And that world has not changed since then, and I think of the dynamic of what Richard just said there about we really have seen that e-commerce exploded and that e-commerce continued to explode, and In the same time, capacity that's left the marketplace and at the same time, the pressure of wanting more teams that just ran into our model very nicely. Now that said, I said here in July and told you that I'm happy with freight and I'm happy with revenue and I'm happy with capacity. And there are a lot of good things that I'm pleased with that starts to scare me about peak. And what it's not, not only to the industry, but what we are going to be able to do and how is peak going to affect us because we're not going to have as many trucks readily available than we did last year and even though last year, I was pretty happy with our turnaround and how I felt about the business. So that does have me worried because we got a lot of great partners that we deal with in the peak season, and it is going to drive up pricing. And we're going to have some hard decisions that we got to make and balances that we got to make on how we service all of our customers during the peak times. So all of those will be good decisions, but they also got to be good decisions for the customers. And I am concerned, sitting here in July, I'm concerned. I think peak is going to be as good and as strong as it was last year as long as the economy stays at 2%. And I'm a shipper, I'm very, very worried because I'm worried right now for our shippers.

Our next question comes from Jason Seidl with Cowen and Company.

When you're looking at your customer base, it seems to me that shippers nowadays have kind of come to the realization that this capacity issue is for real. Have you seen more of a willingness with your group of shippers to work with you in terms of improving your own utilization?

Yes, or at least talking about it. And the hours-of-service, detention, I got to give Martin credit. They're leading the effort out there on detention. It's got to become prevalent within our industry. We only got a certain amount of hours to produce a certain amount of revenue. And I think that the industry has just hit the ball on that. I think Martin is probably at first base on doing some great things that they're doing, not that they're putting the screws to a customer, but it has to happen. It absolutely has to happen. There's 2 things that's got to happen in this industry. One is detention time has got to change. It's got to go to 1 hour detention because you got to produce the revenue on this truck, and then number two on the refrigerated side of our business, the writ for fuel surcharge has absolutely got to happen. And the customers that are paying that are going to get the trucks, and the customers who are not are going to have problems. So our customers are working with us. As I think about our refrigerated side on SRT, we're up to about 35% of our customers now that are paying a writ for fuel surcharge. A year ago, that number is about 10%. Today, it's about 30%, 35%. I think 12 months from now, that number should be in the 70% or 80% because we're going to drive that process. So our customers are, and those are the 2 things because they are now open to talking about rates, and of course, they want to do the best they can to hold it down. But I had a customer call me about a month ago. They just wanted to chew us out, and he deserved it. We deserve the butt-chewing. We were not giving the good service that we wanted because we had 2 loads for every truck. And at the end of the day though I had to chew myself out on the telephone because he wanted to but he couldn't because he's even scared I'm going to take trucks away from him. And that's really where the market is today, is our customers are definitely talking to us and worried about moving their freight.

Our next question comes from Tom Albrecht with BB&T. Thomas S. Albrecht - BB&T Capital Markets, Research Division: A lot of my questions have been answered. David, you gave some excellent color on the rail service issues and what that may or may not be doing in the marketplace, but the other factor that's been out there has been the fear of a port strike at one point out in the West. Do you have any, I guess, insights in how that may have driven the team business because I think the other thing is that historically, the team business was such a second-half-of-the-year product and I'm trying to figure out the resiliency of that year-to-date here in the first half.

Tom, I think that we've done a great job on our refrigerated, expedited and dry van expedited that it's kind of a 50-50 percent now, and that was something that we wanted, it's something that we planned to do in the last 3 or 4 years. And we've put a lot of trucks for CTG between Covenant and SRT out on that West Coast. And as I look at it, there's 2 things happening. Number one, you did have an uptick in business because of the port situation. I don't want to say that's dramatic, but I did see particular shoes and some commodities that came strong during the course of the second quarter out of fear of the port. Now the offices out of that -- those that we saw for the first time in multiple years, a lateness to the produce season because of the drought. And we moved our trucks every week out of there. I mean, did we have a day where we had minuses? Yes, we did. But it's been very strong and I've been very, very happy with what's going on, on the West Coast. And I do think that the dry side of the port and the slowness and the drought on the reaper side equaled each other out, and we were able to convert one to the other as necessary. And if the port slows down, which it has not, I have not seen a slowdown on the dry side, and maybe a day here and a day there since in the month of July. But if it did, then we're able now to go straight in the produce season and divert our trucks over there.

And Tom, I think on the consistency of the team operation versus 4 years ago, one thing that you've seen or that we've done, that was part of our strategic planning process 2.5 years ago and has continued is that we have reduced the amount of what we need out of the West Coast and go in the East-West routes, and we've improved our North-South lane to kind of move the compass so that we don't have to rely as heavily on what's going on the West Coast ports. And we're moving a lot more business, call it NAFTA-type trade business, Canada-Mexico-type work, and there's a lot of good miles and long distance that requires teams to get the freight there at the time requirement that the customers have. And so that less reliance on that West Coast freight has really helped us with the consistency of our profitability across the whole year for the Covenant expedited business. Thomas S. Albrecht - BB&T Capital Markets, Research Division: So Richard, so on a typical day, if you've got 800 or so teams, how many would be roughly in the NAFTA corridor?

In a day, it's going to be 30 to 50 between Mexico and Canada a day, either in route coming -- going-in, coming-out-type process. There's 3 things on that is that, maybe we already mentioned, the growth of the produce business that we do -- remember we have Hazmat teams. It's not just teams, it's Hazmat teams. So the produce business has been a stabilizing force, so that moves pretty much year-round. You have peaks throughout the year, so that stabilizes quite a bit. NAFTA's held and it's -- we're not even -- we're still on that, in that, but tremendous amount of opportunity. And then three, and we haven't mentioned it, and I have to give a lot of credit to the sales force. We've done a lot of new business in the last 6 to 9 months. A new management team, and they've done a fabulous job of driving some new year-round consistent, good-paying, good miles freight. We've done a lot of weeding and feeding, as we call it, with existing customers. And that has stabilized freight. Anytime you add volume, it's somewhat consistent, which gets back to David's point he made earlier about peak. That's the concern. You could all host 3 of those together. Are you going to have as much as capacity as you typically had in the past, around peak? And because these customers we've added are very -- they're paying a very fair wage, and they're going to have peak business. Everybody's got peak business for the most part. But it's just, are you going to have enough? Pricing is going to be there. Are you going to have enough capacity to be able to service and take care of your year-round customers? Thomas S. Albrecht - BB&T Capital Markets, Research Division: And so just to follow-up, a different angle though, because I think we're all trying to figure out how much to forecast. It's driven by your own internal improvements versus the marketplace. In recent years, I mean, a number of years, for the most part, your earnings in the third quarter are less than the June quarter. Last year was an exception. You were about even. With all the good things you've got going on, would you still expect earnings to be a little bit less in the September quarter than what you just experienced?

I think we've evened out things pretty well between second and third. I expect utilization to be about the same. I think the rates will be a little better, but costs will be a little higher related to driver wages, especially for the quarter. I think insurance will be down a little bit. And then, we had -- one of the things that we haven't pointed out too much is the fuel tax credits that we had in the second quarter related to 2010 through 2013, and that was equal to about $0.03 a share. And so the $0.25 quarter has kind of taken that without that nonoperational income. It was probably more like $0.22, and so I think that gets us closer to -- more in balance where we would look at third quarter. But we're continuing to see other good things happen. So we don't give guidance, and that's about close as I can come, I guess. Thomas S. Albrecht - BB&T Capital Markets, Research Division: I mean, that's helpful. So you had a $0.03 benefit in the quarter that just was. That's what you're saying?

Yes, it was 2010 through 2013 from a mandate return that we've had related to fuel taxes that helped us. We pointed it out in the release in the paragraph about net fuel costs.

Our next question comes from Donald Broughton with Avondale Partners.

Your open trucks unseeded ticked up -- continued to work, and I know 4.7% for the quarter. What's a realistic goal and what's it going to take, and how long before you can get to that?

Actually, that was our best quarter since the second quarter of 2013 when we were at 4.3%. The third and fourth quarters last year were 5% -- or every quarter since then, 5% or higher. So we actually reduced that to 4.7% sequentially. And so far in the first 3 weeks of July, we're averaging right at that number. Again, kind of a consistent truck fleet size that has stabilized. We're hopeful to be able to get that down a little bit. And part of that could come from if we had growth in owner-operators and maintained our company employee trucks, then that would end up helping that number a little bit.

And I think the best way to look at that, Donald, the way I'm looking at it is that I do believe that we flattened out. I do believe that we're -- as Joey said earlier, that we are on the low side or the stabilized side of it. And so therefore, if you believe that, then it means that you got improvement to come. But it's such a wildcard. I mean, this driver situation, as you know, I'm speaking with acquired knowledge, is the worst I've ever seen in my life. And we're doing some things that I think are going to be successful, led by driver pay increases but not just that, guaranteeing time home and if you don't get home, we're paying you. If we don't get you home on the day that you're supposed to, we're going to pay you, and we're doing a lot of fancy things in there that should help and assist us. And I do believe at the same time, all of the large carriers, we're all going to have a benefit, and we'll continue to have a benefit versus the small carriers that either go out of business, or hours-of-service that are becoming more and more real to him a year into it, see as they score, that's been there -- I think those are some domino effects that are going to continue to help the big guys that we all know pay more money than most of the smaller guys. So when the less miles start becoming evident on the smaller company and they are today, it's got to benefit the larger guys.

Well, I know you all have focused so much on quality of life-type issues. You're certainly getting them the miles. I mean, average miles per truck for the quarter were the highest they've been in, what, 3-plus years, and I would think that a combination of those, you would do better. And you're right, Joey, obviously, sequentially, it was an improvement. But in year-over-year, you're still not back to where you -- what you achieved last year. And I mean, I just look at the equation and think which -- is it realistic that you could get that -- ever get that number below 4% in the current environment?

Donald, I think if -- I don't know. I'd say, are we happy that we're kind of under 5? Not really. If I look back at history, I see third quarter '12, fourth quarter '12, I mean, you're in the second half of '12, and we were kind of under 4. It's too early to say that we can get under 4 right now. We've thrown so much at this over the last 90 days, and we're just -- I think when we're talking in October, we'll have a whole lot better picture. But I mean, we have thrown a lot, not just pay, but a whole bunch of other things.

And most of those things that just happened in the last 30 days, you'd agree with the strength when I think about SRT.

And so that's what drives...

Yes, the miles was there. Our challenge is just the quality of life question. And you can do all kinds of models to justify paying them a whole lot more per mile. But there is a point of which drivers, professional drivers pay, and how you're paying their fares, just I need to get home or I like more consistency or, or, or. And so you're trying to figure that puzzle out. And if it's not pay, what else is it that we got to do. It's -- a lot of it is home with our model. A lot of it is home. And so it's something that we just got to keep working at. We've done all kinds of things. It's just too early to say that I think we can get under 4, but I certainly love to. But in this market, that would be pulling off a lot if we can do that, almost that we'd have to grow through that. As we've said, it doesn't make sense right now in this market.

Well, I appreciate the transparency you guys have when you put out your results and the level of detail you put into your release. I think you put out as many or more parts and pieces of what's going on than any of the other public carriers. I think that's just the fact. And the way you count this includes wrecks. How material would that change if I were to just state that number and say, what's the unseeded truck count of the dispatchable trucks? So trucks not in the maintenance yet, trucks not undergoing some type of refurb because they've had a fender-bender. This -- is it material to change that number down to below 4.7?

It's about half of that number is actual wrecks or at the shop and unseedable.

So for dispatchable, it's more like 2.5?

That's right.

And our last question comes from Brad Delco with Stephens.

One thing that someone hadn't asked or no one's asked yet is the balance sheet. And this kind of came up, Richard, when you were talking about CapEx in the back half of the year. You paid off about or reduced your debt by $22 million. What's the focus given that we're in this environment right now, and maybe, David, you answered this, between improving the balance sheet right now and taking advantage of this earnings stream that seems like it's going to be fairly stable here for you guys over the next year or more? And how do you think about capital requirements and in 2015, and could that be a big debt paydown year for you?

Well, I think this year is still kind of a replace -- is a little bit of a pre-buy on getting that new technology in, and so our CapEx is probably a little above average this year just like it was quite a bit above average last year. And I think with our operating income, we'll still be able to pay down some debt through the end of the year even though CapEx will be a little higher for the second half than it was for the first. But next year lines up really well. We'll be basically through with getting all this new equipment through May of next year, May of '15, that will help leave the last part of the year with very low CapEx needs and allow us to pay down -- we should be able to pay down quite a bit of debt in the last half of '15. In addition to that, we continue to look at our terminals, terminal facilities. We're likely going to sell 2 terminals and purchase 1 to consolidate basically into 1 terminal, and that will give us approximately $2 million to $3 million that we'll be able to pay down some debt. And that should happen in the third quarter.

We have no further questions at this time.