Knight-Swift Transportation Holdings Inc. (KNX) Q1 2008 Earnings Report, Transcript and Summary

Good day ladies and gentlemen and welcome to the first quarter 2008 earnings conference call. At this time, all participants are in a listen-only mode. This call will last approximately one hour and there will be a question-and-answer session later in the call. (Operator instructions) As a reminder, this conference is being recorded. I would now like introduce your host for today's conference, Mr. Dave Jackson, CFO. Sir, you may begin your conference.

Thank you, Adrianne. Good afternoon everyone. We appreciate you joining our call today and our call is scheduled for one hour. We hope to answer as many questions as we can following our remarks up until 5 PM Eastern Daylight Time. First, I'll start with the disclosure. This conference call may contain forward-looking statements made by the company that involve risks, assumptions, and uncertainties that are difficult to predict. Investors are directed to the information contained in Item 1-A risk factors of Part 1 of the company's Annual Report on Form 10-K filed with the United States SEC for a discussion of the risks that may affect the company's future operating results. Actual results may differ. Now, first I'll review some of the main points from our first quarter earnings press release that was released yesterday afternoon. Our total revenue for the quarter increased 5.9% to $176.4 million, revenue before fuel surcharge decreased by 2.4% to $141.3 million, and net income decreased from $16.6 million in the first quarter of 2007 to $11.4 million in the first quarter of 2008. Our net income per diluted share was $0.13 for the quarter and $0.19 for the same quarter last year. During the quarter, we paid a dividend to shareholders of record on March 7, 2008, which was paid on March 28, 2008. In the quarter, we also repurchased approximately 1.2 million shares at a cost of $18.1 million. We used existing cash for the repurchase. And our cash and short-term investment balance at March 31, 2008 was $28.6 million, and we do not hold any auction rate securities. Our first quarter consolidated operating ratio was 86.7%. Average revenue per tractor declined 6.1% year-over-year. Most of the 6.1% decrease is attributed to the decline in miles per tractor or utilization as it's also referred to. Revenue per total mile was only down slightly year-over-year. Despite a challenging freight environment, we continued our year-over-year improvement in the empty mile factor or deadhead with a 9.2% reduction from 13.1% a year ago to 11.9% for the first quarter this year. Our average fleet size grew 1.2% when compared to the first quarter of last year. We ended the first quarter with 84 fewer tractors sequentially. Including owner-operators, we ended the quarter with 3,674 tractors. We currently operate 27 dry van service centers, 13 brokerage branches, and now 5 refrigerated services which includes the recent opening of our Dallas refrigerated service center. We continue to have a debt-free balance sheet and our shareholder equity at the quarter-end was $479.4 million. I'll now turn the call over to our Chairman and CEO, Kevin Knight.

Well, it's good to be with you all. We appreciate you joining the call today. As expected, first quarter 2008 proved to be challenging as we've noted in our press release from yesterday. The demand in the quarter started especially weak year-over-year then strength in the last five to six weeks of the quarter, though demand continued to remain below last year levels. April slowed seasonally from March as expected, with demand though similar to April of 2007. These trends seem to be improving now as the year progresses. As noted in previous earnings releases, significant capacity over the last 18 to 24 months has continued to move into the regional dry van market. I do believe that going forward this capacity will begin to find equilibrium and demand should start to compare favorably in coming months. Our load count increased from 153,785 in the first quarter of 2007 to 156,667 loads in the first quarter of 2008. We were successful in reducing our empty miles in the quarter. Empty miles are much more expensive to run with fuel – with the cost of fuel as compared to just a few years ago and we were successful in reducing that from 13.1% of our miles to 11.9% of our miles, and we expect for this trend to continue. We expect rate pressure to continue until the supply-demand balance has shifted towards demand. Our expectation is that this will occur over the next several months assuming that fuel prices do remain elevated. High fuel prices, rates that fail to support adequate returns, and high debt levels should continue to weigh heavily on the truckload industry. We believe we are well positioned for the opportunities that this environment will eventually present. As mentioned in our press release and Dave mentioned it also, we opened in Dallas this month our fifth refrigerated service center. They are off to a good start and we plan to open two additional dry van service centers this quarter, one in the southeast, one in the northeast, and both during the current quarter. Our cash flows were strong this past quarter and allowed us to purchase 1.2 million shares of our stock and maintain our excess cash position. And with those remarks, Adrianne, if we could, let's open it up for questions.

(Operator instructions) The first question is from Tom Wadewitz from JPMorgan. Tom Wadewitz – JP Morgan: Yes, good afternoon. Let's see, wanted to see if you could provide a little more detail in your view on the – how the market may play out, Kevin. You talked a little bit about maybe next couple of months you see things improving. What's your view on how quickly capacity is leaving the market and maybe a little more on when do you – when and how you might start to see tightening of the market whether that's utilization or spot pricing or how that might play out?

Well, I'll maybe give you a little more details, Tom, on the most recent quarter. When we started the year, our miles were down – our loaded miles were down in the 7%, 8% range in the January period and moving 4% to 5% in the February period on loaded miles. The March period was roughly 1% or 2% down on loaded miles, and so far in April, we are about even. So, what we have seen is since the beginning of the year, we have seen demand come into balance year-over-year and we have seen pretty steady progress right up through our call today. Now, that doesn't mean that things aren't still competitive and that there are still – I believe there are still too many trucks chasing not enough freight. But, certainly from our perspective, that's basically what we've seen when you look at our entire marketplace. So, if those trends can continue, then I would expect that probably next month, we should hopefully go positive on loaded miles. And what we are doing is we are just basically trying to eliminate deadhead and it's just very, very expensive. So, our focus really is on driving that loaded mile number here as the market starts to cooperate with us without creating additional empty miles, but actually reducing empty miles. So, that's kind of how I see it and I would expect that – probably the next call that we are on I would expect that things will probably have looked better than what this past quarter looked like is what I would expect. Tom Wadewitz – JP Morgan: How do you think that pricing, I guess, in terms of the contracts that are coming due this spring and some of the bids, how do you think pricing that gets locked in in the next few months will look? Will that end up being flat or will you get stuck in a position where you'd actually have down pricing in some of the contracts that are locked in for a few more quarters?

Well, we could end up with some down pricing, but the really sad thing about our regional market is that there really is probably only two people that have demonstrated the discipline and the ability to be profitable in this – in these regional markets. And so, unfortunately, we still have competitors that think that they're doing what's right for their company. But, as you can see by the earnings that have been released and it really isn't just the public companies, it's all companies that move into these markets that don't have the experience and understanding that tend to do things that probably really don't end up working out for their company, but somehow they convince themselves in their – during that process that it will. So, we could still have some lanes [ph] as these bids finish up that will be challenged, but what we'll have to do is demonstrate the discipline that we can. We may have to continue to leave some freight on the table. But based on the signs, we believe that additional opportunities will present themselves as the year progresses and at least what we have will compensate us in a fair way. Tom Wadewitz – JP Morgan: Okay. And one more question and I'll pass it along and give some others a chance. The margin deterioration for the truckload carriers has been pretty precipitous, it's been very sharp and obviously fuel's played a role in that on the way down. When things are improving, do you think it's possible that you get enough pricing or that the turn in the market is sharp enough that you'd be able to get margin improvement in the similar magnitude, or is that just unrealistic and should we think about you've given up 500, 600 basis points in a quarter but on the way up, you are looking at 100 to 200 basis of improvement and you just got to grind away at it for a longer period of time to get back to where you were?

Well, I would say, Tom, we expect to get back where we were. And this is probably the second cycle in the last seven or eight years where our operating ratio has increased into that mid 80 net of fuel range or a little bit higher. And back then, I wasn't sure we'd make it back to the high 70s, but we certainly did and we don't expect for things to play out any differently this time. And especially with fuel prices where they are, I believe that we're going to – we're definitely going to develop a better balance of supply and demand. So, of course I don't know when we're going to see it as strongly as we would need to, but certainly over the next couple of years, we would expect to get all those margins back. Tom Wadewitz – JP Morgan: Okay. But, it's – I mean it probably takes a while to get the margins back. It's not – it seems like it would be unrealistic to expect to get it back quickly, you probably have to grind away at it for a while.

Yes, I would expect that Tom. Tom Wadewitz – JP Morgan: Okay, great. Well, thanks for the perspective, appreciate it.

Yes, thank you.

The next question is from Justin Yagerman.

Hey Justin. Justin Yagerman – Wachovia Capital Markets: Hey guys. How are you doing?

Good.

Good. Justin Yagerman – Wachovia Capital Markets: Good to hear it. I guess on the empty miles, it's impressive how much you got the deadhead ratio down in the quarter. Can you talk a little bit about what you do to get there and make that progress? And I guess has your philosophy between looking at for spot business or contract business changed within the context of that in terms of managing your freight and how you are optimizing those loads?

Yes. Well, first off, Justin, it's been a significant focus of ours for the last several quarters, and we felt like when business was good, we felt like we had gotten a little sloppy. We actually a few years ago operated below 10 as far as our deadhead is concerned. And for us that's really where it belongs, because – and especially today we are – back then it cost us $0.15 a mile for fuel, now it costs us $0.70 to $0.75 a mile for fuel. It just – you just can't deadhead. So, basically what we are doing is we are forcing our people to find loads where our trucks empty and we are also forcing them to find our loads and not somebody else's loads like another brokerage company. So, I mean certainly that's had a negative impact on some of our utilization, but we believe that as things improve, we'll be much better positioned as a result of those disciplines. And what our plan is Justin is to not let it get away from us again. And so, that's basically how we look at it. We really don't – I'm not so sure spot or contract has much to do with that, we are always trying to find freight where we are emptying our trucks. And if it comes to us from a spot standpoint, that's great. But if it comes to us from a contract standpoint that tends to be a little more driven by us as compared to the customers. So, just a significant focus and it's going to continue to be a significant focus and that empty mile number so far this quarter has continued to show pretty strong improvement. So, we are just going to stay after it. Justin Yagerman – Wachovia Capital Markets: Okay. It sounds (inaudible). You bought shares back at a nice price in the quarter for you guys at least to have taken advantage of it. Will you continue to buy shares going forward, is that going to be part of your MO as you maybe don't see as many places to spend that money elsewhere right now or how are you thinking about using the capital on your balance sheet?

Well, we don't really have a specific plan strategy as far as our share buybacks. What we try to do is we try to do what's best for the company based on – when we think our stock gets a little bit oversold, then we are going to be in there. And so, if we feel – if we see that happen through the quarter, then that's what we'll do. And if we go through what's left, then we'll go to our Board for more and certainly have the cash generating capabilities to do that. So, I wouldn't say we have a fixed strategy, but certainly in this type of an environment, we believe that in the first quarter that was an excellent use of our funds. Justin Yagerman – Wachovia Capital Markets: Okay. And you have 3 million shares left on your authorization?

We have 1.8 million shares left, a little less than 1.8 million shares left. Justin Yagerman – Wachovia Capital Markets: 1.8 million shares, okay. Switching topics a little bit, just curious you guys are running a decent amount of the '07 engine tractors now. What's your experience been, how are you thinking about those and I guess how are you thinking – managing a fleet this year and as we get into '09 ahead of 2010 type of engine regulations?

Well, what I would say, Justin, in that regard is, we are well over 1,000 of those that we've taken delivery of and we'll continue to take delivery of them. We don't really have any significant issues to report. I mean certainly with the (inaudible) system, there has been some challenges for our drivers to figure out exactly what's going on underneath the hood and so forth as we burn off all those emissions that now don't go up into the air. But, really, there have been no problems. I think the good news from our perspective is we are already absorbing those costs, which many of our competitors haven't had to do that yet, but we are well into the process. We plan to continue to refrain from buying around the cycle, especially with what we've seen this go around. We still feel like it's a management team that if we wouldn't have had the large pre-buy in '06 that we could have dealt with certainly the challenges that just the economy brought. But, when we have capital moving towards at tracks a little bit recklessly in the '06 period and dumping all the used equipment into the market, it certainly was something that we've proved too challenging for us to overcome and as a result, we had the quit growing and even reduce our fleet size the last couple of quarters. So, it's our intention, Justin, to kind of continue to do it the way we've done it in the past going forward and we certainly hope that those that have done it differently will have – maybe can see the negative impact it has on the overall market and maybe will think similarly. But, we can only worry about controlling ourselves. Justin Yagerman – Wachovia Capital Markets: Within that context, what are you guys thinking in terms of CapEx this year?

We are probably going to be in about the $80 million range would be my guess. I mean, on the low side probably $70 million, on the high side probably $90 million. I mean we hope to start growing again towards the end of this quarter and certainly hope that we are in the growth mode in the third quarter. But, Justin, we've got to kind of wait and see how long it takes to work off this excess capacity. Justin Yagerman – Wachovia Capital Markets: Absolutely. Last question, I will turn it over to someone else. On the pricing side, you mentioned things are competitive or have you seen a heightened amount of bid levels out there and I guess what's the magnitude of the prices that your customers are looking for from a concession standpoint right now?

Well, they don't really tell us that they are looking for a concession. I mean they just indicate to us that it's the right thing to do for their business and certainly we have to respect that. We do know, Justin, that there is many people that have moved into our market and as I stated earlier, unfortunately they really don't understand what it takes to be profitable in these markets. And so, they are obviously taking their lumps right now and hopefully they are learning from it. But, one thing we do is we provide a very high level of service. We've got a good sales force. We've got good operations people and we can just hope that basically based on our service and based on our offering that our customers will keep us in the game so to speak and typically that's what happens. Many of our customers rely on what I refer to as TMS systems and those systems are designed to pick the lowest priced truck. And so, hopefully as we progress through the year, those TMS systems will choose us on a more regular basis and as that happens then it probably means that then we should have an opportunity to improve our overall pricing. But, that probably isn't a second quarter event, but probably sometime after that. Justin Yagerman – Wachovia Capital Markets: Okay, great. Thanks, Kevin, I appreciate the color.

Thank you.

The next question is from Tom Albrecht.

Hey Tom. Tom Albrecht – Stephens Inc.: Hey, Kevin, Dave and others. Let me just ask a few factual questions and then get to some other stuff. Kevin, you provided the drive-in OR for this year's first quarter. You started that practice in the second quarter of a year ago, but I'm just curious do you have Q1 '07s drive-in OR?

I don't have it sitting here in front of me, Tom. But we can get it for you. Tom Albrecht – Stephens Inc.: Yes, that would be helpful just to fill out my model.

Tom, if you want to follow up with me, we will try and help you.

Yes, just call Dave and we will help you out. Tom Albrecht – Stephens Inc.: Yes, definitely. And then, you've also been giving the load count. Did you give that today?

We did. Tom Albrecht – Stephens Inc.: You did, I didn't ...

It's okay. The load count for the quarter one '07 was 153,785 and the load count for the first quarter '08 was 156,667. Tom Albrecht – Stephens Inc.: Okay. All right, and then, let's see – and how big is brokerage revenues? In the last quarter, you gave the annual and I thought maybe that was the beginning of more disclosure there, but...?

It's about 4% of revenues right now, Tom. Tom Albrecht – Stephens Inc.: Okay. And then …

And it's growing, Tom, at a faster pace than of course the rest of our business right now. Tom Albrecht – Stephens Inc.: Sure. Kevin, I think Justin asked a little bit about this on how you get your deadhead down and that. Is it fair to say that when you look at your length of haul, it shrunk, which I was a little surprised by and the decrease in the deadhead that you had to make a decision during the quarter just to keep the trucks running and you probably have still a lot more C plus, B minus freight than you would prefer, even though some of those operating metrics are showing a little bit of improvement?

I would say, Tom, it's just opposite of that. I mean that basically we've got an assault on the C and B freight, which is typically you get from third parties and our focus is to haul less of that. What we are doing is we are just putting more pressure on our sales group and our operations people to find freight where our trucks land and we are just not running our trucks out of there until they have a load. And so, really Tom, it's strictly discipline and there is no other way to explain it. And I think we become a little discipline light over the good years, the last three or four years, and basically right now we are discipline heavy and we are not going to change. So, with fuel prices where they are, we cannot deadhead unless somebody pays us to do it. Tom Albrecht – Stephens Inc.: Okay. That certainly makes a lot of sense. So, as you talked about supply and demand, I mean I certainly have an opinion on this, but has it – it seems like the last cycle shippers were kind of late in discussing the changing capacity dynamics maybe because they had never seen it change that much. Are you finding more of a proactive worry from some of your customers, maybe not a worry, but a proactive discussion that – are we headed towards a repeat of kind of parts of '03, parts of '04 and '05?

Yes, I don't think there is any question and we actually had one of our largest customers in this last week and there is no question that they are concerned about kind of where things are going and they want to make sure that they've got good financially stable carriers that they can count on. And I don't think there is any question that all of our shippers that ship a certain amount of freight are well aware of what fuel price is and just the inflationary nature of the economy, what it's going to do to their carrier base. And so, I think that based on that, I think they are trying to do the best they can, walking up what they can for as long as they can and I think they've got a much greater respect for that than what they had – what shippers had during the last cycle. Because the last cycle, Tom, our industry had recklessly deployed capital for since deregulation and it just kind of finally caught up with us. And this go round, we had developed the discipline – more discipline, but everybody was trying to be ahead of the pre-buy, and so it kind of blindsided the industry. But, I think there is – yes, I definitely think our shippers are very, very concerned about capacity over the next two, three, four, five, six quarters. I think they are worried about who is going to be hauling their freight, I really do. Tom Albrecht – Stephens Inc.: Kevin, I know you talked about CapEx and you described, excuse me, I am losing my voice, in the press release that you will monitor the, I guess, truck additions by market conditions. But, do you actually have a number that you can share with us at this point on what you think might represent truck additions during the second half of the year?

Well, I would say, Tom, that our goal would still be to grow our fleet in the 200 plus truck range for the year. We are not quite there yet. In the past, Tom, we have been more of push the trucks out into our array of service centers. But, based on our read of what their capabilities were, today it's more of they have got to pull them from us, and so each of our service centers is viewed individually in this regard. And so, as their revenue per truck reaches the right point, as their utilization and as their loan bookings reach the right point, then we will allow them to pull trucks from the pool. But, we are not going to push them out. We are not going to push them out to them. Another thing, Tom, we have done in the past is, if one of our divisions run into a speed bump, we would rescue it, one of our service centers we rescue it by moving the trucks around and we are not going to do as much of that. We are trying to develop our service center managers, our division managers to where, hey, when they get a truck, it's theirs and they've got to make the thing work. And the only way they are going to get more is to demonstrate to us that they are making the trucks work that they have. So, it's a little different, but we are hoping that the market will develop to where a couple of hundred trucks get added. But – and certainly the new division, the new service centers will add equipment. But, we are just going to have to wait and see how they do and we'll given them all the support and development we can. Tom Albrecht – Stephens Inc.: Okay. Thanks for the commentary.

Thank you.

Ladies and gentlemen, as a reminder, the conference call will last another 27 minutes. The next call – the next question is from Ed Wolfe.

Hey Ed. Ed Wolfe – Bear Stearns: Hi Kevin, how are you doing?

We are doing good. Ed Wolfe – Bear Stearns: Sorry, I am doing about eight things at once.

That's okay. Ed Wolfe – Bear Stearns: I heard you say to Tom's question that the goal is to grow the fleet by about 200 for the year depending on conditions?

Yes. Ed Wolfe – Bear Stearns: Would you think for the second quarter that the fleet will be up, flat or down versus a year ago?

I would think that it would be flat, would be my guess. Ed Wolfe – Bear Stearns: Okay. And how do we think about that deadhead is improving? In terms of when things start to get better for the market, I would think utilization is the next thing and then pricing, is that the way you would think about it?

You are looking at it exactly. The three keys to revenue were our production and rate and deadhead. You have to attack what you can control. We haven't been able to control the production and the rate quite like would like to. So, we focused on the third head of the Big Three so to speak. But, I would expect that our paid miles will be the next thing that will increase and then I would expect that our rates would be the next thing. Because when you really think about it, Ed, I mean our industry and our market has really operated in kind of a false period here because things have remained very inflationary, but yet pricing is down. Everybody knows that that don't work and basically you can see that as the truckers start to go by the way side. So, eventually, price will come not because we want it to come, but just because it has to come. So, we will see – we will continue to improve on our deadhead. The next place you will see improvement will be our productivity, our loaded miles, and then the last place you will see it is in our revenue per mile. But we expect that you will see it certainly in all of those areas over the next couple or three or four quarters. Ed Wolfe – Bear Stearns: I am guessing it's still too early for utilization improvement in second quarter at this point.

We'll have to see. We keep setting the bar lower. So, it may not be that tough to beat. I don't know, Ed, we are going to have to see. Ed Wolfe – Bear Stearns: Can you talk a little bit towards April and how demand and pricing has been relative to first quarter, any major changes?

I wouldn't say major changes. I would say the trend has continued – we are actually – our loaded miles through April are actually neutral with a year ago on a per truck basis. And so, that's the best we've been for a long time and really it was the worst it had been in January, so really over the last four months, we've seen demand start to improve on a year-over-year basis to where are actually here in April we are up just a tad, Ed. Ed Wolfe – Bear Stearns: You're up a tad in what, I am sorry?

In our loaded miles per truck. Ed Wolfe – Bear Stearns: And where were they in March?

They were down about 2% and in February, they were down 4% or 5%, and in January they were down 7% or 8%. Ed Wolfe – Bear Stearns: And how much of that do you think is just easier comps and how much of that is price picked up a little bit?

Well, I don't know. Let's just say half and half. I don't know, Ed, I really don't. Ed Wolfe – Bear Stearns: I don't think anyone knows, that's fair.

Yes. Ed Wolfe – Bear Stearns: Can you talk a little bit about the pre-buy for '09 in front of January 2010? I know you haven't been a big pre-buyer, but you have positioned yourself around that a little bit. What do you see on that and what do you see on the 2010 engines versus the 2007 engines?

Well, Ed, I think there will be some sense that maybe there is a bigger pre-buy going on than there actually will be, because a lot of people haven't bought any equipment for the last year or two. I am not just talking about the public guys, but a lot of the small guys. Now, the problem some – a lot of guys are having now is they can't get financing. And so, kind of depending on what happens to our economy, there is probably going to be a lot of people over the course of the next year and a half or a little more than a year and a half that they just need to freshen up or they are not going to be able to find anybody to drive their trucks. So, I expect that 2008 will continue to disappoint probably in terms of truck buy compared to what people were projecting a few quarters ago. I think it will continue to disappoint and I think '09, they will probably sell more trucks than we would like to see them sell. And so, we will have those challenges to work through. But, I don't think it will be anything like it was in the previous cycle. From our perspective, Ed, when we come to '10, we are going to have some choices. I mean, we are going to be able to look at SCR and we are also going to be able to look – continue look at EGR which is what we use today and we will want to be able to test both modes just as soon as we can, so that we can get some kind of color on where that – what's best for us, but we will certainly be buying the 2010 product. Ed Wolfe – Bear Stearns: Which manufacturers are offering which solutions?

Well, from what I understand and don't quote me, Volvo will be offering two solutions, one on the Cummins engine, which will be EGR and one on the Volvo engine, which will be SCR, and they are our largest supplier at this time. Freight liner, I believe will be totally SCR, but don't quote me on that. I mean, I think you can still get a Cat engine in a freight liner, can't you? So, if Cat decides to be – if they get their ducks in a row there, freight liner will probably have two choices. And international, you can get the Cat engine and you can get the Cummins engine. And also Packard, you can get Cummins, you can get Cat and you can – by then you will be able to get a Packard engine too I believe. So, I think you are going to have, Ed, quite a few choices. I think you are going to be able to go either way with most manufacturers. So it's going to be interesting to see how that plays out. Ed Wolfe – Bear Stearns: And what's the timing for when you get some tests?

Well, we don't know. We're thinking soon, probably if not this quarter maybe next, maybe third and fourth quarter is what I would expect. Ed Wolfe – Bear Stearns: And has there been any early indication of price or fuel mileage issues?

Not really. I think they are still trying to figure out how to sell enough of those 2007 products. Ed Wolfe – Bear Stearns: Fair enough. You mentioned in your comments in your release yesterday softening tractor and trailer equipment. Can you give a little more flesh around that, what kinds of tractors are you selling, what years and how soft are they year-over-year?

Well, really our margins have held to some degree; they've been pinched a bit. The trailer market has been especially slow the last couple of quarters and – but hopefully, it will start to pick up a bit because trailer sales have been down. And so, some of our used trailers were pretty good to other end users and – but on the truck side, we sell both our (inaudible) and both our Volvos. And I would say margins have held up pretty well, but the demand certainly hasn't been here, and typically the age that we are selling that equipment at, Ed, it between three and four years. Ed Wolfe – Bear Stearns: And so, versus a year ago, what is tractor pricing like do you think right now on those three or four year olds?

Used tractor pricing is down a little bit in terms of percent of original value, I would say, Ed. Ed Wolfe – Bear Stearns: Okay. But nothing draconian, it is really the trailers that are weaker?

No, nothing draconian. We are hoping that we are kind of past the worst day or two, but we will have to see. Ed Wolfe – Bear Stearns: Okay. And then one last thing, the acquisition markets, we haven't heard many people talking about that. Normally, in downturns, you start to see things open up, are you even looking, do you care?

Well, we do care. But, the challenge we had and we've looked at many, especially in the last I would say 30 to 60 days, it's just very tough right now. So, when you – typically what we are seeing is fully data, it's basically every truck and every trailer they owe debt on and may even owe some debt on the receivables and basically have zero to negative earnings – maybe a small or slight amount of earnings. And so, as a result, these truck load guys, it's just very difficult for us to be able to offer them anything to kind of get them out of their situation. So, it's like there's a lot of properties available, but really to be able to pay them anything and assume their debt, there is just not enough EBITDA there to get us in the range. So, that's been our challenge. Ed Wolfe – Bear Stearns: Well, thanks, Kevin. I appreciate it very much.

Thank you.

The next question is from Chaz Jones.

Hey, Chaz. Chaz Jones – Morgan Keegan & Company: Hey Kevin, hey Dave, how are you guys doing?

Hi Chaz.

Great. Chaz Jones – Morgan Keegan & Company: Kevin, maybe if you could talk a little bit about the temp control market just from eyeballing it, it would appear that maybe that market in terms of year-over-year did a little bit better for you guys, am I looking at that wrong?

No. You are looking at it right. Basically, we've seen good improvement in terms of our operations there. Now, what you got to understand Chaz is we got two companies that we bought in the last two-and-a-half years and neither one of them were profitable. So, we are making some improvements in those two businesses. One is our Idaho Falls service center and we now – that is now operated by our people and they have made some good progress there year-over-year. The other one we bought in Phoenix, we rolled that into our Phoenix refrigerated service center and they are starting to show some improvements there. So, no, we've – I would say over the last couple of quarters, we've started to see better trends on the refrigerated side of our business. Now, the challenging piece there is the reefer fuel, but we are out on the street working to – with the customers that don't currently pay us a reefer fuel surcharge. We are having success to some degree and developing that. I think we are hoping, Chaz, that within the next 30 to 60 days basically all customers that actually use temp control will be on some form of refrigerated fuel surcharge. And we've got – some of our largest customers have agreed to pay a refrigerated fuel surcharge, so that should help offset some of those costs. So, we would expect to see continued improvement there. And especially if we have a strong produce season, which I think we are going to have, I think that the reefer market could be not too bad here in the next month or two. Chaz Jones – Morgan Keegan & Company: That was my follow-up, which just kind of – I know it maybe is a little difficult to break out, but all the discussion about capacity tightening here in the last several months, any sense for – is the temp control side of the business, is the capacity dynamic there better than it is on the dry van or is capacity tighter there than it is on the dry van side?

Well, certainly, Chaz, when you read other people's press releases, we are the only ones crazy enough to have gotten in the reefer business the last couple of years. And you don't hear people saying we are moving out of this and moving into the reefer business. So, I would say that you probably don't have people moving around into that business because it's been a challenging business over the years. The market is much smaller, and so you don't have to lose a ton of trucks for that thing to start to tighten up. And one of the challenges we had last year is we had a lot of storms that really did have a negative impact on the growing seasons in various parts of the country and we had some freezes. And the good news about this year is we really didn't have much of that. So I believe that the reefer business, you don't have to lose as many as trucks and you've got a better growing season than you had last year, so that's basically what I'm basing my comments on, Chaz. Chaz Jones – Morgan Keegan & Company: Okay, now that's helpful and that's all I had.

Okay. Thank you.

The next question is from Jon Langenfeld.

Hi, Jon. Jon Langenfeld – Robert W. Baird: Thanks for taking my questions. Can you just talk about how you position the portfolio, Kevin, any differently today knowing that we are in front of rate increases here? Do you think of anything differently today than maybe you were doing 12 or 18 months ago relative to contract lengths or how much capacity you are committing to in a hard commitment type of way?

Jon, I missed the first part of your question. I think basically what you were asking is how much are we committed now as compared to where we were 18 months ago, is that right? Jon Langenfeld – Robert W. Baird: Yes, that's it and just being positioned to take advantage of rate increases?

Well, I would tell you this. We thought we were just as committed as we were 18 months ago, but the transportation management systems that are broadly used today have indicated otherwise. So, we don't really – with the exception of a few customers, I'm not so sure what our commitments are. Because what we have noticed is in this environment more and more customers have gone to transportation management where it basically selects the lowest cost carrier. So, really honestly, Jon, we are not that committed that I can really tell because we've been awarded stuff, but it's like when there is a lot of trucks, they give – they don't give it to you. And then if things start to tighten up, then they start tendering it to you, and so much of this is done EDI. So, I think what's happened between now and the last cycle is really I don't think commitments with some customers really mean much anymore. I think it's really become more market driven. Jon Langenfeld – Robert W. Baird: And do you think that, as the capacity tightens up, will more shippers go back to the contractual mode and try to get these harder commitments? I'm assuming the answer is yes, I mean it just seems to me like there will be less moving through the broker channel and more moving through a contracted or relationship basis.

Well, I would say we still – most of our freight moves through the contract channel. It's just really that contract just lays out the terms of our agreement. There really isn't a promise for exactly how much we'll get. Now, we have customers that we know we are committed on because we know they're going to call us and give us X amount or close to X amount every day and that's how they run their businesses. But, we also have customers that run it just opposite of that. And so, I would say that certainly as the year progresses, our customers will try to do more around commitments. But, we'll just work through it as it comes to us and try to work it through it in the most beneficial way for our business is how I would explain it, Jon. On the brokerage side, I really don't know. I mean certainly from a brokerage perspective, fuel increasing like it has over the last several years has really helped that industry. And I think as long as fuel continues to go up, I think that third party guys will probably always be able to keep more of the fuel than they should probably as compared to giving it to the guy who actually is burning the fuel. I'm not so sure that the market that I see ahead of us will have a negative impact on the brokerage side of the business unless fuel was to start to come down. And then, with the tightening supply of trucks and fuel coming down, you could have some issues there because really, Jon, that's how those guys have out-competed us in this environment is, if you don't have the trucks that you are worried about covering the fuel costs, you can be a little bit more competitive in those accessorial areas such as fuel surcharge and not make an issue of them in this environment because it's really the guy running the truck that suffers the pain. So – and certainly the two big players in the truckload market that have issued their releases so far, I mean there is no question, they are not – they are able to concede in those areas much better than we are and it's really helped them to win in this marketplace. Jon Langenfeld – Robert W. Baird: Okay. That's good commentary. And then I may have missed it at the front-end, but did you quantify how much you thought fuel cost you in the quarter?

We didn't, but it's probably $0.02 to $0.025 a share is what I would guess. Jon Langenfeld – Robert W. Baird: Anything differently you were doing in the quarter to manage fuel? I know you guys do a good job relative to everyone else out there to begin with, but anything differently you've done to try to manage that fuel expense?

Just attacking idle time and reducing (inaudible) miles and reducing empty miles and just buying as smart as we can and it never seems like it's very smart to me when it starts – when it is $3.90 or $4, but just all of those things Jon. Jon Langenfeld – Robert W. Baird: Okay. And then lastly, I just want to look at the other side of the equation. I mean if you are wrong in your thought process about capacity tightening and then conditions getting better from here, what do you think would be the key variable other than fuel that would make you be wrong?

Well, I guess maybe, Jon, just that the economy got worse than any of us were anticipating. I think that could be the other variable. But gosh, as close as so many of these guys are to losing everything they have, I mean the truckers, gosh I don't know. I mean that might even make things tougher faster, so just probably those two things, Jon. Jon Langenfeld – Robert W. Baird: Okay. I mean it just kind of seems that even if demand does get worse, it seems like you'd probably make it up in pretty short order on pricing given the supply issues?

Yes, I would certainly hope so. Jon Langenfeld – Robert W. Baird: Okay, very good. Kevin thanks a lot.

Thank you, Jon.

I'd now like to turn the call back over to Kevin Knight.

We really appreciate you guys getting done by 2 o'clock our time, 5 o'clock East Coast Time. Now, we can go back to work and keep working on that deadhead and hopefully we'll get to start working on some of that pricing here pretty quick. So you guys have a great day. Thanks.