Knight-Swift Transportation Holdings Inc. (KNX) Q4 2011 Earnings Report, Transcript and Summary

Good afternoon. My name is Wesley and I will be your conference operator today. At this time, I would like to welcome everyone to Knight Transportation's Fourth Quarter 2011 Earnings Release Conference Call. [Operator Instructions] Speakers for today's call will be Mr. Kevin Knight, Chairman and CEO; Dave Jackson, President and CFO; and Adam Miller, Senior VP of Finance and Accounting. Mr. Miller, the meeting is now yours.

Good afternoon, everyone, and thanks for joining our call today. Hopefully you had a chance to print or pull up the slides that we've posted in addition to our press release today. The slides that will accompanying this commentary that we offer today are available on our website. The actual web address would be investors.knighttrans.com/presentations. Our call is scheduled to go until 5:30 p.m. Eastern Time. Following our commentary, we hope to answer as many questions as time will allow. If you're not able to get your questions due to time restrictions, you may call 602-606-6349 following the call, and we will return your call in the order received. The ground rules for questions are simple. One question per participant. If we do not clearly answer the question, a follow-up question may be asked. To begin, I will refer you to the disclosure on Page 2 of the presentation. I'll also read the following: This conference call and presentation 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 1A Risk Factors or 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. I will cover some of the numbers in detail, including a brief recap of the fourth quarter results starting with Slide 3. For the quarter -- for the fourth quarter of 2011, total revenue increased 19% year-over-year with revenue before trucking fuel surcharge growing 14.6% year-over-year to $181 million. Net income increased 6 -- or 7.6% to $17.5 million in the fourth quarter of 2011 compared to $16.2 million in the fourth quarter of 2010 when excluding the noncash $2.5 million pretax, $2 million aftertax stock compensation charge of the fourth quarter of 2010. Our net income per diluted share increased 14% to $0.22 per share for the fourth quarter of 2011 compared to $0.19 per share for the same quarter last year. Again, the fourth quarter of 2010 per share number excludes the noncash stock compensation charge in Q4 of last year. Now to Slide 4. We finished the fourth quarter of 2011 with just over $476 million of stockholders' equity. In 2011, we had repurchased 4.6 million shares of our stock. And over the previous 24 months, we've returned over $178 million to shareholders through dividends and repurchased shares. In 2011, we invested heavily and refreshed our fleet. Our average tractor age peaked at 2.4 years in the middle of 2011 and ended the year at 1.7 years. We continue to have access to our $150 million unsecured line of credit with a borrowing rate of LIBOR plus 62.5 basis points to 6.2 basis points on the unused portion. Dave Jackson will now walk through some slides, providing some additional review of the fourth quarter results.

Thanks, Adam, and good afternoon, everyone. Now to Slide 5. We have experienced revenue growth at an accelerated pace. That's compared to the broader truckload freight market. Since the second quarter of 2009 and most likely the bottom of the recent downturn, we have demonstrated market share growth momentum that we expect to continue into future quarters. The bar graph on the left shows the positive trend in our revenue growth, excluding fuel surcharge in the fourth quarter for each of the last 3 years. The graph to the right shows that our year-over-year revenue growth trend has continued for 9 consecutive quarters, a trend we expect to continue. On Slide 6, we illustrate the earnings growth trends demonstrated by the growing fourth quarter EPS trend in each of the last 3 years and in our increasing net income for the fourth quarter also in each of the last 3 years. Now on to Slide 7. Here we've summarized our fourth quarter performance and some of the key operating statistics. All stats are year-over-year comparisons for the fourth quarter of 2011 to the fourth quarter of 2010. Revenue excluding fuel surcharge per tractor improved 6.8%. Miles per tractor increased 4.1%. Revenue per total mile increased 2.6%. And revenue per loaded mile increased 2.6%. And nonpaid empty mile percent declined by 0.4%. Additionally, we ended the quarter with a tractor fleet of 3,976 tractors, including owner operators, which represents a 110-tractor increase from the end of the fourth quarter of 2010. We expect to cross the 4,000-tractor mark in the first quarter of 2012. And now on to Slide 8. Here we take a deeper look into the strengthening operating fundamentals. The improvement for the fourth quarter of 2011 was healthy, but perhaps even more encouraging is that the positive trend -- or the positive performance is part of a steady trend of improving operating fundamentals. For example, the graph on the left illustrates the revenue growth excluding fuel surcharge in our average revenue per tractor. Revenue per tractor for the quarter has grown from roughly $36,000 in Q4 of '09 to $37,400 in Q4 of 2010, and most recently to nearly $40,000 in the fourth quarter of 2011. This is an 11.1% increase from '09 to 2011. On the right, we illustrate the changes in miles per tractor and rate per loaded mile over the past several quarters. Miles per tractor improved 4.1% in the fourth quarter as the rate of year-over-year improvement has increased in each of the recent 3 quarters. Rate per loaded mile has been on the rise over the past 2 years, a trend we expect will continue. Now to Slide 9. We experience revenue growth in every business we operate. In addition to the revenue growth, most of our businesses lowered their operating ratios meaningfully year-over-year. So our largest businesses, Dry Van and Refrigerated, operated with operating ratios in the low 80s with an 82.4% and an 81.7%, respectively. Now to Slide 10. Our objective as a business is very simple and straightforward. We are focused and committed on creating and operating businesses that generate industry-leading margins and revenue growth. If you move to Slide 11, we've put together a graph. This is a way of comparing publicly traded trucking companies, particularly their truckload businesses, by their respective margin and growth rates. We have been consistently successful at generating a mid- to high-teen operating margin while growing the top line with a double-digit growth rate. It's about both margin and growth for us. And onto Slide 12. We continue to bring our businesses together to provide our customers with services that meet their requirements while leveraging our established geographic network and low-cost operating model. We believe there are many opportunities to grow with our existing customers and introduce new customers to our multiple services network. Our businesses, the Dry Van, Refrigerated, Port & Rail Services, Intermodal and Brokerage businesses, continue to complement each other while providing premium, cost competitive service for a diversified customer base. I'll now hand off to Kevin Knight to discuss the next couple of slides.

Thanks, Dave. And thanks for being on today. On to Slide 13. Sustained high fuel prices create significant challenges for our industry as you're all aware. We here at the Knight are dramatically taking steps to dramatically improve our fuel efficiency. The cost of new equipment, tractors and trailers has risen sharply. Trucking companies' capability to purchase and sell equipment has always been vital and is now more important than ever. We believe we do these functions very well and have established a solid equipment sales business for our used equipment. The economy may not be growing much, but regulation seems to be. When enforcement is consistent, we feel we stand to benefit given our proactive approach in the way we manage our business. We continue to develop multiple sources for qualified drivers. This includes our Squire training and CDL programs. With the average age for the industry at record high levels, many carriers are burdened with exponentially rising maintenance costs and struggle for the capital necessary to refresh. The migration from longer lengths of haul to more short to medium lengths of haul has forced many carriers to significantly change their operations' approach. Some have crossed the bridge successfully while most have not. Moving to Slide 14. I'd like to take -- I would like to make a few comments on our company's strategy. We are focused on growing our revenues in the geographic markets we serve and in the multiple types of truckload services we provide. Our network is designed to grow and service multiple truckload modes at one of the highest levels of efficiency as measured by on-time service and cost per mile or cost per transaction. There continues to be opportunity for us to improve the productivity of our tractor fleet, and we expect further improvement. We remain vigilant on cost control in every business, including our non-asset-based businesses. We believe that we have strong models for each of our businesses that lead or will lead us to rewarding returns on invested capital. We plan to grow each of these businesses. We are providing more services to more of our customers. This is part of a long-term strategy that began several years ago. We continue to evaluate acquisition opportunities and continue to hope for a transaction. When the economy really strengthens, the irregular truckload industry should boom again. I'm glad we are positioning for that. I will turn it back over to Dave to discuss guidance.

Thank you. On Slide 15, it's our final slide. Here, we reiterate our expected range for the first quarter 2012 of $0.14 to $0.17 per diluted share, not including the potential one-time noncash compensation charge that's discussed in our press release. And our expected range for the second quarter of 2012 is $0.21 to $0.23 per share. These estimates represent management's best estimates based on current information available. Actual results may differ materially from these estimates. We would refer you to the Risk Factor section of the company's annual report for a discussion of the risks that may affect results. This concludes our prepared remarks. We would like to remind you that the call will end at approximately 6:30 Eastern Time. We will answer as many questions as time allows. Please keep it to one question. If were not able to get your question due to time constraints, please call 602-606-6349, and we will do our best to follow up promptly. Wesley, we'll now entertain questions.

[Operator Instructions] Our first question comes from Alex Brand with SunTrust.

This is Sterling Adlakha in for Alex today. I just wanted to ask about hours of service. If you think the restart provisions will disproportionately impact Refrigerated. And if so, are there steps you need to take before July 2013 to be ready for that?

This is Kevin, Sterling. I don't think so. I mean, I really don't have a strong opinion either way as to whether it will have more of an effect on our Refrigerated business or any of our other businesses. Certainly if the restart provision does go into effect in 2013, then we -- it certainly will have a negative impact as far as productivity is concerned. How much that is, we really haven't evaluated that as of this point. So that's my answer.

Our next question comes from Scott Group with Wolfe Trahan.

If I think about the past couple of quarters, it sounds like there has been more of a priority in getting the utilization improved and maybe a little less focus on the yield side. Now that utilization has really improved in the last couple of quarters, how do you think about ranking the priorities in 2012 between utilization, fleet growth and pricing? I guess just thinking about the year, where do you see the biggest opportunities for improvement?

Scott, I'll take that one. This is Kevin. I would really say that we're going to stay very much focused on utilization improvement. And we have more control over utilization improvement than we have over rates. So basically, we're going to stay very much focused in continuing to improve on a year-over-year basis there. It will be tough to replicate on a regular basis what we accomplished in the fourth quarter, but we will stay focused. I think our feelings as far as rate is that it's equally as important. And we will be working each and every day to make sure that we are taking rates up in a way that it works for our customers but also works for our shareholders and our cost. So but I look at those as very much equal priorities. If the market strengthens, it will seem at the end of 2012 that maybe we had more focus on rate. But we'll have to wait and see how it develops. It seems like, Scott, there was a third component you brought up. Did I -- Mark, what was it?

I was talking about growing the fleet.

As far as growing the fleet is concerned, again, we'll work diligently to grow the fleet. We plan to grow the fleet probably 4%, 5%, 6%, if we were really lucky, maybe 7% this year. And if we can do that, we'll -- if we can be somewhere in those numbers, we'll be pleased, as long as we can continue to improve our productivity and continue to improve our rate structure. So that's how we're looking at it, Scott.

That's great color, Kevin. And just to follow-up real quick. If I think back to quarter, I think you talked about you saw an opportunity for 2% utilization and 4% pricing in 2012. Do you feel better or worse about those projections a quarter later?

The same. Pretty much the same, Scott.

Our next question comes from Chaz Jones with Morgan Keegan.

I was just wondering on your customer profile. Obviously, the last several years, the service platform has been expanded and built out. And I was just wondering if you could just kind of shed any light on whether your customer base has changed materially either from kind of a segment standpoint or just kind of the size of your customers?

I would say, Chaz, it's pretty much the same. It's been more of a deepening of service providing to those customers. Certainly, when you get into the Port & Rail Services, that brings some people into the boat that you otherwise wouldn't have a chance to participate with. And certainly, Reefer in many cases is the same, because although many of our Dry customers also have Refrigerated business, many of them do not. So I think our main focus, Chaz, is really continuing to add new customers, of course. But also very much so penetrating the services that we offer to that customer in each of those lines of business or services that we basically provide. We've never -- I mean, we've always -- our largest customer has always been around or a little less than 5% of our total revenues. And really, Chaz, that hasn't changed for I don't know how many years. So I don't really see much other than the specific Reefer customers and the specific exporters and importers that otherwise don't participate in the regular -- irregular Dry Van market.

Chaz, maybe I'll -- this is Dave -- just to add a little one more comment to that is that we find with some of our customers, we rekindled old relationships where we may have done more in previous years. And as shippers are routinely shifting their patterns and looking to how they do things, and I think combined with the fact that we have such a large fleet combined with the multiple services that we can do, we find matches. And so our top 10 customers account for about 25% of our total revenues. And it's not -- for the most part, that list stays about pretty consistent. But there are a few names that will kind of rotate on and rotate off. And so we don't -- we think that there's opportunity for us to sometimes work more with the customer today that maybe we worked with 3 or 4 or 5 years ago that comes back into the fold again. So we've seen some of that.

Okay. So I guess you're alluding to the fact that maybe the customer composition hasn't changed, but you're getting kind of deeper and broader into their supply chain, is that fair?

That's correct, Chaz.

Our next question comes from Todd Fowler with KeyBanc Capital.

Kevin or Dave, can you talk about what -- the guidance that you have for the first and second quarter? Some of the assumptions that you have in the guidance, if I remember correctly, I think that you've got some easy comparisons on the utilization front in the first quarter because of some of the things that were going on last year with the electronic onboard recorders and the weakness in the West Coast. And also what are you thinking about pricing and the visibility that you have right now in the rate environment?

Well, Todd, maybe I'll take a stab at that. You noticed that for the first quarter, we've got a bigger range than we do for the second quarter. Range that we've given is $0.14 to $0.17. Keep in mind, we did $0.12 last year. And so, typically we are not going to be as productive on our trucks as what we've seen in the fourth quarter, but a year ago, first quarter of 2010 compared to the first quarter of 2009, we were negative 3%. So we don't expect to see a repeat of that. So our assumptions take into account that we're going to be positive on a year-over-year basis there. They take into account that we're going to be positive modestly in terms of a rate per mile. And we have fewer shares outstanding as well. And so those are roughly the assumptions that we've made it. Now the wildcard is, just what happens with demand? Because last year, first quarter for us was very unpredictable on some of the weakness, especially the pronounced weakness that we felt and saw out of the West Coast. This year, the calendar looks like it might work in our favor a little bit better given that we've got an earlier Easter and given that maybe that we've got an earlier Chinese New Year that's already started as compared to last year, a very, very late Easter. And so, perhaps, that will benefit the first quarter with a little more volume than what we experienced last year. But that really is the wildcard that I'm not sure that we know exactly how that's going to play out given -- and hence the $0.03 range in our estimates for the first quarter.

And, Todd, I would maybe add that so far in the first quarter, it seems like we're off to a stronger start than a year ago. And I'd probably say that more so in the West than necessarily the rest of the country, because the rest of the country in the first quarter last year was pretty good. And I don't really -- though I don't -- we're so early into the year, I'm a little hesitant to give you guys the feeling that there's too much strength. One of the things is Chinese New Year is January, started yesterday. So we would be hauling stuff today that moves so that it can be where it needs to be as a result of that, basically, 2-week interruption that we can expect in the supply chain. So we just have to continue to be cautious. It is first quarter. The economy is making ever-so-slight improvements and that's how I see it.

And that's helpful and all. That's very consistent with kind of what we've heard anecdotally and what we're expecting. And if you could just comment on the visibility in the rates into the second quarter, maybe what you're thinking on the rate environment and I'll turn it over.

Well, I would say, Todd, that probably when I look at rate last year, I wish we would have gotten a little more rate last year. And so this year, I'm hoping that we can be in that 3% to 4% range without sacrificing any of our -- without sacrificing any of our length of haul. So I hope and believe that we should do, by the time we get to the end of the year, we'll have done better than we did this year. And of course, the balancing act that we have to play is price does drive utilization to some degree. And so we have to find that right mix to make sure that we don't slow things down in our network. But at the same time, we get the rate that we need in order to continue to improve our operations. So I hope that helps.

It's Tom Wadewitz with JPMorgan with the next question.

Let's see. So you -- let's see, you took a charge -- you talked about a charge to accelerate investing, some options, which are I guess out of the money. And can you explain what that is a little bit and it sounds like you're kind of -- you want the incentives to be aligned correctly. I guess maybe the broader question would be, given that your stock price hasn't performed as well, let's say, in the last year as maybe you're used to historically, is there kind of an issue with having stock-based comp and kind of keeping your managers incentivized in the right way? So I guess that's kind of the broader topic for you.

Okay. Maybe, Tom, I'll take a stab at that. So what we alluded to in the press release was that our Compensation Committee on the board has accelerated the vestings of some stock options that were granted prior to 2009. And so those options are largely underwater. So in terms of the point of maybe incentivizing management or whatnot, these are options that really have hung out there with a steep accounting cost but not much of value to the employee. Now those stock options, that does not represent all of the equity compensation that we have to our employees. This just revolved around approximately -- we estimate to be about $0.05 a share or just over $4 million of stock option expense that's noncash, that is tied to the way that the accounting treatments force us to expense stock options even though there is no value or very little value. And so this was the best way for us to be able to get that expense behind us. It's an expense that we've been strapped with now for several years, and with options that are underwater still expensing. Because you know, we had to begin expensing stock options and equity compensation like this starting in 2006. And so year-to-date since '06, we've expensed more options than we've -- we've expensed more expense with certain options than our employees have benefited from in terms of gain or value. And so...

And, Tom, by a wide margin.

Correct.

And so what I would add to that, Tom, is over the last few years, we have basically -- the way you can think about this, is we've expensed millions that have come through our P&L that we haven't been able to utilize to benefit our employees. I don't know how else to say it. But we now -- now that we've been into this stock option business since '06 and understand how that works, we've decided that we're going to do much less in terms of stock options and more in terms of restricted stock units that also are being expensed but creates value for employees irregardless of the stock price. I mean, I guess, the sad thing is who could've predicted what was going to happen in '08 and '09 to the general economy. But stock options were a very good thing when they work differently. And today, it's you just don't have enough control based on how the new system works. And so as a result of that, we've just decided that we want to get this behind us and move forward. I hope that helps.

I just would say, so in the end, the accounting treatment for stock options is a very inflexible. And so, we made a move several years ago to restricted stock units. And so stock options have not been a significant portion of our equity compensation to our employees really since 2008. And so, we've replaced them with restricted stock, this seemed like the appropriate thing to do here moving forward. So that will be an adjustment in the first quarter numbers which we would expect that to be in one-time in nature, and again, a noncash charge. So...

Does that imply that since you're taking to hit it once that your comp and benefits expense the next couple of quarters would get some benefit from that? Would the run rate would be a little bit lower? Or is not that the right way to look it?

The benefit would be marginal in the short term because these have a longer life. And so this is an expense that still -- these would continue out still for many quarters to come. So...

Yes, and it could. I mean, it could, Tom, but the fact of the matter is we -- we've got to work through that and see how we determine as best in terms of compensating our employees and so forth. So but the answer to your question is, it could affect it.

Okay. So it doesn't sound like it -- it doesn't sound like it's really a concern about retention or how people are incentivized. It's more kind of cleaning something out that's been sitting out there for a while?

This is Adam. We took a look at these grants because we felt that they really brought little to no retention value but yet had a steep accounting cost. And so that was one of the motivations to clean that up.

Your next question comes from Peter Nesvold with Jefferies.

So I guess I just want to replay my understanding on the guidance. I mean, typically from 4Q to 1Q, EPS is down about $0.02 or so on average. It was down more than that last year because the productivity heats up in the EOBRs and because of West Coast port freight. This quarter, you have it down about $0.06. And I guess it's more just about a hedge about where volumes might be for this given quarter and kind of which way the macro flows, but you feel pretty good with how the quarter's playing out so far. I mean, is that a fair way of playing it back?

That's a fair replay, Peter.

Okay. Just a couple of real quick in-house cleaning ones. Further to Tom's comment, did the diluted share count change at all now, now that your accelerating the option vest?

Slightly.

Slightly but not necessarily materially enough to move the number?

Correct.

Okay. And then briefly gain on sale. What was that number in this quarter and what did that look like in the year-ago quarter from equipment?

Again,Peter, in the year-ago quarter, our gain on sale was actually a little bit less in this quarter compared to the same quarter a year ago, maybe $300,000. I think it was like 2 8 a year ago and it was 2 5 this year. So...

Our next question comes from John Barnes with RBC Capital Markets.

Kevin, could you talk a little bit about in terms of the pricing, the 2.6% that you realized in the quarter. Can you just give us an idea in looking at truckload versus Dry Van versus Refrigerated versus your Port business. Just relative strength among the divisions, you obviously have 2 6 as the average. There's some that's a little stronger, some that's a little weaker?

Yes. I would say when you look at the whole year, John, because sometimes you have fluctuation between quarters. But our pricing this year was stronger in the Dry Van business on a percentages basis than the Reefer business, not much but a little. And then our Port Services business would have been the weakest by far in terms of we had the most growth there, we are still trying to blaze new trails. And you can see -- you can kind of see that in our operating margins, John. So I believe that we should -- I'm believing that all 3 businesses will make progress this year, hopefully, at about the same rate because the other 2 have been a bit of a drag on the Dry Van side as far as pricing. But from an OR perspective, hey, our Refrigerated business operated better than any of our other businesses. So you can't really criticize those guys, they did a really -- they did a really good job in terms of the overall business. And so that's how it played out, John.

Okay, very good. And then just a quick follow up. On your discussion around the fleet growth in that 4% to 7% range I think is what you put out there. And then you talked about you've got a similar outlook, is what you said, a quarter ago in terms of utilization and pricing. And that 2% utilization improvement, 4% pricing improvement in 2012. Can you just talk about, is the 2% and 4% enough for 4% growth or is that enough for 7% growth? Or do you look at that kind of, they do not work out on time together like that?

No. I would say, John, that if our utilization is improving a solid 2% plus on a year-over-year basis, and our pricing is improving, say, 3.5% to 4% on a year-over-year basis, then, yes. We would lean towards a higher investment in our fleet.

Our next question comes from Donald Broughton with Avondale Partners.

First, just make a comment, I'm sure everyone else would agree. I'm really just delighted to see to start to release a little bit more information. Again, I understand why in the depth of the cycle you wanted to release less. But it's nice to see you release as much information as you're beginning to release again. Because it makes it easier to model it.

We don't exactly agree with the way you see it there, but everybody is entitled to their own opinion.

I know. It makes it easier to model you, and get a grasp from what you're doing every day. And just because you tell us the numbers doesn't mean people can replicate the model, the daily operating discipline that gets you the results. Let me just --

Don, our phone bill was going up too much from that 317 area code -- or maybe it wasn't 317 -- anyway, nevermind.

It's 314.

314, yes. Okay. Okay, question.

Let's drill down a little bit more on Refrigerated because, obviously, that's a highlight of your operating performance from a ratio perspective, and also from revenue growth. And we also had the strong results out of the other Refrigerated carrier out there, Martin, yesterday. That revenue growth, are you adding to that fleet or is that all pricing and utilization?

No. We added significantly to that fleet. I think Don Martin was more successful. Martin was more successful in terms of raising price than we were. And we, as a percentage of our fleet, were more successful in terms of growing the size of our fleet and our overall revenues. But they did a very good job in terms of their pricing.

All of your Refrigerated trailers are now -- are you compliant, are you all new trailers, or where are you in that process?

Well, they are not all new. But they are all -- we're 100% compliant as far as CARB is concerned. We really always have -- always have been. I mean, because of when we started the Refrigerated business, Don, we really never got old Refrigerated trailers on the -- in our Refrigerated business. So...

So you're good for the upcoming changes as well?

Oh, yes. Oh, yes. Way ahead.

Our next question comes from Anthony Gallo with Wells Fargo.

I was hoping you could bring us up to speed on where you are with EOBRs in terms their rollout to the fleet? And then, initially, some bits and starts with them from a productivity standpoint and how that is playing out for you now?

Well, Anthony, I'll take that question. This is Kevin. We're 100% deployed as far as EOBRs and have been for just over a year, maybe even a little bit longer. And now we have overlaid on top of that EOBR system software that should continue to help us improve our utilization in conjunction with the EOBRs. And that's all of our businesses, is that correct, guys? For at least a year. So we have lapped whatever we would have had to have lapped in that specific area, Anthony. Was there something else you asked? I...

No. Can you put any kind of metric around what you hope to get out of it? I know they're -- they will be mandatory, but I'm wondering if there is a measure of improvement that you think you can drive other dead head down or hours up, or there's some way to measure that way.

Really not that we can put a number to. It's just a significant focus for us and takes a lot of effort to improve and be successful at. I mean, on one of the slides we showed the dip in our miles per truck. And now we're back up to where we were before. And so it could prove more challenging to get -- now that we're back to what we lost, it could prove to be more challenging to get that additional utilization. But based on, as I mentioned earlier, based on what we've seen so far hoping that the strength in the market compared to last year, especially in the West, isn't driven by just the Chinese New Year, we hope to continue to, Anthony, grind out improvements there.

If I could just add, Anthony, just that now that we're more than 12 months fully using the EOBRs, I think we're beyond the painful learning curve and kind of an adjustment curve. But I think we still are in the early stages of really leveraging the data that is now available to us because of the EOBRs. We use it to a certain degree today, we have throughout the year. But there is, we believe, over time, using the technology, there's more that can be done there. So maybe the way to look at it is we don't face the steep headwinds that we did initially at implementation and adoption, but yet maybe there's not quite a tailwind coming from it just yet. So...

Our next question comes from Brandon Oglenski with Barclays Capital.

I just wanted to follow up from John's question earlier, reflecting your expectations for fleet growth anywhere from 4% to 7%. As I look at, you guys haven't really maintained that kind of a fleet growth profile in some time. So what is it that gives you the confidence at this point that leads you to that outcome for this year?

Brandon, this is Kevin. Really it's just an improving truckload economy. I mean that's basically it. Going back to 2008 when we were unable to continue our growth, I mean, it was the economy, it was fuel prices working against us, it was an overbuy by our industry because of the new EPA regulations, and it just didn't make sense to continue to grow our business. So really, I believe, Brandon, that we are putting into place the requirements to operate a growing fleet. But the most important ingredient to that beyond the ability to develop drivers is freight, and freight at reasonable pricing to drive profitability. So it really, Brandon, is primarily driven by the strength in the overall economy.

And so I guess that implies that you think you could grow the fleet at those adequate rates today whereas maybe that opportunity wasn't there over the last couple of years?

Yes, that's correct.

Our next question comes from Bill Greene with Morgan Stanley.

Kevin and Dave, I was hoping to a question on cost. In the release, you referenced 2 points: fuel and driver shortages out there. Can you talk a little bit more in detail on both of these. Just on fuel, is there a price point where you see shippers start to have elasticity in their demand for truckload services? And on drivers, how should we be thinking about driver cost inflation in 2012?

Well, let's maybe talk about fuel first, if we could, Bill. And I would say there is always shipper elasticity in terms of how does fuel work. Now it certainly works against you when you have rising fuel costs, because the other modes of moving freight, at least our rail, the rail side of the truckload business, has significant advantages as fuel goes up. And as a fuel goes down, then those advantages start to work more in the favor of the truckload guys. I personally will be surprised and highly disappointed if we see significant inflation as far as fuel this year. And so really, I believe we're in a good place to not have to deal with that so much this year as last year. I think we're doing a good job of managing that cost at the price we're currently at. We are doing probably as much as anybody, if not more, in terms of pushing the envelope on fuel efficiency. When you look at our new engines, the leader configuration of our fleet, the aerodynamics in the chassis and the tractor, the trailer blades and the aerodynamics we're pushing the edge on as far as our trailers are concerned, the work that's going into developing our drivers to where they are good at fuel efficiency, it's receiving an enormous amount of attention. So I'm bent optimistic as far as fuel is concerned. As far as drivers are concerned, our drivers need to make more money. And really, Bill, we want them to make more money. And whereas I felt like things were very inflationary, maybe a couple or 3 quarters ago, I'm not feeling that same way today. And I'm hoping that this year's rate increase, more of it can go towards -- go to our driver so that we can continue to get them to a level where we would like for them to be. And so, if we can, we're going to. And if we can't, we won't. But I don't feel really like the driver line has to be inflationary, but I feel like that it would be good if it could be. Does that sound crazy to you, Bill?

Meaning just that demand is so good for your business, you end up increasing the wages because you can?

Yes. Yes. And because really, I mean, all of us, if you put a bunch of truckers in the room, I don't think any of them would feel really much different. I think we all want to be able to provide our high-quality drivers as much as we can for the job that they do.

And is it likely that we'll see something in the very low single-digit inflation rate at this point given demand levels?

You mean as far as cost is concerned?

Yes.

I would say so today. Fuel is always the one that we can't control, but I don't know. My gut tells me we're going to see cheaper fuel ahead at some point. I'm not sure why. But that's what I'm thinking. Maybe I'm just hoping too much, Bill. Maybe I'm not thinking with my brain but with my heart.

Our next question comes from Jack Waldo with Stephens Incorporated.

I hate to be that guy, but the one thing I wanted to ask you about, I guess on the negative side was the OR change on the Port & Rail Services. I think you said, what, was an 88 9 compared to an 88 -- or 84 8. I was just wondering, what was driving that?

Well, you also saw, Jack, that, that one's revenues grew faster by a wide margin than any of our other asset-based businesses. And we're pushing that business, Jack, into places that aren't as profitable as I would like to see them right now. So not only are we doing port work but we're also doing rail work. And we have a long-term strategy. We aren't crazy, I don't think. But part of our strategy ties in with what we're trying to accomplish from an Intermodal perspective, and that is having the capability to pick up and deliver those Intermodal units by ourselves. So we pushed in to a kind of a lower margin area in our industry that we hope, based on economics, based on freight demand and based on environmental issues, that basically within the next year or 2, we'll look a whole lot smarter than maybe we do today. Now the good news, Jack, with that business is -- we don't own any trailers. We own a few chassis and but not a lot of trailers. So our only capital investment there for the most part is trucks. So an 88 or an 89 OR, it isn't the end of the world because the capital investment isn't what it is in our Dry Van and Truckload business. But, Jack, I was hoping all you guys were asleep and wouldn't mention that, you know? And that maybe in a couple of years when it was like an 82 or an 83 that you would just be complementing us, you know?

No, it's fair to say that this was a strategic change that you guys were aware of happening, and it's focused more on ROIC and topline.

Yes. No question. I mean, we don't wake up and say, "Hey, we're going to be okay to have an 89 OR or an 88 OR or whatever it is in that business. We just have things we want to accomplish. I'm a true believer in this environment. And we -- they're all late model, clean trucks, and in many places we're competing against really old stuff. And but we're going to stay with it, and we have plans to improve that, Jack. And hopefully, you'll see good improvement when we're on the call a couple of quarters or next year at this time. So that's what we're hoping for. And then if everybody else could just follow up. Is that your number, Dave, that you've given folks, or is that Adam's?

Yes, let me -- It's actually my assistant's. Sure she really appreciates me doing this, but the number again is (602) 606-6349.

Our final question comes from Chris Wetherbee with Citi.

A lot of topics have been covered. I guess the one that I was curious to kind of get your thoughts on in a little bit more detail was the acquisition front. Obviously, you've highlighted in the release and the slides. I'm just curious if you can give us a little more color on specifically the areas you think that their best opportunities are out there and maybe what the valuation type of opportunities look like in those areas?

Yes, Chris, I'll go ahead and take that. First off, we feel like we've got a very good skill set here as far as our capabilities to acquire. We have been -- 2 or 3 years ago when the equipment, when we were in the middle of the equipment lot, the challenge that we had is we couldn't get comfortable with the balance sheet of what we were looking at. And so we were unable to basically accomplish a successful transaction. Now the good news is, we've moved beyond that, and actually we have a very high level of confidence in the balance sheets that we are looking at. The problem, though, Chris, is that we still have underinvestment by, I would say, 90% of the deals that we look at. And so, and unfortunately most of them are operating at very thin operating margins. So for us, with the fact that we're gaining some traction as far as our growth is concerned, we look at capital in terms of, okay, who -- where do we have the best opportunities? And I will tell you that we are looking at several acquisitions every 30 to 60 days. And we have a team that includes Gary Knight, who's one of our founders, who's our Vice Chairman; and also Clark Jenkins, who in the early years was our CFO. And we're working to do a successful transaction. We've been close a little more often recently than what I would say over the last 3 or 4 years. And so I am optimistic that we're going to get something done this year. But, Chris, I almost think I said this last year. So I'm disappointed that we haven't been able to transact. But, hey, I'm in all those meetings too. And at the end of the day, I think we're making really good decisions. So that's how I see it.

But it's not any one specific segment that looks most appealing when you're seeing these transactions? I'm guessing you're getting kind of flat already.

Not really. I mean, in all honesty, any of the segments that we operate in, we would be very comfortable in doing a moderate-sized transaction. I think on the Reefer side and on the Dry Van side, we'd be maybe comfortable doing something a little bit larger. So that's basically how I see it. Wesley, thanks so much for running our call. And we'd like to thank everybody who participated. And Dave will still be here for a couple of hours or longer or whatever. Whatever we got to do, we'll try to get to everybody, and thanks for your interest.

That does conclude today's Fourth Quarter 2011 Earnings Release Conference Call. You may now disconnect.