Good afternoon. My name is Christina, and I will be your conference operator today. At this time I would like to welcome everyone to the Knight Transportation First Quarter 2017 Earnings Call. [Operator Instructions] Speakers for today's call will be Dave Jackson, President and CEO, and Adam Miller, CFO. Mr. Miller, the meeting is now yours.

Thank you Christina, and good afternoon everyone, thanks for everyone joining the call. We have slides to accompany this call posted on our website at investor.knighttrans.com\events. Our call is scheduled to go until 5:30 PM Eastern Time. Following our commentary we hope to answer as many questions as time will allow. If we are not able to get to your call, or not able to get to your question due to time restrictions you may call 602-606-6315 following the call and we will return your call. During this call, we’ve planned to cover topics and any question specific to the results of the first quarter as well as our future outlook on the market. And as many of you know we recently filed a joint press release and held a conference call to announce a merger with Swift, which we're excited about and expect the transaction to close during the third quarter of this year. During this conference call, we don't plan to go into further detail than already provided regarding the merger. The rules for questions remain the same as in the past, one question per participant, if we don't clearly answer the question a follow-up question may be asked. Again we ask you to keep it to one question per participant. Now I’ll move to the second slide of the disclosures. I will also read the following here. 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 one 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…

Thank you, Adam and good afternoon everyone. Thanks for joining us. I will start with Slide number 7. In the first quarter our asset-based trucking businesses operated at an 89.5% operating ratio, which includes our dry van businesses, refrigerated businesses, drayage business and our dedicated business. The 750 basis points OR increase year-over-year resulted from several factors. First 300 basis point impact from a 3.2% decline in revenue per tractor excluding fuel surcharge as a result of the 2.3% decrease in revenue per loaded mile and 1% decrease in miles per tractor. Miles per tractor improved 1.8% in the first quarter of 2017 last year. When compared to 2015 and we gave back 1% of that improvement in this challenging quarter of 2017. The OR was negatively impacted by another 240 basis points from increased maintenance expense and professional fees associated with our recently announced merger with Swift Transportation. Similar to recent quarters, gain on sale of used equipment was weak and net fuel expense high. Gain on sale was $800,000 for the quarter compared with $3.2 million for the first quarter last year. The year-over-year impact on the OR was negative 170 basis points. Revenue excluding fuel surcharge was down 3.4% given the challenging freight environment. We decreased our average tractor fleet by 1.5% when compared to the fourth quarter of 2016. We expect to see improvement to come in the freight demand and rate environment. California in much of the West Coast was weak throughout the first quarter. April demand has been positive with the West Coast strengthening in recent days. In light of the five year drought is ended in California the produced forecast is strong and poised to break out with volumes and demand not experienced in some time. Of course this comes at the same…

Thanks, Dave. Slide 12 is our final slide where we will discuss guidance. Based on the current truckload market and recent trends, we are reaffirming our previously updated second quarter guidance of $0.24 to $0.27 per diluted share again it excludes any deal costs associated with the merger with Swift Transportation. At this point, we're not providing guidance for the third quarter as we are anticipating closing the merger with Swift during the third quarter. The timing of the close impacts from transaction costs and purchase accounting may significantly impact third quarter result, which makes providing guidance very difficult at this time. So I will walk through some of the assumptions made by management for the second quarter guidance. For the first assumption is, no organic growth from our current tractor count, which will result in a slightly smaller fee on a year-over-year basis. We expect revenue per total mile to increase modestly from first quarter to second quarter but still remain slightly negative on a year-over-year basis. Last year in the second quarter, we improved miles per tractor 1.7%, we anticipate miles per tractor will be flat to down slightly as compared to last year. Our assumption is that net fuel expense will continue to be a slight headwind in the second quarter; again it is hard to predict fuel though. In our brokerage business, which is the largest component of our logistics segment, we expect to see close to double-digit growth in both load count and revenue. However, we may experience some margin compression as tighter capacity in certain markets may result in purchase trans expense outpacing revenue per load improvement. We expect driver wages will continue to be inflationary on a year-over-year basis. We also expect gain on sale with the team to be a significant headwind as the used equipment market remains challenging. For reference, gain on sale in the second quarter of 2016 was $2.7 million and first quarter gain for this year was approximately $800,000. Other income will also be a headwind on a year-over-year basis. As far as tax rate, we expect that to normalize around the 38.5% range moving forward. 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 factors sections of the Company's annual report for a discussion of the risk that that may affect results. This concludes our prepared remarks. We would like to remind you that this call will end at 5:30 Eastern Time. We will answer as many questions as time will allow. [Operator Instructions]. If we're not able to get to your question due to time constraints please call 602-606-6315 and we'll do our best to follow up promptly. Christina we will now entertain questions.

[Operator Instructions] Your first question comes from Scott Group from Wolfe Research. Your line is open.

Hey thank, afternoon guys.

Thanks Scott.

Dave, I think you mentioned that you have seen demand improve in April and maybe if you can just give you a little bit more color, where you're seeing that and was that a sequential comment or a year-over-year comment and maybe if you can kind of share what that means for utilization in the quarter. And then I know just a little bit separately, I know you're not giving kind of guidance for the back half of the year but maybe just directionally, if we think about standalone numbers when you think your earnings could inflect positive year-over-year. Meaning third quarter, fourth quarter, 2018 how you're thinking about that.

Okay, well so I'll start with the first part of your question. April, our comments about the strength we've seen in April are we're looking at that on a year-over-year basis but relatively speaking because we of course had a Good Friday and an Easter holiday in April of this year, that we didn't have in April of last year. So when we look at the way that April started, really the first couple of weeks we saw positive trends in utilization and then more towards the middle here of April with the effects of a Good Friday and then the effects a little bit into the following week following Easter, we – those were tougher weeks for us from a utilization perspective. Then, this is I guess, very fresh but this week looks like we're off to a good start, we're seeing some strength in some markets that have been a little stubborn kind of wake up. So all in all, because of Easter utilization will probably be down year-over-year in April. But when we try and factor that out and we just try and get a sense for freight demand and how we're starting every morning from the low to truck balance, we're encouraged by it more so than what we saw last year. When you talk about utilization for the quarter, what Adam I think had just mentioned in his remarks about guidance for that we would expect to be your best case scenario would be closer to flat, more likely we would be off slightly in utilization and so you know that that will mean that both May and June probably are a little bit, are flat to a little bit better to make up for – you know in April that has to deal with…

Okay, that's helpful thank you guys appreciate it.

Thank you.

Your next question comes from Kenn Hoekstra from Bank of America Merrill Lynch. Your line is open.

Great, good afternoon. Dave can you talk about your or Adam, I guess your comments on rates inflecting positive in the second half and why at that point are you talking kind of mid-year just versus year-end. I just wanted to know if you're already seeing this pick-up in the bid season, before you're already starting to see kind of rate upticks.

Well it’s – it has more to do with just how we see supply and demand working its way through. So this bid season we're probably halfway through, we’re a little over halfway through the bids received based on what we expect to receive with probably just over a third of those actually being fully completed on incumbent lanes we're seeing flat to up slightly. And then of course there's – as any bid season goes there is some network turnover, so you have some new freight coming on that can be hard to compare on a year-over-year basis. And so that's what things look like from a contractual perspective, we've had very little strong non-contract experience for some time now. In fact, if you were to look at rates in general first quarter of 2017 is the sixth consecutive quarter with negative revenue per loaded mile on a year-over-year basis that's this is unchartered territory. You have to go back to the period of second quarter of 1999 through the second quarter of 2000 when we saw five consecutive negative quarters from second quarter of 2009 through first quarter of 2010 we saw four negative consecutive quarters. And so now through the first quarter of 2017 we've seen six and so this is this doesn't happen very often and we were clearly been inflationary costs that have been that we've been digesting and that have been pent-up that could usually find their way to the market pretty quickly. And so when you look at some of the larger macro indicators things like loads posted versus trucks posted on some of the large aggregators and load boards what you're finding is that those ratios are up sometimes double what they were a year-ago. And so we still have some room to go to hit where they've been at absolute peaks. But it's definitely changing and so the seasonality piece is about to pick up with produce and all the freight that changes when the temperature changes. And so I think we're going to see some opportunities because the market rate is just simply going to go up based on supply demand. And so when that happens in the way that our business is organized and positioned we were able to usually be pretty efficient at adopting those and moving with those market rates very rapidly. And so we think we're going to see some of that here during a couple of the seasonal parts of the year than most pronounced in the fourth quarter.

That’s great. I appreciate that. I think the operator said we can do a follow-up or does it – if we can let me just throw it out there, if not you can…

If I didn't give a good answer to your question, yes you can ask a follow. If it's an unrelated question we might let it go by this one time.

Fine, let’s throw out there and you can just maybe get to it later if you don't. I just want to understand really simply the net orders keep seem to go up you're talking about keeping your fleet flat see most are keeping at flat, just want to who do you think is doing the ordering in this kind of a market.

When you find out will you tell us so we can get their name and get the call and understand what they're thinking, I think that's a great question Kenn and I think if you do look at the numbers and you look at how long they were depressed. You've got large private fleets there's several hundred billion dollars in revenue theoretically on the private fleet side. And that’s a group that may take advantage of the pricing opportunities given the weakness I think another area that's maybe worth looking at is the retail inventory levels of Class A trucks and if you just were to look at February year-over-year, February of this year it's over – just over 45,000 in inventory versus a year ago February it was it was almost 67,000. And so that 21,000 plus deep pull down or drop down in retail inventory perhaps that’s there’s some replenishment that’s moving that way that we might see in these numbers but we don't know for sure certainly from the large public guys you don't see the growth when you look at the small players we don't see it with the small carriers either and in fact they've arguably been dealt the toughest hand through this whole process is they've seemed to become more and more reliant on non-asset based brokers and particularly as customers have migrated to more of a trailer pool and in many cases have moved to dealing with fewer and fewer large core carriers. And so if you add a middleman in that process it makes it even tougher for the small carrier in the end. So their economics would be particularly bleak given this extended challenging rate environment. So retail inventories would be my best guess followed by private fleet but I would know more beyond that.

Appreciate that insight. Thanks Dave, thanks Adam.

Okay. Thank you, Kenn.

Your next question comes from Brandon Oglenski from Barclays. Your line is open.

Hi, this is [indiscernible] from Barclays on for Brandon. Thanks for taking my question, guys and good afternoon.

You bet.

I guess in light of recent events and stand clear of any questions on – and you can’t say anything related to Swift. Just setting aside kind of cyclical challenges that are facing the market right now, could you discuss what you think is a long-term sustainable margin for the business going forward?

Well, just to speak about the Knight, we think that long-term a low 80s we are an 80s operating ratio is reasonable we think it's sustainable you saw us perform throughout all of 2014 in the asset-based business performed in the upper 70s when I say 80 OR I’m talking about the asset-based not the consolidated it includes brokerage. And so on the asset-based side, we don’t have any reason to believe that we can’t return to those levels of profitability. I think the fact that we’ve seen such a negative rate environment for so long when historically over the last 10 years rates have averaged – on average have gone up about 2.5% and if that were to just happen on its own you would see much more consistent ORs and you would see we think you’d see an OR pretty close to 80 for our business. So we think that’s not only realistic but it also is roughly where you need to be in order to meaningfully provide a return that’s greater than your weighted average cost of capital. And so very few businesses in our industry ever achieve a double-digit return on invested capital. And so we think over time that’s way where the business needs to be. And we think that we provide a tremendous value with full truckload I mean if you were to compare a full truckloads rate per 100 weight or per pallet or how do you want to measure it. If you were to compare us against LTL alternative you would find we did a significant discount certainly if you were to compare us against parcel or air freight it's not even close. And so the flexibility that you get to timeliness and the high level of service that one can receive the truckload service I mean the value is pretty compelling. And so we have no reason to believe we can't perform at those levels that historically we've performed at.

I’ll leave it at that. Thanks guys.

Okay. Thank you.

Your next question comes from Allison Landry from Credit Suisse. Your line is open.

Good afternoon and thanks.

Good afternoon, Allison.

Dave, it doesn’t sound like anybody really has a clear answer as to who is ordering these trucks. And particularly when the market is already oversupplied so I guess my question is if the industry really needs an uptick in demand to shore up the excess capacity what happens at freight demand continues to soften from here. And thinking about ELDs a little bit down the road at the end of the year will in this sort of softer hypothetical freight environment. Would ELDs just offset weaker freight and sort of leave us back where we started which is effectively with negative rates.

Well, I guess you could think such a draconian outlook. I mean there’s – you could always make a case for a worse case scenario. I think we’ve never seen a period like we’ve seen here in terms of just aggressiveness with rates going down over this prolonged period of time and it such a pace and so and I think there’s some factors for why we’ve seen that now we haven’t seen that in the past. And I think part of it is the fact that brokers non-asset brokers in particular have grown pretty significantly over the last 10 years and I think that they played a very active role in making commitments through the bids, the bid process instead of just maybe working with more seasonal or search type freight opportunities. And so they’ve gone to an essence compete with the very capacity that they rely on to help them. And so but that can quickly be reversed and usually is very quickly reversed as there are some of the most nimble in the market here and switching gears when there's tightness in capacity, for what you said if the freight demand was to deteriorate from where it is today. Clearly that would not be a good thing. I think if you look at the levels of where they are now. If you look at where the economy is going I mean to suggest that would suggest that the economy is headed to a really, really bad place. And it seems as though construction is showing the positive trends, in fact they may be somewhat to blame for some of the classic purchases frankly. But you have construction that's picking up. You have consumer confidence numbers that are coming in very, very positive. And so you have – we could see a massive infrastructure bill. So you have things that move truckloads. And I don't – we just don't – we don’t see on the horizon a deterioration in freight demand. Now what I will tell you that we have had to suffer through is California drought that has been very difficult on the West Coast. We had drought conditions there couple of years ago. And throughout the Texas and Midwest area that had wreaked havoc in the beef world. We've had disease and illness that's gone through the poultry world over the last couple of years. And so knock on wood for right now expecting to scene to be healthy and cattle getting fat and produce is bountiful. So that would suggest maybe a little different demand outcome and output than what we maybe have been used to most recently.

Okay. That was helpful and I didn’t meet necessary pain such as dire outlook. But I guess really but I was getting out is, is there something may be structural going on with freight itself perhaps driven by e-commerce where it's sort of the freight intensity and economy has lessened.

I think I mean certainly e-commerce has been a major role. I would say every major carrier has their hands in some kind of e-commerce. The good news is as I mentioned a minute ago that, that full truckload is inexpensive. And so it's the least expensive by far and yet can provide amazing service and we can be there very quickly. If you think about the growth that we've seen in e-commerce, it's created significant concentration of products moving into major markets, which allows truckload to be in the game whereas initially when it wasn't so concentrated or there wasn't the volume, you had no choice but rely on parcel or rely on even LTL. And so there's a lot of opportunity, a lot of truckloads that come with e-commerce particularly efficient e-commerce. And I – and every major retailers in the – is developing their capabilities there. I think something that's been a factor Allison has been that, that the country has become very, very good at finding every possible spare scrap of capacity in the market. And load boards and the 12,000 brokers most of which have never bought a truck have become very effective in using the Internet, sometimes even using apps to be able to find every potential truck that’s out there. And so I'm not sure that in prior cycles there's been quite as much visibility to this. I mean if you were to go back to the 2004, 2005, 2006 timeframe it seemed like C. H. Robinson was the only one that had the comprehensive roller decks to track down a lot of the majority of the capacity. And today it's kind of all out there. And so that's the challenge and a drawback to that is, you have a lot of middlemen that have created that have gotten in between and that are all trying to collect a 15% to 20% gross margin and there just probably wasn't that much to begin with for the carrier. So there are long-term negative effects to the short-term visibility, in the short-term ease of being able to find capacity. And then that issue gets further exacerbated come ELDs and in some cases you have small carriers that make capacity available, because of flexibility that they have in not using an ELD. And so that then gets exploited, sometimes down the chain by perhaps a non-asset based broker. And so that that begins to change, which I think just further exacerbates the issue so.

Great. Really appreciate your thoughts. Thank you.

Thanks, Allison.

Your next question comes from Brad Delco from Stephens. Your line is open.

Good afternoon, Adam, Dave, so how are you.

Hi, Brad.

Okay Brad.

Dave, you think 750 basis points of the OR deterioration at Knight is that something that I would consider somewhat unprecedented. And I was just curious is there anything else going on, on the cost side here? And if you broke down your asset based operations between dedicated dry van, refrigerated, drayage, where did you see the most pressure between those call it sub-segments in your asset base business.

Yes. So I thought – mean it was a challenging environment for both our dry van and refrigerated business, no doubt. The 750 basis points slide it just makes us sick. And I will tell you and when we got our January numbers, we were extremely disappointed. I mean January is one of the worst performing months that we've ever had. And so we didn't wait around, and then we began to address any issue that we – every issue that we knew off that we could within what we could control. And so we've made several adjustments in February and in March that continue to move going forward. In any given quarter, you’d usually got a few things going right for you. Whether it's gain or whether it's utilization or rate or perhaps one of our businesses is doing really well, Refri might do well and Dry is maybe not so much. Or – and they kind of can help move the needle and help protect very rarely if ever do all of those major cost factors and businesses all go great in the same month or quarter rarely if ever does that happen but also very rarely do we have where you basically have almost no gain on sale. And you don't have any help from fuel. Obviously you get help sometimes and that's one of those factors that helps it, but it's just if you go through the list everything was a negative for us. And so clearly we have felt the effects of the prolonged, challenging, freight environment. And as you know we primarily live in that irregular route environment as opposed to maybe a more safe multi-year contract dedicated market. We do dedicated, but it's a smaller portion of our business. And so at this stage of the game and as market rates improve, we wouldn't trade our position. And we expect to be positioned in a way to recover as market rates move and recover previous quarters and recovered inflation at a pretty good clip. So we're looking forward and working hard to aggressively manage this current environment now in the second quarter.

Great. And then if I can get the follow-up, can you give us just a sense of within your asset based business the size or scale of dry van versus dedicated versus refrigerated and dray just to help us kind of understand the exposure you have within each of those segments.

Do you want to give a rundown Adam, maybe?

Well. I don't have it all right in front of me, I have my finger tips here Brad, but just roughly speaking, just looking at the assets out of our business dry van would probably represent about 60% of our asset based business. While refrigerated would be close to that 30%, 35%, and drayage would – with dry van if we include Barn On so that's probably closer to 70%. And then you have refrigerated which is probably 20% and drayage about 10%.

On the asset-based side, if you were looking just consolidated you’re going to see close to 20% of revenue come from the logistic side of our business.

Yes, I’ll just break it out the assets Brad.

Okay, let me – again a little confused there. With Barn On dry van is at 70%, refrigerated in 20% and dedicated and dray would obviously be 10%, is that correct?

Dedicated, I would roll that up into the dry van. We don’t break that out separately. We operate that within our service centers. But dedicated is probably total 10% of our asset.

Okay, great. Thanks for the color guys.

That would be primarily dry van.

Sorry, that’s little confusing.

I will go back and listen the replay and feedback make sense of it. Thanks guys.

Hey, Brad, let me just – sorry, I kind of put add among those thought there. Let me just back up. So of our asset-based business, the dry van business is going to be roughly 70% and about 10% of that 70% of the dry van business is going to fall into the dedicated category. And then about 20% of our asset-based revenue is going to be refrigerated and then that last 10% is going to be roughly – is going to be our drayage business.

Got you.

Okay.

I’m clear now. Thanks guys.

Okay.

Your next question comes from Tom Wadewitz from UBS. Your line is open.

Yes, good afternoon. I wanted to ask you about the – I guess, you had some nice discussion on some of the secular – potential secular factors. And one thing you didn't mention was the retail store closures, it seems like every day you read about more store closures. I guess – it's hard to get clean assessment of the net impact if you growth e-commerce store closure. So what would you say about that in terms of having a negative effect on freight demand? Do you see that as a net negative in your customer base or you think it’s just kind of even though e-commerce growth, how would you view that as a factor you have to consider on overall freight impact?

Yes, that’s a very good question. I think it's a complicated question to try and answer, obviously store closures are negative for freight demand. But e-commerce is growing at such a pace that it – from a high level. It seems to be outpacing store closures or the effects from store closures. But it's hard to try and compare those two with the same time, they function in different ways. And so I think ultimately where you have to get to as looking at what's going on with GDP. And that just gives you a general sense as long as people are purchasing goods and food, you're going to see truckloads involved in as many of those as can possibly be done, because of the value that’s created with truckloads. So I don't have – I mean, I don't have data in front of me to try and compare those apples and oranges between one's growth and one's decline. But clearly, it has a regional effect to some folks. So that’s right I don’t have a better answer to that.

Okay, but it sounds like you don't think that, you wouldn't blame that for the weakness. One of their kind of short one if you don't mind the fleet age is gone, has gone up a bit, and I don't remember the last time you were at what you’re like 2.4 years old for the tractors. Is there a point where you say while maintenance cost go up we don’t like running older fleet, are you kind of close to that or can you keep aging end up if market remain soft.

Yes, there definitely is a point at which we decide that it's not worth it. And so it's not just looking at maintenance costs it's also looking at what is the used equipment market has to offer us at the same time. And where do we forecast that. So we see that market is very, very soft we would see it is continuing to be soft for a while. So but that's something we watch really, really closely and try and make the best decision based on what the options are.

It doesn't sound like you're there yet I guess.

I would say we're – I don't think we're there yet, but we're clearly closer than we've ever been. So we were 1.8 year ago and we're 2.4 today. So weather played a factor in the maintenance cost but clearly the average age being up to play a factor as well. And so it's something that we're watching very closely. So…

Okay, great. Thanks for the time. I appreciate it.

Okay. Thanks, Tom.

Your next question comes from Ravi Shanker from Morgan Stanley. Your line is open.

Thanks very much. So I have few follow-up questions to the previous comments you made, so I guess that counts as one question combined maybe I don’t know.

Okay.

The first one is a logistics, I think you said before that there’s time when C. H. Robinson is the only that [indiscernible] but that’s probably no longer in the case. What does that environment, what does that duty of logistics margins longer, how your logistics margins kind of go up from here if you will. Is it primarily going to be a cost thing or do you guys still, that’s the element of pricing power. And what do you think some of these new entrants coming in the space kind of what kind of impact you have in your margins longer term?

Okay. Well, I think what typically happens is we’ll purchase trends cost go up first. And then rates will follow purchase trend, cost going up. And so we are in an environment now where we’ve seen purchase trends costs go up and rates not be able to keep pace we’ve seen that virtually every broker that I’ve seen released has had similar compression in the margin. And then what will eventually happen is the market pricing will go up because the demand in the cost per trucks goes up the purchase trends going up. And those brokers will have committed to 12-month raise will find themselves with significant compressions and in their margins and sometimes may not have much of a margin as a result of very competitive contractual 12-month pricing. And then those brokers that are a little bit more on the transactional side will – and aren’t as locked in will be able to move as what is a very efficient market as pricing demand goes up. And so we are clearly in an environment where the price needs to be going up, should be going up faster because purchase trends cost have been going up and that’s always been the predictive indicator. And so now becomes a matter of what is your exposure look like in terms of where you locked in at right and where do you have the ability to kind of move variably with the market. And so our approach to brokerage has been one of being much more variable and lesser commitment that’s in our logistics brokerage arm. Did I answer your question, Ravi?

Yes, can you just address the kind of new entrants and kind of what kind of impact that have in the space?

Well, I think with the new entrants, we’ve seen that many of the smaller brokers that are trying to aggressively grow their business they do so with discounted rates and often times do a lack of relationship with third-party carriers. They end up sometimes paying a little bit more into the market then they’d be more established carriers might. So they are probably – they are probably even more margin challenged than the larger more established players.

Okay, and just as a quick follow-up to the other question I have was – you said that the third quarter guidance would be kind of in the same range the 2Q guidance does that kind of literally that the 24 and 27 that you would given for 2Q or do you mean set up in the ballpark because…

Ravi, I didn’t intend to give provide any guidance into third quarter of 2017 my comment that I had made earlier in this call. Just referenced in typical years what we’ve seen from the second to a third quarter, I didn’t mean to infer explicitly anything about third quarter 2017 there’s too many moving pieces at the moment for us to put guidance for third quarter.

Great. Thanks for clarification.

Okay. Thanks Ravi.

Your next question comes from Brian Konigsberg from Vertical Research Partners. Your line is open.

Great thanks for taking my question, good afternoon.

Good afternoon.

Since we use set – lot of news on tax proposals today [indiscernible] on that one, since to the extent we do get a corporate cut. Just give us your thoughts on the ability for truckloads for carriers like yourselves to be able to sustain the benefits of the tax rate you think is likely that will be given away and rates fairly quickly or do you think you’re positioned to hold on to something like that, for your own benefit. And if not maybe just my follow-on do you anticipate maybe longer term if you cannot hold on to those benefits, might that just result in lower operating margins through the cycle.

Well, Brian I’ll to take a stab at that question. You know when you look at the average trucking company the most, there's just not a lot of profit it is a very low margin industry. And so the lowering of tax rate for most companies don't provide the same benefit as it would for the larger public companies, who have been more proper or at least for those who have been more profitable. So for us, for instance it would have an meaningful impact on our earnings but for many of the smaller carriers, it just wouldn't have a impact and therefore they wouldn’t be able to share as much with the customer in terms of a price discount. So we do feel that we’d be able to hold to a meaningful amount of that benefit.

Brian I would just point out, we have historically been a 38.5% to 39.5% tax payer. I mean this quarter was an anomaly, where we saw a little lower tax rate than that but we have been nearly a full statutory state and federal tax-payer. And of course that's in addition to the registrations and fuel and mileage tax and heavy highway use tax that we pay everything else. So we're definitely proud Americans and we feel like we've been paying our part maybe more so, so let me keep that out Brian. It sounds good to get that out.

Very good thanks.

Thank you.

Your next question comes from Chris Wetherbee from Citi. Your line is open.

Hey thanks and good afternoon guys.

Hi Chris.

Hey why don’t you touch back on some of the expense management initiatives that you talked about a little bit and then did you mention that you're getting a little bit of traction as you move from 1Q to 2Q on that. I guess I just wanted to get a, maybe get a little bit more color on some of the specifics that you’re kind of working on and maybe how that can impact the cadence of earnings as you move throughout the rest of the year, presumably with some freight and you get some of these cost dynamics. May be you can get incremental margin dynamics are shifting a little bit more in your favor. But any help or color you can give around that would be greatly appreciated. Thank you.

So the Chris I will take a stab at that and Dave can add any color, if I miss anything. So as Dave said we got our results in January. And obviously we're not very pleased with them and so there are several areas across the Company that we felt like we needed to do better on that from a cost perspective. We work with leaderships, we laid out plans and that was probably mid-February when we did that and we started to get some traction. I’d say as we look at the first quarter, January did not play out very well, it is very difficult probably the worst of months we seen. February made a little bit more progress, but March was probably the one month of the quarter that played out almost like you would have expected March to play out in the first quarter. And so we felt good about that progress, we're headed into April, we still feel we have some momentum on the cost initiatives and we hope to see some additional traction there and for that to improve our results meaningfully, and so if you look at our guidance we're showing an incremental increase in EPS from first to second quarter, that would be higher than normal, if you look back at historical change in EPS, sequential changes from first to second. So that's kind of baked into some of the guidance that we have laid out.

And just a follow-up just to be clear. In terms of the second quarter, so we should assume that sort of full run-rate of some of these cost dynamics that you have sort of layered in as opposed to, it's still growing through out the second quarter maybe third quarter being the run-rate I'm just trying to make sure I am clear on where that – where that run rate kind of kicks in.

Yeah we had more progress to be made, we're not at a full-run rate at this point. We still have work to do in order to get some of these cost pressures in line.

Perfect thanks for the time guys, appreciate it.

Thank you Chris.

Well this – it’s 5:30 Eastern Time and so this will conclude our call we appreciate your support in joining our call today. Christina I will turn I back to you.

This concludes today's conference call you may now disconnect.