Old Dominion Freight Line, Inc. (ODFL) Q3 2026 Earnings Report, Transcript and Summary

Good day. And welcome to the Old Dominion Freight Line Third Quarter 26 Earnings Conference Call. All participants will be in listen only mode. Please note this event is being recorded. Would now like to turn the conference over to Jack Lawrence Atkins, Director of Finance and Investor Relations. Please go ahead.

Thank you, David. Good morning, everyone, and welcome to the third quarter 26 conference call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today. Through November 4, 2026. By dialing 506-0658. Access code 1.9 billion. A replay of the webcast may also be accessed for 30 days at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 2000. Including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose and any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. Are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission. And in this morning's news release. Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements whether as a result of new information, future events or otherwise. As a final note before we begin, we welcome your questions today. We ask that you limit yourself to just 1 question at a time before returning to the queue. At this time for opening remarks, I would like to turn the conference over to our President and Chief Executive Officer, Kevin Freeman. Kevin, please go ahead.

Good morning, everyone, and welcome to our third quarter conference call. With me on the call today is Adam N. Satterfield, our CFO And after some brief remarks, we will be glad to take your questions. Old Dominion produced strong financial results in the third quarter that include a 13.1% increase in revenue and a 28.9% increase in earnings per diluted share. In addition, our operating ratio improved by 280 basis points to 71.5% While the underlying macroeconomic environment remains stable, demand for our service continued to improve during the quarter and our LTL tons per day increased on a year over year basis in September. The strength of our third quarter results is due to hard work and dedication of our OD family of employees. Who continue to execute on the fundamental aspects of our long term strategic plan. I want to thank our outstanding team for their dedication and commitment to our customers and our company. Our ongoing focus on providing our customers with superior service at a fair price is the cornerstone of our long term strategic plan. Our ability to consistently deliver the highest standard of service through the ups and downs of the economic cycle has created an unmatched value proposition in our industry. And this is something that we take tremendous pride in. As a result in the third quarter, we were pleased to once again provide our customers with on-time service of 99% and a cargo claims ratio of 0.1%. That said, we also know that there is much more to providing best in class service to our customers than simply picking up and delivering freight on time and without damage. During its annual survey of shippers and logistics professionals, Mastio and Company measures 28 different service and value oriented attributes. We were honored earlier this month to be named the number 1 national LTL provider for the 17th consecutive year. In addition, we finished first in 24 of the 28 categories that Mastio & Company evaluates and we increased our already sizable advantage against our competition. I would like to thank our customers for this recognition and for trusting us with their business. I also would like to congratulate our OD family of employees on this incredible accomplishment. Our teams remain highly motivated to continue delivering superior customer service every single day. We know that the strength and consistency of our service drives value for our customers. And differentiates us from our competitors. It also supports our long term pricing initiatives, our disciplined approach to yield management which focuses on individual account level profitability is designed to offset our cost inflation over the long term while also supporting our ability to make strategic investments back into our business. Our ability to take a long term approach to the investments in our network our people, and our technology provides us with significant flexibility to react quickly to changes in the operating environment. This flexibility allows us to support our customers with the capacity that they require while also continuing to effectively manage our cost. As a result, we once again generated strong operating leverage on our incremental revenue this quarter. We produced strong third quarter results by remaining focused on executing our long term strategic plan. Due to our disciplined execution and consistent investment, we have all the necessary elements of capacity in place to effectively handle incremental volume opportunities while also continuing to operate efficiently. In addition, our business model contains significant operating leverage which will allow us to further improve our profits as we regain density in our network. As a result, we continue to believe that we are uniquely positioned within our industry to win market share, generate profitable revenue growth and increase shareholder value over the long term. Thank you for joining us this morning. And now I will turn it over to Adam to discuss our third quarter in greater detail.

Thank you, Kevin, and good morning. Old Dominion's revenue increased 13.1% to $1.59 billion for the third quarter 26, while our operating ratio improved to 71.5%. The combination of these factors resulted in a 28.9% increase in our earnings per diluted share to $1.65 The improvement in our revenue for the quarter was primarily due to a 13.3% increase in LTL revenue per hundredweight. While our LTL tons per day decreased 0.1% for the third quarter, we were pleased with the continued improvement in demand for our service that contributed to a 1.6% year over year increase in our LTL tons per day for the month of September. On a sequential basis, our revenue per day for the third quarter increased 2.4% when compared to the second quarter 26. With LTL tons per day increasing 1.2% and LTL shipments per day increasing 2.4%. For comparison, the 10-year average sequential change for these metrics includes an increase of 2.4% in revenue per day a decrease of 0.2% in LTL tons per day and an increase of 1.2% LTL shipments per day. The monthly sequential changes in LTL tons per day during the third quarter were as follows: July decreased 0.5% as compared to June, August decreased 1.6% as compared to July and September increased 3.9% as compared to August. The comparative 10 year average change for these respective months is a decrease of 3.0% in July flat in August and an increase of 3.1% in September. While there are still a few workdays remaining in October, our month to date revenue per day has increased by approximately 22% when compared to October 2025. This includes an increase in our LTL revenue per hundredweight as well as an increase in our LTL tons per day of 1.6%. Based on these results, I currently anticipate revenue of $1.54 billion to $1.58 billion for the fourth quarter which would be above our normal seasonality. As usual, we will provide the actual revenue Related details for October in our third quarter Form 10 Q. Our operating ratio improved 280 basis points to 71.5% for the third quarter 26, with improvements in both our direct operating cost and our overhead expenses as a percent of revenue. Within our direct operating cost, improvement in our salaries, wages and benefits as a percent of revenue more than offset an increase in our operating supplies and expenses. Our team has continued to leverage the quality of our revenue growth while also operating very efficiently to support this improvement. The increase in our operating supplies and expenses as a percent of revenue was primarily due to the increase in the cost of diesel fuel and other petroleum based products. The improvement in our overhead cost as a percent of revenue was primarily due to the overall decrease in our depreciation expense that is attributable to the decrease in the size of our fleet as compared to last year. With that said, we are confident that we continue to have plenty of service center and equipment capacity to accommodate additional growth opportunities. The improvement in our overhead cost also reflects the leverage gain from our revenue growth as well as a continued focus on controlling our discretionary spending. Old Dominion's cash flow from operations totaled $469.5 million for the third quarter and $1.1 billion for the first 9 months of 2026 respectively while capital expenditures were $67.1 million and $206.7 million for those same periods. We utilized $160.9 million and $400.6 million of cash for a share repurchase program during the third quarter and the first 9 months of 2026 respectively while our cash dividends totaled $60 million and $180.7 million for those same periods. Our effective tax rate for the third quarter of 26 was 24.5% as compared to 24.8% the third quarter of 25. We currently expect our effective tax rate to be 24.8% for the fourth quarter 26. This concludes our prepared remarks this morning. Operator, we will be happy to open the floor for questions at this time.

We will now begin the question and answer session. Our first question comes from Christian Wetherbee with Wells Fargo. Please go ahead.

Yes. Hey, thanks and good morning, guys. I guess maybe we could start off with some thoughts around the maybe operating ratio progression as we think about the fourth quarter in the context of what sounds like it is maybe a little bit better than normal seasonality from a revenue standpoint for the fourth quarter? Can you maybe just help us sort of bridge that gap?

Yes. Sure. So normally, the operating ratio, we have a sequential increase of about 200 basis to 250 basis points, at least that is the 10-year average change And that excludes any impact from the annual actuarial analysis that we conduct in the fourth quarter of each year. I always look at that as just a reconciling item to whatever we give for our guidance there. Based on what we have seen in October so far, I am anticipating a few cost headwinds. But I still think that the low end of that normal range is appropriate for a target if our revenue trends continue to hold steady and we continue to outperform seasonality there from a top line standpoint. So, that would put us at around 73.5% for the quarter. Overall. But I would add a plus or minus 20 basis points to maybe give us a little flexibility. So above seasonality top line and kind of at the low end of our seasonality from an operating rate standpoint or maybe even slightly better.

Okay. that is helpful. I appreciate it. Thank you.

And the next question comes from Scott Group with Wolfe Research. Please go ahead.

Hey, thanks. Adam, can you give us a little bit more color on some of the revenue trends? So we got tonnage. Can you help us maybe break down the yield trend in October? With fuel, without fuel and just the. Sounds like revenue is better than normal seasonality. Just give us. How is tonnage trending relative to normal as well? If you can?

Yeah. The, so like I said, the tons are up. At least month to date, 1.6%. And, so that would imply that the revenue per hundredweight with fuel is right around 20%. Without fuel is 5.5% to 6%. And some of that is it is still very strong. it is a little bit below where we were in August. But I think that just slightly, but what we have seen is a further acceleration in our weight per shipment. So to keep that revenue per hundredweight ex fuel pretty steady there, I think shows the continued strength of our price philosophy and what we have been able to achieve. It also does reflect our general rate increase went into effect at the first of October this year versus the first of November last year. So, continuation of good trends, like we said, demand continues to remain stable. And we will look for continued revenue growth in the quality revenue growth in the fourth quarter as a result.

Okay. Thank you.

And the next question comes from Tom Wadewitz with UBS. Please go ahead.

Yes, good morning. Wanted to get your thoughts on comp and benefits expense. I think you have had I want to see you talk about, Adam, maybe Group Life and some I guess, fringe type of pressures. But what would that look like in Q3 And is there an element that is incentive comp or just what are the big pieces that are driving that up? And then how do you look at that kind of in 4Q or going forward? Thank you.

Yes. If you just look at the total compensation salaries, wages, benefits, on a per employee basis. We continue to see that up. On a year over year basis. And the majority of that is related to the increase that we continue to see in our fringe benefit cost. We also have increased performance based compensation Obviously, we gave a wage increase that was between 3% to 3.5% and then just our people are working more hours. If you look overall, our average headcount in the third quarter was down 4% comparing favorably to the 2% decrease in shipments per day. So all those factors kind of contribute, but a lot of that increase the per employee cost is really coming from the fringe benefits. And that was something that we talked about at the end of the second quarter call that we anticipated that would be further pressure on our cost in the third quarter. And they were. They came in actually a little bit higher than what I had originally anticipated. So, we generally talk about that fringe benefit as a percent of our salaries and wages. And that came in, in the third quarter at 42.8%. 0.2539.7%. So that is about a full operating point headwind just based on those costs. And based on it is mainly been driven by our health and dental costs, and that is just something that I think overall not just us, but the entire medical inflation has been pretty significant, both the last couple of years And based on what I am seeing in October, we would expect that is going to be potentially a headwind in the fourth quarter as well. But that is based in or baked into the operating ratio guidance that we gave.

But you think kind of the type of pressure you are seeing, I guess, obviously, wage is gonna be impact, but like the magnitude of pressure from fringe and from incentive comp that is probably similar in Q4 to what you saw in Q3?

I think so. You I think that is something that I do not really see changing much and especially with respect to the fringe cost. But obviously, continue to manage all of our costs really. But I think looking at the sequential change from Q3 to Q4, A lot of that normal 200 to 250 basis point progression is in salaries, wages and benefits and then ops supplies and expenses. And you may see a little bit of variance. We have obviously got it looks like based on October some fuel cost pressure. So you might see that those 2 line items combined, I expect them to trend about an average, but probably what normally is more of an increase in salaries, wages, and benefits is a percent of revenue, probably going to see that more of an increase in our ops supplies and expenses and just the reverse the salaries, wages, benefits as a percent of revenue will probably outperform on a similar basis relative to what our 10 year average change would be.

And that is all as a percent of revenue. Rishi. Okay. Great. Thank you.

And the next question comes from Jason Seidl with TD Cowen. Please go ahead.

Hey, thanks, operator, gentlemen. Good morning. Adam, I just want a clarification question and then a question about drivers. You said you have basically plenty of capacity at your service centers. Can you put a number around the excess capacity to sort of give us a feel for the progression And then 2, when you look at the driver market, I mean it is clear that at least on the truckload side of things, it is been tightening and tightening for in terms of qualified drivers now. I know there is not always a direct overlap, but there is always an indirect impact on LTL drivers, especially as we think about wages going forward into 2027 and beyond. Maybe you could talk to expectations there.

Yes. Well, first, the spare capacity number that we generally talk about is really just on the real estate side. And that number continues to be north of 35% So we are in great shape when it comes to real estate capacity. We are in great shape when it comes to equipment capacity as well. We have trimmed the fleet back a little bit, as mentioned earlier. And that is helped us from an overall depreciation standpoint. The depreciation dollars were down actually on an absolute basis in the third quarter. Versus third quarter of last year. But we continue to have plenty of power and trailing equipment capacity.

From a people capacity standpoint, I think we are in great shape there as well. Our headcount has been pretty flat all year. Somewhere a little over 20 thousand full time employees. And if you think about where we are from a volume standpoint in the third quarter versus where we were in the first quarter, we have been able to keep our headcount steady. And our volumes are up 5% to 6% if you compare just those 2 quarterly periods. So we have been kind of holding steady all year there. But that is intentional and that is always part of our strategy is we try to keep our people employed and keep as many drivers as we can to make sure when we come out on the other side we have got plenty of capacity there. So hours worked had been trending back a little bit on average and now you are starting to see some of those step up. And like I mentioned earlier, that is why average wage per employee is up a little bit as we are just seeing more hours worked on average. But we have got plenty of capacity to be able to step up. We have got drivers in some cases that are trained to have their CDL that they are working on the platform. And we can put them right back in the truck when dictated. We continue to take advantage of our truck driving schools We produce the majority of our own drivers internally. We train them internally. So that is that is a big benefit for us. And when demand dictates, can always go to the market. But where we have needed to hire you may have some spotty issues here and there, but overall, given the culture that we have and the quality of wage generally paying a wage at the top of the industry, we have not had any major issues attracting employees and drivers when we have needed them. Jason, also keep in mind that LTL versus truckload, our turnover ratio less than 8%. Full truckload, it is probably in your high 90s to 100% turnover. So but we are not having any issues hiring drivers when we need them.

that is good to hear. And Adam, just to follow-up on your comments there about sort of the fleet. So if we just have normalized growth into 2027, should we expect sort of an increase in CapEx as we move throughout 2027 for purchases?

Well, we have not finalized that at this point yet. We are, in a few weeks, we will be going through our annual strategic planning process to really fine tune what our plan for next year will be. But I would anticipate just like we saw this year, that we will likely our total CapEx will likely be lower than the 10% to 15% of revenue spend that we typically see. Just based on the size of the fleet that we can grow into. But of course, going to have we have a normal replacement cycle that we go through every year. And then we will continue to have and evaluate real estate opportunities and that is on the scale that we look at, what is our growth potential look like not just next year, but what does our market share look like over the next 10 years. And we have been the biggest market share winner over the past 10 years. And I am confident that we will be the biggest market share winner over the next 10. So, it is always about where are the right places to add real estate capacity along that spectrum of growth that we would anticipate seeing and when does it make sense to add it when do you get the opportunity in some high demand markets and evaluating all those things that will go into the real estate strategy when we think about 27.

Gentlemen, that is great color. Appreciate it and nice job in the quarter.

Thanks, And the next question comes from Jordan Alliger with Goldman Sachs. Please go ahead.

Yes. Hi, morning. I just wanted to come back. I know I think you mentioned demand seems fairly stable. It inflected positive, which is certainly good news. So maybe share some thoughts on the overall tenor of demand other than maybe comping against easy comps? Is weight per shipment still being positive a couple of percent for a few quarters? Are we indicative of maybe a true firmer market is upon us? Thanks.

Yes. The weight per shipment that is continued to be positive. And I do not know if I gave the number, but in October, the weight per shipment is up about 3% compared to October of last year. So we continue to see that flexing up. And that generally is a positive indicator for demand I think that just based on customer conversations that we have had this year, but even recently, we just continue to see stable demand trends and feel like that potential is there. Obviously, there is a lot going on in the world and with the broad economy that our customers are managing through when they think about inventory trends and whatnot. But that is something that we just continue to stay in front of. We feel like we are seeing some good market share opportunities as we go through bids. And seeing some seeing customers asking about multiyear contracts, things that when you read the tea leaves are more of an improving demand environment. And obviously, we continue to see the industrial economy with positive ISM through the year. it is it is been in kind of low to mid-50s, but it is been an expansion territory. So that is been good. So other macro figures that continue to be positive, but just balancing those with customer conversations We have been above seasonality when you think broadly about it. All year. And certainly, we have seen some months that have when you look more granular, some months have been above seasonality, some months below. October tonnage is below what the normal seasonality is. But fully expect just based on the broader trend that we will continue to see kind of that up down, up down trend that we have seen throughout the year and think that as we get through November and December that we can see that trend being above seasonality.

Thank you.

The next question comes from Brian Ossenbeck with JPMorgan. Please go ahead.

Hey, good morning. Thanks for taking the question. Just kind of a 2 parter here. I wanted to hear a little bit more about the GRI stick rate. Obviously, another great year in Masstio with high value for high service. So I want to see how that is being accepted, I guess, in the in the current market. And are you seeing any benefit from truckload spillover? Obviously, rates have been up for a while now. So I would expect that there is something in there that you might be seeing at this point. And then just to maybe to wrap it all up, just a broader commentary on density and network, how to think about incremental margins as we start to see, you know, hopefully, a more continued rate of volume and tonnage and shipment improvement. Thank you.

Yes. There was a lot in there to try to unpack. But, maybe I will leave the last 1 for someone else. But I would say, from a GRI standpoint, we have a pretty simple philosophy of being cost based. And, when you think back over time, we generally target getting around a 5% increase. And our GRI has been 4.9% that is been pretty consistent year in and year out for about as long as I can remember. So I think when you have got a simple strategy like that, it is pretty effective to be able to go in and sit across the table and ask for an increase to help offset the cost inflation that we are seeing in our business. And frankly, in the third quarter, at least, cost inflation, when you look on a per-shipment basis, has been trending higher than what we anticipated. We thought core inflation would be 5% to 5.5% this year and we have seen that trending a bit higher. But so that is been steady and I think that supports when you look at our overall revenue per hundredweight excluding fuel and the full quarter was at 5.1%. Revenue per shipment, which is really how I think about revenue per shipment and cost per shipment has been trending higher. But some of that reflects the fact that we are seeing higher weight per shipment. Our length of haul was a little bit higher in the third quarter as well. So all of those are favorable. And lead ultimately to long term operating ratio improvement. So those have been good trends to continue to see and we would expect to see that same type of consistency as we move forward.

Thank you.

And the next question comes from Eric Morgan with Barclays. Please go ahead.

Hey, good morning. Thanks for taking the question. I guess I will just ask 1 on fuel. I was curious if there was a lag impact in the third quarter that maybe you could quantify. I do not know if that presents a tailwind sequentially in Q4. I think the surcharge as a percent of base revenue moved down a little from Q2 even though I think diesel prices were higher. Just curious how to think about any catch up in Q4 and if that is baked into the margin guidance?

Yeah. Our surcharge program resets every week. So there is always a little bit of lag effect there, if you will. And certainly, is baked into the guidance that we gave for the fourth quarter, both from revenue standpoint and margin standpoint. And it looks like continues to be a fuel prices continue to be elevated. And I think that is something that we need to see come down and that is what we are hoping for. At some point, we have got to have some resolution on this to help the broad economy. But I think that the way we talk about the surcharge is we most of our large contractual customers, they give us the fuel scale that we have to build our rates around. And surcharge just becomes a variable component of pricing. And in a perfect world, whether it goes up or it goes down, we have got the same type of profit contribution, regardless. And I know there is some broad concern about the fuel and I have given some of these examples before, but you know, for example, in the from the fourth quarter of 25 to the first quarter of this year, fuel sequentially went up 10%. Our bill count, our shipments per day those were consistent between those 2 quarterly periods. And our profitability was consistent. So, it worked in that regard. But I think there is some broad concern that I have read out there about when fuel eventually unwinds. And I guess I would point people back to 2015 that is, at least in the past 15 years, the last period where we had the biggest change in fuel price per gallon that year was down 29%. We had good tonnage growth that year. We still produced about 6.5% revenue growth. And our earnings per share were up 15% that year. So I think those are a couple of broader examples where the variability in fuel, if we have done our job appropriately, in terms of how we have priced out and built our base rates. We can see that come down and be just fine from an overall profitability standpoint.

Thank you.

And the next question comes from Jonathan Chappell with Evercore ISI. Please go ahead.

Hey, thank you. Adam, just want to go back on something you noted earlier. I know we have talked about salaries, wages and benefits. I know you talked about operating supplies. We have even spoken about fuel. But if revenue is going to come in above normal seasonality, and yield ex fuel up 5.5 to 6%, which is a great number. Like you said, only maybe it is a smidge worse than August, but otherwise, really strong. Why would the OR still be at the low end of the range? You would you would mentioned a few cost headwinds you are expecting in Q4. Is that just fuel, which conceivably should be offset with the fuel surcharge mechanism, or is there something else that is kind of timing or more just kind of inflationary pressure where the OR should not also be following the revenue down a path of better than normal seasonality.

Yeah. I mean, look, we would love for it to come in better than seasonality. But, you know, that is 1 thing. I mean, obviously, we are going to have overall inflation that we will continue to see from fuel prices being higher and some of that comes through and other things that you do not just think about. And we have seen increased prices in practically anything that is petroleum based. But there are some other costs that are revenue driven more than anything that could be in G&A or miscellaneous expenses and so forth. That will also continue to be elevated because of the overall revenue level. So, look, we are going to continue to work hard and produce the best operating ratio and profits that we can. But I think that we are looking at with the implied guidance that we gave, incremental margins in about the 45% range. And so, you know, we think about where our cost structure is, You our cost structure from an overall standpoint, if I look at the third quarter, our direct variable costs were about 51%. You go back to third quarter of 22, we were about 52.5% then. So we are about 150 basis points better from a direct variable cost standpoint than we were at a period where we had our best operating ratio ever at a 69.1%. So, we have got tremendous leverage that we will continue to take advantage of from an overhead cost standpoint as we continue to grow our revenues. And we have got continued opportunity from a direct variable cost standpoint as well when you think broadly. But just going quarter to quarter, typically, it there is 10 year averages for a reason. it is the average type of change and we will see where the weight ultimately lands and the overall revenue and so forth. And how we continue to manage all of those direct costs as a percent of revenue. But I can tell you, we are working hard every day to manage every element of cost that we can produce the best operating ratio that we can.

Thanks, Adam.

And the next question comes from Ravi Shanker with Stanley. Please go ahead.

Great. Thanks, everyone. I just wanted to follow-up on your commentary on the fleet and the exit door capacity. it is a little bit contradictory to reduce the size of your fleet when you are sitting on 35% excess doors here, especially when ISMs are running in the mid-50s, which most people would say is like a decent, if not gangbusters type environment. You just help unpack that and kind of distill the message on what do you think happens to demand over the next 2 or 3 quarters? Because if you have that much excess capacity and things are getting better, I am surprised that you are reducing the size of your fleet.

Well, you know, just going back to each of the elements of capacity, if you think about where we are from a shipments per day standpoint, the amount of door capacity that we have I think we are in really great shape there. I mentioned we have got north of 35 So we can grow into the network that we have from a service center and a door capacity. Standpoint. that is not to say and like I mentioned earlier, we are continuing to look at kind of where we are and where we think we can get to when you look over the 5 or 10 years and kind of look through the current cycle, but just continue to think big picture where our industry is and where we are within it. But just looking broadly at the number of tractors that we have, we did not have a major decrease in the size of our fleet. But we have continued to spend pretty aggressively over the last 3 years that we have been in this freight recession and had built our fleet size up quite a bit. And we have just been selectively reducing it. that is 1 of the things you do not want to be short sighted and try to match exactly your tractor counts and your trailing equipment account on a pure per shipment handled basis or per service center kind of metric because you could end up over reducing your fleet and then having to come right back in and purchase even more equipment. Every year we go through the cost of new power equipment in particular. Continues to accelerate pretty aggressively. So, we are not doing anything other than just strategically trimming around the edges, if you will, but making sure that we have got plenty of power equipment and trailing equipment in place to accommodate the needs of our customers. So we are not concerned in any way about overdoing it as we manage the fleet and manage the related expenses. But having an extra piece of power equipment expensive to maintain. You have got maintenance on it, you have got taxes, efficiencies and so forth. And so, that is something that we are pretty strategic about.

Very helpful. Thanks, Adam.

And the next question comes from Richa Harnian with Deutsche Bank. Please go ahead.

Hey, gentlemen. Thanks for the time. So I wanted to go back on the October tons being up 1.6%. I do not think it was said where it was up from a monthly sequential perspective. And if it did underperform, it seems like it might have. What do you think is the likely rationale? And I know September was a solid month relative to normal seasonality. So I guess what is it going to take do you think to get us out of this sort of uneven recovery we have had so far year to date despite ISM manufacturing continuing to be you know, solidly over 50.

Well, I mean, I think that for us, the September change in tons per day was up 3.9% The 10 year average is 3.1%. October. The 10 year average is down about 3.5% and right now we are trending down about a little over between 5% and 5.5%. And so but kind of what I mentioned earlier, in a previous question is, month over month, we have had 1 month where we have outperformed and then 1. The next month that we have underperformed. But broadly speaking, if you look for the quarters and even if you just go back to the first of the year, we have been exceeding overall seasonality all year. And so, that is something that I think demonstrates the success within our industrial book of business. Industrial is 55% to 60% of our revenue. And so, we have had good performance there. We continue to have really strong performance with our retail related customers. As well. And that is something that our retail has probably outperformed the company average. And some of that reflects some pretty unique market share gains that we have had. We have had some really significant growth with a few really large accounts. As they have given us an increased share of their wallet. Spend on LTL. So, I think it is a multitude of factors And while it is not come in completely in alignment with what the 10-year average change by month is, broadly speaking, we just continue to see things as positive and try not to get too hung up on what 1 month relative to the 10-year would be. Same type of thing happened in April, where we started out about 200 basis points under what seasonality for the month was and we basically brought the full quarter back to what normal seasonality would be for tons. So, but I think like I mentioned in a previous response is, we continue to get good feedback from customers We are seeing success in bids that we are participating in. But we also hear some feedback as well that continues to be some broad concerns about inflation. And the consumer that is probably holding some things back from just completely taken off like I think they could be. And that is why we say we continue to think that there is got to be some improvement in the overall fuel environment take some of that concern that some shippers have about the consumer away. And to where we can really see things take off and have gangbusters type growth.

Got it. Thank you.

And the next question comes from Bascome Majors with Susquehanna. Please go ahead.

Adam, you talked earlier about seeing some good results in some of your bids. I think you even mentioned multiyear contracts which I do not think we have heard much about in LTL before. You go into a little more and maybe as part of that you know, the decision to add to net headcount sequentially after really managing the super seasonality with hours in the first half of the year. How much of that is protecting service in the network today? And how much of that is getting ahead of growth tomorrow? Thank you.

Yes. From a headcount standpoint, really has been pretty steady, all year. I mean, go back to January through September, you will have some months that our full time head count can be up or down slightly. it is been pretty steady as she goes all year. Some of that though could reflect we have got some service centers that are seeing really strong growth. And so you have got to add in some places and then you have always just got to balance the number of hours that are being worked on average you know, for your people in 1 particular location. And knowing and understanding what opportunities are there. At any 1 of our 261 service centers and to make sure that you have got the appropriate number of people to not only accommodate managing what we have today, but what we think may be coming to us tomorrow. Now with all that said, I think where our headcount is, I do not really see any type of material change as we go through the fourth quarter. Seasonally fourth quarter and 1Q is a little bit slower. And so, I would expect that we will see consistency with our team and no major change there. Unless we see a major change coming from an overall demand standpoint. But I think we can accommodate what we would see from now through early spring and easily handle that with the number of people that we have in place across The U. S.

Bascome, multiyear contracts have been around for a long time. I think some of your larger customers that we see come in here for negotiations are seeing the future bright. So they wanna go ahead and negotiate their rates upfront. So that when there is an inflection in the economy, you do not take a 4% rate increase this year and a 10% next year. So they want to negotiate that now. Foreseeing that could happen and the inflection in the economy. So it is really nothing new it is been around for a while.

And just the terms of that typical contract, did they specify pricing and not volume? Is there some flexibility on both? Can you just give us a sense of what you are committing to and what the customer is committing to when you do sign up for 2 or 3 years at a time?

Yes, it is prevalent for a 2-year contract not really beyond that. We do not like to negotiate beyond a 2-year. But it is basically based on base rate increases and not really volume increases.

Thank you, Mark. Just to contracted terms Bascome, so there is no volume commitments in there. But obviously, it is built around understanding what lanes we would be awarded and whatnot. that is just another indicator point, like Kevin said, that another kind of point of positivity, if you wanna call it, that people are trying to get ahead of some things that they foresee changing in the space overall and perhaps with competitor behavior and so forth.

Thank you.

And the next question comes from Ariel Rosa with Citigroup. Please go ahead.

Hey, good morning. So I wanted to kind of continue on Bascome's line of questioning. Just on this subject of somewhat more constructive customer conversations, I was hoping you could speak to what might have changed in the environment that is driving that? And as we think about kind of taking a step back, volumes have been under pressure now for several years at least. How should we think about the opportunity to kind of get back to growth, get back to that trajectory that we are used to seeing from OD of kind of taking share Adam, I think you spoke about a lot of confidence on continuing to win share over kind of a 10-year period. But kind of as we think about the next 1 to 2 years, how should we think about kind of the opportunity to do that in a meaningful way? And what would drive that beyond just kind of a macro inflection? Thanks.

Well, you know, at the end of the day, service is what wins share in our industry. And know, as indicated by the most recent mass deal analysis, it is our 17th straight year of winning that award being the number 1 national LTL carrier and the gap is bigger than it is ever been. And so, I think that is some of the feedback that we have heard this year is that some competitors have got increasingly have had some service issues. So that is something that I think continues to play in our favor. We have got a stronger value proposition than anyone in the space And I think that is ultimately why we are confident that we will continue to win more market share than anyone. The other piece of that though is having capacity. And while capacity is not really been at the forefront many shippers' minds perhaps the last couple of years that overall demand has been lackluster. That is something that we are hearing come into play. A little more, especially when it comes to equipment. And driver availability and by trying to keep cost as low as they possibly can, think that is leading to some competitors that are struggling to make consistent pickups. And so when customers need to make sure their freight is picked up and delivered when promised, they know who they can call on for that. So, those are the factors that I think continue to support our ability to win more market share anyone else. And I do not really foresee that capacity piece when we look at some capacity metrics of shipments per day per service center there is a lot of similarity for where some of our competitors are. At the end of 25 similar to where they were in 2022. So we continue to see a capacity constrained industry. But an industry overall that is got favorable tailwinds for it. It. And so, sitting as the carrier that is got better service and a tremendous amount of capacity those are the main factors that support why we believe will be the biggest market share win over the next 10 years.

Ariel, we are also as we said earlier, we are also seeing an increase in our weight per shipment and that basically means customers are putting more widgets on a pallet. And we think some of that is coming from the full truckload industry that is having capacity constraints at the moment. So I think that is where some of that is coming from as well.

Very helpful. Thank you.

And the next question comes from Stephanie Benjamin Moore with Jefferies. Please go ahead.

Great. Good morning. Thank you so much. Know, maybe if I think about just long term, your strategy as it relates to the 3 PL channel, I just given the capacity you have in the network today, is there an opportunity to maybe be a bit more flexible in using 3 p. 3PLs? Love just to get some updated thoughts there. Thank you.

Stephanie, if you are talking about dynamic or transactional type pricing, the answer to that is no. 95% of what we do with 3PLs is basically contract business per customer so we can look at their handling characteristics and so forth. So, but yes, we have as I said earlier calls, we have 3PLs in here every week. So far this week, we have had 2 large ones. And they are in here discussing long term contractual business, which we like better, it operates better for us as well.

Okay. Understood. Thank you so much.

And the next question comes from Ken Hoexter with Bank of America. Please go ahead.

Hey, great. Good morning. Adam, just a follow-up on your answer to Ariel, just the you gave a balanced econ view yet you are guiding unseasonable revenue jump. And in improving weight per shipment as Kevin just mentioned. But hearing that regional capacity pressures is that popping up as for why the unseasonable revenue jump And then you mentioned data centers as a driver. Obviously, hear about that for ISM. What participation does the sector, the LTL sector play in terms of data centers or is there not much and that is why given that is really kind of been a big driver, that is why you are not seeing much of the growth flow down to the sector?

Yeah. I think that well, a couple of things. I mean, all year, we have seen, as we have talked about, our volumes be above seasonality. And so, we want to see continued strong volume performance as we go through Q4 and October. Benefits a little bit, that 22% revenue growth that we are seeing benefits a little bit by having the GRI in there 1 month earlier than last year. But I think just overall reflects the consistency and strength we have continued to see with our pricing this year. And continuing to win business. So, all of that kind of goes into the revenue guide being above seasonal. From an overall data center and AI infrastructure build out, know, it is hard to put a number on it, but the size and scale of many of those facilities, I think a lot of that freight is maybe ending up on flat beds and some other sectors, but a lot of that freight is very high value and it is something that we can serve and in some cases we are serving. And being able to handle. And based on the quality of our service and these very high value, goods, that is something where shippers can trust that, we will deliver that freight, get it in there. And I think a lot of that is very time sensitive as well, not just the security based on the value of the product. But that is some incremental opportunity I think for the for us in particular.

Thanks, Adam.

And the next question comes from David Vernon with Bernstein. Please go ahead.

Hey. Good morning, guys. Long time listener, first time caller. I appreciate you taking the question here. You think about the capacity for the industry itself, you know, you mentioned earlier some competitors having trouble, you know, making pickups. Maybe some volume bleeding in, the share take opportunities, things like that. If you just step back and think about the constraints the industry might have dealing with more volume if and when it shows up, Is it does it come down to drivers? Does it come down to dock labor? Does come down to real estate? Like, where do you think the real advantage you have terms of being able to spool up the network is relative to the rest of the LTL industry.

Yeah. I mean, it. Really, it is all of the above. I think that, service center capacity generally for the industry is tight. It was before Yellow closed their doors in 2023. And I think it remains tight to this day when you think about the number of service centers that have left the market overall, And the overall volume environment net has been down since 2022. But I think that when looking at the allocation of our real estate capacity, I see that would be something that, is going to materially change from now going forward because I do not know that adding new service centers is incredibly expensive and we have got returns on invested capital of 25% to 30%. So, we have done our due diligence from a capital allocation standpoint where we have added capacity and making sure that we get an appropriate return. I think the lack of return for some of the other carriers in the industry was probably part of the reason why practically every other carrier had shrunk their service center network overall in the 10 years leading up to that event and 2023. So, I think that will be something that will continue to be more of a long-term advantage for us. But I think the other challenge in the short run is generally more confined by labor capacity. And, you know, we are fortunate that we are operating where we are that we can maintain excess labor capacity as we discussed earlier. But I think that for some of our competitors, at least the publicly traded competitor on average operated in the second quarter at about a 90 OR. And so, if you operate in a 90, even with tonnage growth, probably got some other issues and you are probably trying to manage cost in a little different way. And, most carriers, at least for us, 65% of our total costs are salaries, wages and benefits. And so that becomes the element that you try to trim back as tightly as you can. And so, I think that is the reason why you hear the service disruptions and missed pickups it is generally a lack of labor capacity in the short run. And has the frequency of those comments from customers changed since the second quarter? Or has it just been kind of consistent? You mentioned that you would expect to pick up a lot if volumes got a little stronger. I am just wondering if that has followed through. Well, I think it is been pretty steady all year. But I think that is something that as generally the industry was busier in the third quarter, than the second, any incremental shipment is probably putting more pressure on some of those that maybe have labor, or equipment constraints. And so, it probably picked up a little bit and it is probably evidenced too. The Mastio results. I think a few of the carriers went backwards if you will. So, of that all comes into play the feedback that we might hear through our sales team and from customers directly. Manifest itself and what those results often look like.

All right. Thank you.

This concludes our question-and-answer session. I would like to turn the conference back over to Kevin Freeman for any closing remarks.

Thank you all today for your participation. We appreciate your questions. And please feel free to give us a call if you have anything further. Thanks, and I hope you have a great day.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.