The conference call for Old Dominion Freight Line's third quarter 2023 earnings is being held and recorded. Participants will have the opportunity to ask questions after the presentation. The call may contain forward-looking statements and the company cautions that actual results may differ from those discussed. The company will not update any forward-looking statements unless required to do so.

The third quarter financial results for Old Dominion reflect a decrease in shipment levels due to the softness of the domestic economy. However, there was an increase in LTL shipments per day, which can be attributed to the loss of a competitor and winning new business from other carriers. The company's focus on providing superior service and value to customers has resulted in a 99% on-time performance and a low cargo claims ratio. Mastio & Company's study measures carriers on 28 different service and value-related attributes.

Mastio has named Old Dominion as the number one national LTL provider for the 14th year in a row, with the company receiving high rankings for 25 out of 28 individual attributes in a recent survey. This is a result of their commitment to excellence and customer satisfaction, as well as their focus on consistent yield increases to offset cost inflation. Old Dominion's investments in service center capacity, equipment, technology, and their unique company culture have helped them maintain their position as a top provider in the marketplace. The company's long-term strategic plan and consistent execution give them confidence in their continued success.

Old Dominion remains committed to their plan and is confident in their ability to increase market share and profitability. In the third quarter of 2023, their revenue decreased due to a decrease in LTL tons per day, but was partially offset by an increase in LTL revenue per hundredweight. The company also had one less operating day in comparison to the previous year. However, on a sequential basis, revenue per day increased and LTL tons and shipments per day also saw an increase. This can be attributed to the loss of a competitor and the company's reputation for quality service and value.

The 10-year average change for July, August, and September shows a decrease in July and an increase in August and September. October is expected to show an increase in revenue but a decrease in LTL tons. This is due in part to a competitor's cybersecurity incident. The third quarter operating ratio increased, but there was improvement in direct cost and efforts to control expenses. Capital expenditures were made to prepare for future growth. Cash flow from operations for the third quarter and first nine months was $429.2 million and $1.1 billion, respectively, while capital expenditures were $172 million and $651.4 million for the same periods.

The company utilized a significant amount of cash for their share repurchase program and cash dividends during the third quarter and first nine months of 2023. Their effective tax rate also increased slightly. The company saw an improvement in density within their network, leading to a decrease in direct operating costs. They currently have between 25% to 30% excess capacity in their service center network. The improvement in density and yield, along with a positive macroeconomic environment, drove operating efficiencies for the company. However, there was a slight decrease in their linehaul load factor.

During the question and answer portion of the earnings call, Jack Atkins asks about the expected operating ratio trends for the fourth quarter. Adam Satterfield explains that historically, the fourth quarter operating ratio is 200-250 basis points worse than the third quarter due to softer revenues and the impact of the annual wage increase. However, this year may see a slight improvement due to some favorable factors, such as the normalization of volumes in November and December. The company also conducts an actuarial assessment in the fourth quarter, which could potentially impact costs. Overall, the company expects a 150-200 basis point deterioration in the operating ratio for the fourth quarter.

The speaker, Adam Satterfield, responds to a question about the potential upcycle in 2024 and how the post Yellow situation may impact it. He mentions the need for measured approach and leveraging capacity, both in terms of service and people/equipment. He also acknowledges the possibility of a rebound in the market, but remains cautious and believes in a slow and steady strategy. He also mentions competitors experiencing issues with missed pickups.

In the paragraph, the speaker discusses the current state of the company's capacity and how it affects their service and pricing. They believe that they will continue to gain market share by offering superior service at a fair price. They also mention their past success in outgrowing the market due to their excess capacity investments. When asked about the potential for a better-than-normal pricing year in 2024, the speaker states that their approach is different from their competitors and that the overall environment is strong, but they may need something else to spark a better-than-average pricing year.

The company believes in a consistent approach to pricing and aims to obtain a 100-150 basis points increase in price each year. They have faced cost pressure this year but expect it to improve with volume recovery and moderating core inflation. The market is conducive to obtaining necessary price increases to cover cost inflation and investments in capacity. The company has invested $2 billion in capacity over the past 10 years and has increased door capacity by 50%. They believe customers understand the value proposition and will continue to support price increases. Capacity has been critical in the supply chain challenges of the past few years. The company will continue with their approach to produce good financial results and improve their balance sheet to support ongoing investments.

The operator introduces a question from Scott Group about the company's perspective on share gains and how the upcoming Yellow auction may affect their strategy. The company's representative, Adam Satterfield, declines to give specific details but states that their long-term strategic plan does not rely on one competitor going out of business. They will continue to focus on providing superior service at a fair price and investing in capital expenditures to maintain their market share.

The speaker believes that their company will continue to grow in the real estate and equipment market, and they are confident in their ability to gain market share over the next 10 years. They have recently won an award for their value offering and have outperformed the industry in customer satisfaction. The departure of a competitor will not affect their long-term growth and they believe that the missing market share may have gone to the truckload industry. They are focused on continuously improving their service to maintain their success.

The speaker, Marty, and Adam discuss their company's performance in the LTL industry and their focus on providing the best service and value to customers. They mention factors such as e-commerce trends and cost management, and state that they believe there is no one in the industry that can match their offerings. The speaker also asks about their OR target and mentions pushback on their position as the number one national carrier, noting that their value proposition includes a higher cost but better claims ratio and on-time performance.

The speaker is discussing the company's position in the fair value band in the Mastio survey and how their recent price increases may affect their market share. They mention that they prioritize having open and honest conversations with customers about fair pricing and that they have seen a shift towards shippers valuing reliability and consistency post-pandemic. They also mention their investments in capacity despite the recent weakness in demand.

The company has faced challenges with competitors changing their pricing, but their consistent approach and strong service have helped them maintain market share and retain top national accounts. They are mindful of their pricing compared to others, but focus on their long-term strategic plan and have seen consistent revenue growth over the past 10 years. They aim to continue executing this successful formula.

The speaker believes that the company's numbers will continue to outperform the industry in the next 12 months due to a potential economic recovery. They were able to handle the surge in business in the third quarter without changing the cost structure, but they may need to add more resources if demand continues to increase next year. The company was well positioned for the recent surge and their existing workforce has been able to handle it.

The company has restarted the hiring process in some locations and will continue to run internal truck driving schools to produce new drivers as demand levels dictate. They want to have all elements of capacity in place to handle potential increases in shipment volumes and maintain their operating ratio. They have managed direct costs and improved service metrics without sacrificing quality. They will also continue to add to their team and rebalance their fleet. They hope to get back to a growth environment and improve their operating ratio with cooperation from the economy.

Adam Satterfield, during a conference call, discusses the potential for margin improvement in the coming year. He mentions that lower inflation and favorable prices could support this improvement, even if the freight market activity does not improve. He also notes that their heavy CapEx year in 2021 may have been a headwind on their operating ratio, but they are in a good position to potentially see volume growth and win back some market share.

The speaker discusses the potential for improvement in the company's operating ratio in 2024, even if there is not a significant improvement in the freight market. They mention seeing a step-up in performance in August and September, with an increase in daily shipments and a return of some volume to competitors. They believe that the company is in a good position for the future, even with current industry changes.

The speaker discusses the potential for a return to normal seasonal patterns in the fourth quarter, which would result in flat shipment counts and revenue. They also mention the possibility of gaining market share and managing costs, which would be beneficial even if demand does not significantly change. The speaker also mentions the importance of economic factors and the potential for competitors to face capacity issues, which would allow for increased volume and profitability. Finally, they mention the trend of lower weight per shipment and the mix of shipments being received.

Adam Satterfield, speaking on behalf of the company, discussed the trend of weight per shipment, which has decreased to around 1,485 pounds in August due to an increase in shipments per day. This trend has continued into September and October, but the company is monitoring it closely to see if it will increase as the economy improves. Despite the decrease in weight per shipment, the company has been able to maintain profitability through their investments in technology and understanding the freight they are moving. In response to a question about market share, Satterfield stated that although tonnage was slightly below average seasonality in September, they are confident in their market share and have not seen any significant attrition from initial shifts in market share.

The company has seen a 2.7% increase in tonnage in September compared to the 3.6% average increase in the past 10 years. This increase is likely due to shippers needing to move freight that was delayed in July. The company believes there may be some share shifting in the industry in the next six months, as shippers reevaluate their supply chain partners. Some customers at competing companies may also be looking at OD's services due to their deteriorating service and margin increases. This situation may be similar to 2021.

Marty and Adam discuss the strong demand and volume opportunities in the market, with competitors struggling to keep up due to lack of capacity. They anticipate seeing similar conversations and growth opportunities in the coming quarters. The market is taking this information in stride, possibly due to lower expectations for growth and SDs give back. The bid process for service centers could result in capacity going elsewhere, potentially impacting Old Dominion's ability to continue taking share.

Adam Satterfield discusses the timing of the service center bids and the potential impact on the industry. He believes that some capacity will leave the industry, but his company will continue to grow and invest in order to be the biggest market share winner in the long-term. He also notes that investing does not guarantee winning market share, and that increased competition could potentially benefit his company by increasing their competitors' costs and closing the price gap between them.

The company's approach to growth is slow and steady, as they have not seen a significant increase in demand yet. They are prepared for when demand does pick up, with sufficient capacity in terms of service centers, people, and equipment. They are currently at about 25-30% excess capacity in service centers and have adequate equipment. They will continue to evaluate and optimize their capacity as they plan for future growth.

The company is discussing their fleet size and operating plan for 2024 on the next earnings call. They are considering a bull and bear case scenario for potential growth. The company has been able to meet current demand by utilizing their employees, but they will need to invest in new drivers and employees to keep up with potential growth. Proper training and use of tools are important for maintaining efficiency and preventing cargo claims.

Adam Satterfield, President and COO of Old Dominion Freight Line, discusses the company's approach to investing in training ahead of expected growth. He also addresses the competition in the commercial field accounts business and the strength of their sales team. About one-third of their business comes from 3PLs, and they have seen some improvement in that area in the third quarter.

The company's goal of achieving a sub-70 annual operating ratio is still a priority, but the current weak freight environment and increased expenses have delayed the timeline for achieving this goal. The company remains focused on long-term growth and has continued to invest in capital expenditures despite a decrease in tonnage.

The speaker discusses the impact of depreciation on their company's performance, but also notes that when volumes increase, there is potential for leverage. They are pleased with their cost performance and are focused on improving their operating ratio. They have seen success in the past when recovering from a downturn and are optimistic about the future. The speaker thanks the participants for their questions and invites them to reach out for further discussion.

The operator concludes the conference and thanks the attendees for joining. They can now disconnect.

This summary was generated with AI and may contain some inaccuracies.