The operator introduces the Old Dominion Fourth Quarter Earnings Conference Call and Webcast, where participants will be in a listen-only mode. Drew Andersen welcomes everyone and provides information on accessing the call's replay. He also cautions that statements made during the call may be affected by important factors and may differ from actual results. He also reminds participants to limit themselves to one question at a time.

The Company's President and CEO, Mr. Marty Freeman, welcomed participants to the fourth quarter conference call and introduced Adam Satterfield, CFO. The Company's financial results for the fourth quarter reflected a soft domestic economy, leading to lower volumes than expected. However, the Company's long-term strategic plan was successfully executed, resulting in an increase in revenue and earnings per diluted share. The Company's LTL tons per day decreased by 2%, but their shipments per day and market share improved. The Company's focus on providing best-in-class value and maintaining a high level of service performance contributed to their success. The Company believes that consistent improvement in density and yield will lead to long-term improvement in their operating ratio, but this is dependent on a positive macro environment.

Despite challenges with network density, the company improved its yield by maintaining a cost-based approach to pricing. They invested in expanding their service center network and have excess capacity to support future growth. The company also invested in their employees and their unique company culture, which has been a key factor in their success.

Old Dominion's revenue for the fourth quarter of 2023 increased by 0.3%, primarily due to a 3.0% increase in LTL revenue per hundredweight. The company's operating ratio was 71.8% and earnings per diluted share were $2.94, a new company record for fourth quarter earnings. Sequentially, revenue per day increased by 1.9%, with LTL tons per day increasing by 0.6% and LTL shipments per day decreasing by 0.3%. The monthly sequential changes in LTL tons per day were mostly decreases.

The 10-year average change for October, November, and December shows a decrease in October, an increase in November, and a decrease in December. For January, a decrease in revenue and LTL tons per day is expected, with a potential increase in revenue per hundredweight. The operating ratio increased due to higher insurance and claims expenses, but direct operating costs were well managed. Headcount decreased despite an increase in LTL shipments per day. Overhead costs also increased, and depreciation expenses increased due to capital expenditures.

Old Dominion Freight Line experienced an increase in depreciation and other overhead costs, but this was partially offset by a decrease in miscellaneous expenses and gains from the disposal of property and equipment. Their cash flow from operations was strong, and they utilized cash for share repurchases and dividends. The company's effective tax rate for the fourth quarter of 2023 was lower than the previous year, and they anticipate it to be slightly higher for 2024. The company expects to continue gaining market share due to their superior service and fair pricing.

The company's on-time service remained at 99% during the quarter, with a low claims ratio driving its market share. The company is well positioned to capitalize on an economic upswing, as it has managed its network, people, and equipment capacity effectively. The industry is still settling after the closure of a major competitor, but is expected to remain capacity constrained.

Ravi Shanker asks for thoughts on the Yellow asset auctions and how the next up cycle may play out differently with the redistribution of capacity. Adam Satterfield believes their formula of quality service and value proposition will continue to win market share. They invest ahead of the growth curve and currently have 30% excess capacity. While it's hard to predict the outcome of the Yellow process, they believe there will be some exit of capacity and they did not end up acquiring any service centers.

The speaker explains that the company chose to maintain control of their network in order to continue their successful business plan. The next question asks about the company's progress in the first quarter and the speaker responds that winter weather is a regular occurrence and has not significantly affected operations. The final numbers for the month are not yet known, but shipments per day are on track.

In the paragraph, the speaker discusses the sequential changes in shipments per day in the month of December, comparing it to the 10-year and 5-year averages. They mention that the 5-year average for December is a decrease of 6.5%, but they performed better than that in December. They also mention that January's 5-year average is a 0.3% increase and that February and March will be important months for determining the first quarter's performance. The speaker clarifies that the normal change in operating ratio from the fourth to the first quarter is about a 100-110 basis point increase and that they expect some normalization in this quarter due to two big moving parts.

The insurance and claims expenses were higher in the fourth quarter compared to the previous three quarters, but are expected to normalize in the first quarter of 2024. Miscellaneous expenses are also expected to return to normal levels. Overall, there may be a 170-220 basis point deterioration in expenses in the first quarter, but this could improve if there is an economic recovery and volume performance accelerates.

In this paragraph, the speaker clarifies that the insurance and claims adjustment was an annual one. They then ask about the company's decision not to bid for the centers and whether they believe their peers overpaid for them. The speaker responds by saying they did not think anyone overpaid and that each carrier has their own strategy for such opportunities. However, they believe that their strategy of factoring in real estate costs into their overall cost structure and adjusting rates accordingly has worked for them and will continue to do so in the future.

In response to a question about insurance expense, Adam Satterfield explains that the company conducts an annual actuarial assessment in the fourth quarter and had an unfavorable adjustment this year. He also mentions that there may be a slight increase in expense rate in 2024 due to this adjustment, but it will be reviewed again in the fourth quarter of that year. In addition, he mentions the potential need to add headcount in anticipation of volume growth, but does not provide specific details on when or how quickly this may occur.

The speaker discusses the recent disruptions in the industry and how it has affected service quality and pricing. They mention hearing about service issues from customers and believe this may continue. They also note that in an up cycle, carriers may experience issues due to taking on extra business. From a pricing perspective, the speaker believes it is a favorable environment with carriers pushing for increases. They mention their strategy of consistent and cost-based increases and note that competitors are increasing rates faster than them in a growing demand environment.

The speaker discusses the company's positive position and potential opportunities in the market. They mention the long, slow cycle they have been in and the need for patience, but express confidence in their team's performance and ability to capitalize on future opportunities. The speaker also mentions the potential for a return to normal seasonal trends in operating ratio, but acknowledges the uncertainty of volume and the company's ability to handle it with their current spare capacity.

The speaker discusses the potential for economic recovery and the company's readiness for increased demand. They mention hiring new employees and being cautiously optimistic about the future. The company has been able to recover from slow periods in the past and has improved their direct operating costs despite the lack of volume.

In the paragraph, the speaker discusses the company's recent operating ratio (OR) loss and attributes it to increased overhead expenses, particularly depreciation due to equipment upgrades. However, they are confident that they will be able to improve their OR once they see growth in their topline. They also mention their long-term strategy of producing profitable growth and creating shareholder value. The speaker then answers a question about pricing and predicts a deceleration in the pace of year-over-year pricing, settling around 4-5%. They also mention potential cost inflation for the upcoming year.

The company expects yields to compress to around 6.5% growth in the first and second quarters, and then moderate to 5.5% by the fourth quarter. This is consistent with their long-term revenue per shipment growth of 5-5.5%. The rate of growth may compress due to increased weight per shipment, resulting in a lower revenue per hundredweight but higher revenue per shipment. The company also saw a moderation in cost per shipment throughout the year, in line with their original expectations of 5-5.5% core inflation.

Adam Satterfield discusses the company's cost per shipment and predicts it will likely return to its longer-term average of around 4%. He mentions that operating efficiencies and volume growth can improve this number, but they have also dealt with significant cost inflation in various areas. Satterfield is confident that the company can maintain its historic 1 to 1.5 point spread above cost inflation, especially in stronger demand environments. This is because competitors tend to raise rates faster in these situations, but the company's focus is on maintaining a competitive edge.

In 2018 and 2021, we outdid the market by 1,000 to 1,200 basis points in terms of LTL tons per day. This allowed us to consistently increase our yield and have successful negotiations with customers. We believe it is more effective to have a cost-plus approach, where we can explain our cost inflation and justify our investments in our service center network. We have invested $2 billion in our network over the past 10 years, increasing our door count by 50%. This has given us an advantage in the market, as the industry's number of service centers has decreased by 10%. We will continue to invest in capacity and technology to improve customer service and drive operating efficiencies. Our approach of consistent pricing has proven successful over time and is our focus going forward.

Adam Satterfield discusses the impact of Yellow's closure on freight tonnage and compares it to the previous year. He explains that there was a slight increase in shipments per day after the closure, but it has since dropped due to normal seasonal patterns. He also mentions that there will be a reduction in service centers once the dust settles from Yellow's closure.

The speaker believes that there will be a second wave of freight that comes into the LTL market once the overall market and the truckload world improve. This will be due to truckload carriers being willing to handle smaller LTL shipments in order to fill their trucks. They anticipate this to happen in 2024 and it will provide a tailwind for everyone. The speaker also mentions that weight per shipment has increased slightly in the fourth quarter and they are cautiously optimistic about underlying demand, especially in the consumer and industrial sectors.

The weight per shipment in the fourth quarter was stronger than in the third, which is typical. In January, there was a slight drop in weight per shipment, but it was better than the usual seasonal trend. This is seen as an early indicator of the economy turning. The company is cautiously optimistic about the potential for recovery in volumes this year, but wants to be careful not to get ahead of it. The ISM has been below 50 for 14 months, impacting business levels. Revenue on the industrial side was slower than the company average in the fourth quarter, but this is seen as an opportunity for improvement. The company has been facing challenges with claims ratio and on-time performance in their services.

The speaker is asking the company about their plans for improving the customer experience and staying competitive. The company's main focus is on maintaining their on-time performance and claims ratio, but they also pay attention to other metrics and constantly strive for improvement. They have been successful in this, as shown by their high rankings in customer satisfaction surveys. The company is open to feedback and always looking for ways to provide value to their customers.

The speaker discusses the constant challenge of staying ahead of technological advancements in order to improve customer service and reduce costs. They mention the potential for automation in the corporate office and back-end processing. They also mention plans to add to headcount this year, but overall headcount has decreased compared to previous years due to attrition. The number of employees will continue to be shipment driven.

The company has been able to retain and utilize their employees with CDLs, which has given them an advantage during the slower economic times. They are also running truck driving schools to produce more drivers for future demand. The company has a focus on long-term preparedness and has been able to accommodate significant shipment growth while maintaining best-in-class service metrics. They have not had difficulties with hiring or headcount additions so far this year. The labor market is currently different from the tight market in 2021.

The company is focused on keeping employees during slow periods and starting schools ahead of anticipated growth. The speaker also mentions that the macroeconomic conditions have helped carriers absorb freight, but some of it has gone into different modes. The company has had strong yield performance over the last three years, but their strategy remains the same.

The company has maintained a consistent and disciplined approach to keeping costs low and pricing fairly, resulting in a positive yield above cost. This has helped the company maintain good customer relationships and retain most of their major accounts despite a slow year in terms of volume. The company is looking forward to an improvement in demand for their customers' products and getting back to growth.

The speaker discusses the company's approach to stock buybacks and their decision-making process for returning cash to shareholders. They mention a grid-based approach to buying back stock and their goal of consistently being in the market. They also mention that they have seen success in improving their return on invested capital. In response to a question about market pricing and competition, the speaker mentions that their competitors have been aggressive in pricing and the market has moved up, but they believe their strong service justifies their current pricing.

Adam Satterfield explains that they anticipate the metric to compress back to longer-term averages and aim for a 100-150 basis points positive spread. They will continue to manage costs and ask for necessary increases to offset inflation and support employee wages. Their focus is on keeping costs under control and maintaining the same positive spread over time. They expect to add four or five service centers, but this will depend on the volume environment.

The speaker discusses the potential costs and benefits of opening new service centers, stating that while they may incur additional expenses such as depreciation and overhead, they also have the potential to bring in more revenue. They mention that they will carefully consider the volume of business before deciding to open new centers, in order to ensure profitability. The speaker thanks the listeners for their participation and invites them to contact the company with any further questions.

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