CVLG - NASDAQ

Welcome to today's Covenant Logistics Group Q4 2025 Earnings Release and Investor Conference Call. Our host for today's call is Tripp Grant. [Operator Instructions] I will now turn the call over to your host. Mr. Grant, you may begin.

Yes. Thank you, Ross. Good morning, everyone, and welcome to the Covenant Logistics Group Fourth Quarter 2025 Conference Call. As a reminder, this call will contain forward-looking statements under the Private Securities Litigation Reform Act, which are subject to risks and uncertainties that could cause actual results to differ materially. Please review our SEC filings and most recent risk factors. We undertake no obligation to publicly update or revise any forward-looking statements. Our prepared comments and additional financial information are available on our website at www.covenantlogistics.com/investors. Joining me today are CEO, David Parker; President, Paul Bunn; and COO, Dustin Koehl. We're going to modify our opening comments from the usual format and address 3 key areas before covering the usual statistical and segment information. One, our view on the freight market; two, the equipment impairment charge and our capital plan; and three, a small acquisition we made in the fourth quarter. The freight market. We believe the freight market continues to evolve towards equilibrium between shippers and carriers. In fact, we might be at equilibrium now. During the fourth quarter, spot rates rose meaningfully. Revenue trends during the first 3 weeks of January have meaningfully improved compared to the prior year in all business units. We are also experiencing a sharp increase in bid activity with shippers who are interested in securing capacity contractually. Currently, we have also secured a few low to mid-single-digit rate increases that take effect during the first quarter within our expedited fleet and anticipate additional increases across both Expedited and Dedicated to take effect early in the second quarter. Based on regulatory changes, cost inflation, and the amount of insurance and claims risk inherent in the industry, we would not be surprised for industry-wide driver and truck capacity to continue to decline, perhaps materially. At the same time, most trucking cycles are led by demand. In our view, inventory restocking, tax stimulus and corporate earnings are biased in favor of improved demand. Equipment charge and capital plan. Operating a safe, fuel-efficient late-model fleet requires constant cycling of equipment to keep operating costs down and driver satisfaction up. With intentional fleet reductions and declining used equipment values in 2025, we deferred some trades, stacked up deliveries and have too much underutilized equipment. To improve our operations and balance sheet, we have moved a group of assets to held-for-sale status and lowered our expectation on disposition prices. Since our current size asset-based fleet is not generating the desired return on capital, we will not replace all the units disposed. We expect a modestly smaller fleet at the end of 2026 and only $40 million to $50 million of net CapEx for the year. Within our asset-based fleets, we expect the agricultural-related business within our Dedicated segment to grow and the other fleet serving more commoditized freight to shrink, will remain stable through our weed and feed approach. Overall, our goal is to reduce balance sheet leverage and improve return on capital. The acquisition. During the fourth quarter, we acquired the assets of a small truckload brokerage company. The business, which we will operate under the name, Star Logistics Solutions, has 2 niche customer bases: state and federal government emergency management departments, which represents an episodic and highly profitable disaster response capability that scales quickly to address hurricanes and other natural disasters; and two, high service consumer packaged goods companies, which affords leverage to general commodity freight market cycles that our asset-based truckload operations lack. With synergies, we expect Star to be accretive to earnings during the first half of 2026. With that background, I will move on to the quarter's statistical review. Year-over-year highlights for the quarter include: consolidated freight revenue increased by 7.8% or approximately $19.5 million to $270.6 million. Consolidated adjusted operating income shrank by 39.4% to $10.9 million, primarily as a result of margin compression in our Expedited Managed Freight and Warehousing segments, partially offset with improvement to Dedicated operating income within our Dedicated segment. Our net indebtedness as of December 31 increased by $76.9 million to $296.6 million compared to December 31, 2024, yielding an adjusted leverage ratio of approximately 2.3x and debt-to-capital ratio of 42.3% as a result of executing our share repurchase program and acquisition-related payments. The average age of our tractors at December 31 increased to 24 months compared to 20 months a year ago as a result of year-over-year reductions to our high-mileage expedited fleet and growth in our less capital-intensive dedicated fleet. On an adjusted basis, return on average invested capital was 5.6% versus 8.1% in the prior year. Now providing a little more color on the performance of the individual business segments. The Expedited segment reported an adjusted operating ratio of 97.2% for the quarter, a performance that did not meet our expectations even in light of a softer freight environment. Results were partially impacted by the U.S. government shutdown, which persisted for nearly half the quarter. Despite these external challenges, the segment did not perform to our operational standards. Accordingly, we will continue our disciplined approach to fleet optimization by reducing fleet size and focusing on higher-yield freight. Looking ahead, we anticipate fleet capacity will adjust modestly in response to market conditions. As the market improves, our strategic priorities remain enhancing margins through targeted rate increases, exiting less profitable business and onboarding more profitable opportunities. Dedicated's 92.2% adjusted operating ratio was the best for any quarter during the year. We were pleased by how this segment improved its results each quarter throughout the year and are excited about the momentum we are taking with us into 2026. Dedicated grew the fleet by 90 average tractors or approximately 6.3% compared to the prior year as we have continued to win new business and specialize in high-service niches within that segment. Going forward, we plan to focus our efforts on continuing to grow these high service niches and reduce certain of our fleet that is exposed to more commoditized end markets where returns are not justified. Managed Freight experienced a significant improvement in freight revenue in the quarter as a result of the Star Logistics Solutions acquisition that occurred in October, but margins were compressed as a result of the growing cost to secure quality brokerage capacity. Over the longer term, our strategy is to grow and diversify this segment. Given the asset-light nature of this business, we note that an operating margin in the mid-single digits generates an acceptable return in capital given the asset-light nature of this segment. During the quarter, our Warehousing segment successfully launched operations with a key new customer, resulting in a 4.6% increase in freight revenue or $1.1 million compared to the same period last year. However, adjusted operating income declined by $1.6 million, primarily due to increased start-up costs and operational inefficiencies associated with onboarding the new customer as well as higher labor expenses, including overtime at other warehouse locations to manage peak volume demand. Looking ahead, we remain committed to driving organic growth within this segment and are focused on enhancing our operating income margin with a target of reaching high single digits. Our minority investment in TEL contributed pre-tax net income of $3.1 million for the quarter compared to $3 million in the prior year period. The impact of compressed leasing margins, soft used equipment market and incremental bad debt expense in the quarter placed continued pressure on TEL's pre-tax net income. Although TEL's overall business and balance sheet remains strong, exiting capacity from the general freight environment is expected to continue to impact them over the short term. Regarding our outlook for the future, we remain optimistic about improving freight fundamentals, our ability to be more efficient with our equipment and capture operating leverage and improve financial results in 2026. The improvements are likely to come later in the year with the first quarter being impacted by seasonality, extreme weather, a still developing freight market situation and a potential margin squeeze in managed freight. The last few years have been characterized by acquisitions, dispositions and share buybacks as we have revamped the company. We have a stronger, more stable business and have recently added a piece that restores a measure of freight cycle upside. 2026 is all about execution, and we are hard at work to get that done. Thank you for your time, and we will now open the call for any questions.

[Operator Instructions] And our first question comes from Jason Seidl from TD Cowen.

I guess my first question is, you mentioned in your Expedited segment, you're getting low to mid-single-digit price increases that are pushing through. Is that the average now? Or is that just you're starting to see a few of those roll through? And I guess, what are your expectations as we move through the bid cycle?

Jason, it's David. Yes, it's both. The answer is both, and that is, is that it is -- the average is kind of around that 3.5% number for the first 3 weeks of January. And so it is something that's continuing to build some momentum. And -- so far, I will tell you that I'm not disappointed in how the conversations are going. I'm not ready to say that the number is going to be 3.5% for all over, but the customers are very open. I mean I think the customers realize that the industry has done horrible on rates for the last 4 years and maybe there's some pity out there from our customers. So I'm pretty optimistic about what the opportunities are on rates. And I can only tell you that as it starts -- and depending upon what the economy does, will depend upon what -- how the numbers end up being because if we get 3.5% now -- and we're being very upfront with our customers. We're being very upfront, very good conversations. But hopefully, we can go back in June, and all those kind of things. And so that is where we're at for the first 3 weeks. And we still got ways to go to be able to say this is a trend, but I like the first 3 weeks of what we've done.

And I would add to that. I mean, I would add a little bit to that on the rates from existing customers is one thing, but we're also starting to win business at higher rates. And one of our themes for this quarter has been capital allocations. And I think we're going to have some opportunities to redistribute capital to some of those newer, higher-performing businesses with customers that perhaps we can't get the appropriate rate with. So it's not just pure rate on existing customers. I think that one of the bright sides of what we're seeing, and we said in the release or the opening comments was that we are starting to win business at a pretty decent price. You go back 12 months ago to win business, you were having to price it at a breakeven or a slight loss just to win anything.

Yes, I agree. A year ago, 24 months ago, new business was coming in at even less. Now new business -- all new business can replace business that's less profitable.

Now it feels like there's a lot more bids now than there was, let's say, a year ago in the marketplace. Are people just trying to pull forward the bid because they're worried about maybe how the supply-demand market is going to look for truckload, call it, 6 months from now?

Yes, It's both of those, Jason, that our bids in the month of January were up 33% -- over fourth quarter, up 33%. And that is something that is twofold. One, they're trying to get ahead of it, and that's okay. I don't mind I'd be doing the same thing. They're trying to get ahead of it as well as a lot of the bids that we're getting is brand-new customers. And so they are -- they don't like what they're seeing or one, they're -- I believe what I am sensing, Jason, 3 weeks into it, is that they're concerned about capacity. And -- so those are the 2 things that I look as it relates to...

Here's what I'd say they're concerned about capacity. And I would tell you, cargo theft has ticked up a little bit in the last 4, 5 months. It was really bad in 2023, early 2024. A lot of people did a lot of things. And I would say it was beaten down pretty good for 2 years. And what I'm seeing people say, especially, I need a high-value program, I need assets. More in the past 6 to 8 weeks than in the last 6 to 8 months or 16 months.

That's great color. I got 2 more quick ones, and I'll turn it over to the next person here. On the Warehousing side, it seems like your revenue is up, obviously, profit is not, but there were some start-up costs. Should we expect that sort of...

It will get better.

It will get better. And my question in terms of the Warehouse space bookings, it looks like Prologis had some positive commentary on that. I'm just wondering what you're seeing out there in terms of the bookings? And then I got a balance sheet question after that.

Yes. Here's what I'd say on the Warehousing side, Jason. Everybody remembers it '21, '22, tightest we've ever seen, a lot of overbuilding in the Warehouse space and then it got pretty -- it'd been pretty loose '23, '24, first part of '25, and I'll agree with you, it's -- things are tighter now than they've been in the last 24 months from a Warehousing standpoint, but nowhere near as tight as they were in '21 and '22. And to your first question, yes, we took on 2 big accounts in '25. And one of them was in November. It was the start-up. And so that put a pretty good drag on the fourth quarter. Here's what I'd say, Q1 will be better than Q4 and Q2 of this year will be better than Q1. So it will incrementally get better every quarter.

That makes sense. And then, Tripp, obviously, you guys just made an acquisition of a company that looks like it diversifies the business mix a bit in terms of getting more governmental relief contracts and everything else. But how should we think about you guys going to market for the remainder of '25 given the balance sheet that you have now? And what's your level of comfort in taking that leverage ratio up?

Yes. I think you meant for '26, but...

Yes, sorry.

Yes, that's all right. I make that mistake often. So what I would say is our leverage today after this acquisition is a little bit above where we would kind of want it longer term. We haven't been public about a point or a range or anything, but we want to be kind of moderately leveraged. And I think when you think about some of the excess equipment that we've got that hasn't sold that we expect to sell in the first quarter, the new acquisition that we got in October, I think that, that pushes us to a point where I think we'll start to see it improve. The leverage ratio improved starting in the first quarter. I think it will improve sequentially with our capital plan. And I think about it like this. I mean, obviously, in our script and in our press release, we're pretty optimistic about 2026. And future acquisitions require -- well, any acquisition requires a lot of work. And I think our priority for 2026 is going to be to integrate what we got today with the Star acquisition and prepare ourselves to take advantage for any opportunities that we get, which we're already seeing. I think there will be more to come with this shift in the market. I think there will be a lot of disruption with cost of capital deficiencies with other peers. And I think that we're going to be prime and ready to take advantage of new opportunities, bring on new business, and we've got to be prepared to move and allocate our capital as efficiently as we can. Doing an acquisition in 2026 in the midst of all this could be beneficial long term, but I also think it creates a distraction. So our primary focuses are reducing our debt, providing flexibility and taking advantage of this market swing as it develops.

Appreciate all that color, Tripp, and you guys try to stay warm out there.

And our next question comes from Jeff Kauffman from Vertical Research Partners.

So a lot going on this quarter. Can you differentiate -- and I appreciate your early comments on the equipment change, moving equipment to for-sale status and then kind of taking an adjustment to what your expectation is for sale price. Is this going to lead to an unusually large loss on sale in the first quarter or unusually large gain on sale as you get rid of some of this equipment?

No. Jeff, this is Tripp. I don't think it's going to be a large loss or a large gain. What we call that -- what we did with that equipment is basically market to market, which is an accounting requirement as we pulled that equipment early and as it specialized probably at a time when capacity is coming out of the market and the market is being flooded with excess used equipment. It's just difficult. There's not much of an appetite for used equipment. And so we marked it down to a number that we considered was fair value based on our channels of how we kind of dispose of our equipment. And I think that going forward in Q1, we don't depreciate our equipment down to taking losses historically or taking gains historically. We try to do it to where that noise is pulled out of it. And so I would expect kind of status quo. From a go-forward depreciation standpoint, I would also kind of factor in flattish depreciation sequentially on an adjusted basis from Q4 to Q5. It's been flat for pretty much all year long. And if you look at our gains and losses on sale of equipment throughout the year, I think we're at almost a breakeven. We may have lost about $300,000. So we're not -- we're going to -- there are some things short term where we may have to accelerate depreciation on some equipment coming out of service in 2026. We're watching the market, but it's a really hard thing to do because the market moves pretty quickly. But overall, we're going to have fewer equipment sitting on the fence depreciating, too. So I think what you're going to have is a wash. But on the cents per mile basis, you may see a little bit of an increase. But on an absolute dollar basis, I think sequentially, you'll see flat depreciation and no any -- no real big variance to gain/loss in the quarter -- next quarter.

Okay. Question for Paul and David. Thank you, Tripp. So can you help us understand, I guess, 2 things: number one, where should we be thinking about fleet count for Expedited and Dedicated post the 4Q adjustments? And then as we integrate Star into the new business, not all of that is going to be managed freight. There's going to be an element of that, that affects Expedited. Will that require an equipment increase as a result of that? Kind of how should we think about the Star revenues basing across your divisions?

Yes. I would say on the Star revenue across the divisions, one, it won't require any increase. We'll be able to -- any of that business that flows over to the team side, we'll be able to handle with the teams we have. And then I would say revenue in our brokerage space, you'll remember, we lost a customer that we disclosed in the third quarter. So I think our revenue in the kind of the managed freight space will be flat to up every quarter going forward with the acquisition. As it relates to fleet count, I think we'll see. But I think your Expedited account will kind of trend down slightly, maybe 25 trucks a quarter-ish kind of numbers as we try to optimize. I mean there's some really good freight in there, and then there's some freight that just doesn't make sense for the capital that it takes to run the teams. Strategically, we're trying to push that freight over to managed freight. So if it economically doesn't make sense to run on the assets, we're trying to get the contract squared to move that freight over and run it on managed freight. On the dedicated side of the business, I think you'll continue to see us try to weed and feed the non-Ag business, continue to have some work to do there. I think you'll continue to see us grow the Ag business. And so that truck count will probably, I would say, stay flattish, but I think will continue to improve the margin profile in that space. Did that help you?

Yes, very much so. And then one other question. So looking at the metrics, it looked like the rev per mile ex fuel dropped by a fair amount in Expedited. And I'm assuming some of that might be related to the government shutdown and the lack of...

So, it's all related, yes.

Okay. So we treat the fourth quarter more as an anomaly and kind of go back to the third quarter...

Yes. There's probably a couple of OR points, Jeff -- a couple of OR points and you can back -- it probably reconciles back to the exact cents per mile of rates you're looking for -- related to the government business.

Okay. And then switching gears to Managed Freight. I think we understand what happened with spot rates and gross margins in that business. You mentioned new customer contracts coming in on your contract business. How long do you think it will take to get the Expedited freight margins back to where you want them to be? How long will it take to kind of adjust this pricing to customers for the new reality of the market on the Managed Freight side?

So what you just said there, the statements you just made, Jeff, is the answer, and that is, how long will it take to get the operating margins back to what is acceptable to us. And it's going to be through rate increases. I mean we can -- we're always looking to try to cut costs, and we will continue to try to cut costs. But at the end of the day, us in the industry, we've got to have whatever number you want to use, 5, 6, 7, 8, 10, 12, we're going to have percentages of increase to improve our margins. So again, you heard at the beginning, I'm happy about where we're at in the first 3 weeks of January. And I hope that, that continues as we continue to get into our larger accounts and as we're bringing on brand-new business that's probably 7% to 8% higher in rates than our existing. So that's kind of our formula. So I'd like to see that the 3.5% continues to maintain right now and then start climbing in March, start climbing in April because if you remember, second quarter is a big quarter for us on rate increases in some of the larger customers.

Jeff, I'll give you an anecdotal point just with these storms. I was on the phone 3 times last night and twice already this morning. And we're covering some of that with our teams. We're covering some of it with -- I'd say, the bulk of it with Managed Freight. And we're getting some really, really good rates on that, but that capacity out there is crazy tight and demanding a lot of money. I mean it is way tighter than it's been in any of the first quarters of the past few years. And I mean, I would say the second storm coming in, we're getting more -- we're having to ask our customers for more than we did last week this time. And guess what, the carriers are asking us for more. And so it's tight out there right now. That's -- and we all know that spot and storm activity. But I think that's what's going to roll on over. And the customers are starting to see, to move some of this stuff, we're about to pay a little more.

All right. So I guess the takeaway thought is a lot is going on right now, but this is more of a kind of clear the deck for future opportunities quarter.

And our next question comes from Reed Seay from Stephens.

I had a quick clarify from a previous question on the Managed Freight revenue, you talked about being flat to up through 2026. Is that on a sequential or on a year-over-year basis?

I think on a sequential basis, I think if you look at Q4 Managed Freight, the $80 million in freight revenue included the basically 2 months of the new -- early -- 2.5 months of the new acquisition plus some peak. And then I think you'll see it fall back a little bit in Q1, but I think you'll start to see that grow to where you're going to be. The biggest question is going to be how we look, I would say, in that third and fourth quarter, if we can grow it like we think we can. But I think you're going to be somewhere below where we landed in Q4 -- for Q1 of 2026. And then you're going to start to see incremental improvement in top line revenue after that, just say, average $80 million a quarter plus depending on whatever we do in the current -- any incremental business we do in the third and fourth quarters.

Got it. And then on the Dedicated and Expedited side, you mentioned in Expedited in 4Q, you had some headwind from government that you called out in 3Q as expected. How should we think about maybe your margin sequentially from 4Q to 1Q? And then I guess, what your goal would be for 2026 is maybe you have some stabilization of demand within that Expedited and as you continue to improve your mix within that Dedicated segment?

Yes. Yes. So I do expect sequential improvement from Expedited in the fourth quarter. And I would caveat that by saying that -- yes, I'm sorry, from the fourth quarter of '25 to the first quarter of '26. And I would caveat that with saying that there is a looming potential for an additional U.S. government shutdown, which could negatively impact us. There is a looming potential for additional severe weather that could negatively impact us. But all things being equal, I think with a truck -- yes, with our government business firing on all cylinders for all 3 months of the first quarter of 2026, I think we have a really good shot combined with some rate increases from a select group of customers, we have a really good shot at improving our operating ratio in that segment during the first quarter compared to the fourth of 2025. And it'd be hard to say maybe 150 to 200 basis points is kind of where I'm looking at it, but it's early in the quarter, and I haven't even seen anything to suggest that, that is realistic in terms of how January's numbers are just seeing top line revenue. But in conditions like these, costs can be up even though revenue is up. So still a lot to learn, but I'm hopeful that we can improve it pretty meaningfully. In a sequential -- in a soft quarter. I mean, quite honestly, Q1 is our softest quarter. You've got drivers that take a while to come off of the new year, and it just -- even without weather, it takes a little while to get started. But generally, if you can get some good weather in February, you can start to make headwind and March is typically a really good operational month. And so we're just hopeful for that.

And then what was your question on Dedicated?

It was similar in terms of what the margin's progression you would expect throughout 2026. And I think Tripp answered it saying you'd expected some sequential improvement through the year? I guess last one real quick. I appreciate you entertaining some near-term questions. But Dedicated and Expedited, you're making a lot of moves to improve the business here and your revenue quality. What long term would you target for your margin profile of both of these businesses if these initiatives continue and they play out as you expect?

I'd tell you, I won't be happy until Expedited is in the 80s. And I think that Dedicated is 88% to 90% is kind of where I think Dedicated is going to go. And I think Expedited is going to be in the 80s. Now when we get there, I don't know, Reed, but that's our goal, and that's where I expect it to be at.

And our next question comes from Scott Group from Wolfe Research.

I want to just take a step back. David, 3 months ago on this call, you got really excited about sort of what was happening in the market with supply and regulations and all that sort of stuff. I guess 3 months later, how do you feel -- are you feeling more convicted in this, less or any more data points in terms of how many of the drivers you think have already exited? Just...

Yes. Yes. Yes, I'm absolutely much more excited right now than I was 3 months ago, and I was pretty excited back then. But what I saw back then just continued to build. And I just think -- I just really believe guys that we are on the beginning stages of the trucking industry getting back to where it needs to be at. And I see a lot of green shoots. I mean, is it January? Yes. Do I have some trucks I want to run downstairs and get loaded? Yes. But I want to tell you the green shoots are plentiful. And it's all around from a standpoint of the bid being up, getting new business at higher rates. Number one, getting business. Number two, getting that business at higher rates. We've won some great business this week that I'm excited about just the last 48 hours, but that's a side note. But the bids being up and as I look at capacity is absolutely coming out of the market. I see it through our Managed Freight and all of us truckers because our margins are not where we want them, but that's expected, as we all know, from a standpoint that the Managed Freight broker trucks are going to demand more before we get it from the customers, but we will get it from the customers if that continues, but we're 3 months into that. So right now, as we speak, we will start running with that about increasing the pricing on that. But as I look -- and there's an interesting stat. I don't even know if anybody has looked at this. But we know that DOT, which I think Duffy is the best DOT person we ever had. I had the fortune to meet with him in December, and I told him that in my 53 years of doing this, he's the best DOT person I've ever seen. And as I look at these illegal CDL schools that we all read about and know about and are true. In 2019, there were 19,000 of them. They went up during the 4 years of the Biden administration, they went from 19,000 to 39,000 schools. I mean, 6,000 to 39,000 schools, no come up, come up. 19,000 to 39,000 and now DOT has taken out 6,000 of them. We're at 33,000. I look at some of the things that they are doing from -- and you all know this, the English proficiency, we are sensing that not only in our Managed Freight, but we're sensing that in our customers. And I believe that's one of the reasons why our customers that we're winning more freight at higher rates. It's one of the reasons our rates are up 3.5%. And for another reason I believe that we will continue to get our rates up is because of capacity, because of a side note, as we all know. Do I think that GDP is going to be stronger in the next 3 quarters, 4 quarters than it was the previous 4 quarters. And the answer is yes. I mean I look at 2026, and I look at second quarter, 3.4% GDP and third quarter is 4.3% GDP. Fourth quarter, what's the number? 4% to 5% is going to be with the government being shut down 1 month. Let's just say 4% when it comes out. I think there's going to be some 5% GDP growth in 2026. And I just go back in the last couple of years before that, and we were at 1.9%. We were at 2.3%. We're doubling GDP. At the same time, we all know capacity is coming out. Is it 1% or 4%? I don't know. I do know 2% moves the market -- 2% up, 2% down in capacity moves the market. And so trucks are coming out. And so as I look at not as many drivers are leaving, trucks are coming out. It's going to be harder to get into the industry. GDP is going to grow -- anyway, a lot of green shoots, Scott. Did I answer your question?

I think so. Okay. I guess my other question is, you guys have -- Expedited has made a big mix shift over the last bunch of years to LTL. What are you seeing from that sort of end market? Does the shift to LTL sort of limit some of the upside -- the leverage on the upside? Just how does the LTL mix shift? What are you seeing in LTL right now? And then how does that mix shift impact how we should think about your upside operating leverage?

So here's what I would say, we did shift a lot to LTL, Scott, especially in '21, '22, '23, and even '24. I would say that number reduced by a pretty good bit last year as the volumes and tonnages and LTLs went down as you've seen and reported on a lot of those. And so I would say maybe something we weren't as vocal about, but the LTL market, we kind of rightsized our LTL exposure last year just with what happened in the LTL market. So it's a lot less today than it was in 2023. That said, our LTL customers are -- they're pretty steady right now, but they're not doing as good as they want to do. David, any?

No, I agree with that. But we also, though, in lieu of that is that we've gone to the market with a lot of our airfreight customers. And so I'm seeing a lot of that, that is building. I just think, Scott, at the end of the day, whether it's our LTL portfolio or whether it's our airfreight portfolio, freight forwarder portfolio that we do a lot of business with because of our technology and high security program that we've got, it's all about pricing. And when pricing is available to us to be able to pass on, you'll see returns coming back down or ORs coming back down, margins or whatever.

And our next question comes from Dan Moore from Baird.

A couple of quick questions or at least one question. So I think a lot of questions are being asked around this idea of how much inherent flexibility you have in the model to respond to what could be a better market. A lot of the things you kind of addressed on the call a few moments ago with Scott's question just in terms of fundamentals that are starting to show themselves to be better. The big question is what if demand recovers in '26 because of tax rebates, because of a variety of other potential catalysts, how do you pivot as an organization and as an enterprise to take full advantage of that? So my question relates to the following. If demand gets better in April, May or June, how much -- what's your go-to-market strategy in a market environment where there's an natural uplift in demand? What changes in that market relative to what we've seen here over the last 3 or 4 months, which is a fairly unique supply narrative?

Yes, Dan, I think the first couple of quarters or whenever that happens, whether we're in the process, or maybe we're at a home plate, and we're getting ready to hit the ball to run the first base, and we still got to go second, third or fourth -- second, third and home. I think that when that happens, I think what you will see for the industry, I know you'll see it from us, but I think in the industry is that it's time to reclaim some of the profits that we've given away for the last 4 years. And it's not like I'm interested in running out here and buying 200 trucks to say, let's do what we've all done, and that is throwing a lot of capacity at it. I want to get my rates up to acceptable numbers, get my Expedited down into the 80s, get my Dedicated into the high 80s or 90 kind of number and let my Managed Freight be able to take over whatever the leftover is there to be able to continue to grow it. So I would tell you that for the first 2 quarters, when that day does happen, I think you're going to see getting healthy once again as the industry. And so that would be my goal and the flexibility that we'll have when the market turns.

Maybe same song, different verse. What percentage of the book, the total enterprise book renews in the first quarter? What percent in the second? What percent in the third? And in a market environment that gets better, would that look different? Would you be taking a second drink?

Yes. Well, there's 2 things. I will tell you -- number one, second quarter is a heavy quarter for us as I think about our poultry and as I think about our Expedited, in particular, those 2 segments of our business as it has been always. And there's no doubt that we've got customers that have treated us correctly even at lower rates, and we had to be competitive in the rates over the last 4 years. But if they contracted out for 20 loads a week, they've done a good job of giving us the 20 loads a week. And we will abide by that. If we just did a bid this month and we agreed upon rates, it will be next January before we're going to go back to those customers. I would tell you that 40% of the customers are that, 60% of the customers will be taking 2 or 3 rate increases and ones that thought they were going to give us 20 loads a week, and they gave you 7 and they took advantage of the market and we weren't getting our volumes, we will be there 14x, loving them and thanking them and God blessing them, but we got to have more money. And so that's probably 60% of our business, if that gives you any idea.

And gentlemen, at this time, there are no further questions.

All right. Well, we'd like to thank everyone for joining us today, and we look forward to talking again next quarter. Thank you.