Earl E. Congdon - Executive Chairman David S. Congdon - Chief Executive Officer, President and Director J. Wes Frye - Chief Financial Officer, Senior Vice President of Finance and Assistant Secretary.

William J. Greene - Morgan Stanley, Research Division Scott H. Group - Wolfe Research, LLC Christian Wetherbee - Citigroup Inc, Research Division Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division David G. Ross - Stifel, Nicolaus & Company, Incorporated, Research Division A. Brad Delco - Stephens Inc., Research Division Allison M.

Landry - Crédit Suisse AG, Research Division Benjamin J. Hartford - Robert W. Baird & Co. Incorporated, Research Division Thomas Kim - Goldman Sachs Group Inc., Research Division Robert H. Salmon - Deutsche Bank AG, Research Division Willard P. Milby - BB&T Capital Markets, Research Division Matthew S. Brooklier - Longbow Research LLC Jason H.

Seidl - Cowen and Company, LLC, Research Division.

Good morning, and welcome to the First Quarter 2014 Conference Call for Old Dominion Freight Line. Today's call is being recorded, and will be available for replay beginning today and through May 9 by dialing (719) 457-0820. The replay passcode is 5760162. The replay may also be accessed through May 9 at the company's website.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance.

For this purpose, 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.

You're hereby cautioned that these statements may be affected by important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release, and consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements.

The company undertakes no obligation to update publicly any forward-looking statements, whether as a result of new information, future events or otherwise. [Operator Instructions] Thank you for your cooperation. At this time, for opening remarks, I'd like to turn the conference over to the company's Executive Chairman, Mr. Earl Congdon.

Please go ahead, sir..

Good morning. Thanks for joining us today for our first quarter conference call. With me this morning is David Congdon, Old Dominion's President and CEO; and Wes Frye, our CFO. After some brief remarks, we'll be glad to take your questions.

It is a pleasure to report that Old Dominion continued to excel in the first quarter of 2014, producing our best first quarter operating ratio, net income and income per share, as well as the highest quarterly revenue we have ever achieved in any quarter.

We produced these strong results despite the severe and widespread winter weather experienced for most of the quarter. This performance highlights the dedication of the OD family throughout the company. Our employees not only demonstrated their commitment to getting the job done, but also the training and skills to operate in difficult conditions.

Our performance also shows the strength of our value proposition as we worked through significantly productive -- productivity headwinds to deliver on our promise of superior on time claims-free service. With almost 14% growth in the LTL tons for the quarter, we believe our performance shows the market's growing recognition of our value proposition.

Simply put, Old Dominion is performing at a level better than I've ever seen with a more strongly differentiated competitive market position than ever before. We also have the best financial position in our history, and a highly experienced management team that has proven to be an outstanding steward of our shareholder capital.

Last year, we produced over an 18% return on average equity for our shareholders. We believe we are well-positioned to expand our business for the foreseeable future, driving increased earnings and shareholder value. Thank you for joining us, our call today, and now here is David Congdon..

Good morning, and welcome to all you this morning. We've had a great quarter to begin 2014. While many variables affect any quarter, we think one of the simplest explanations of our strong first quarter performance is evident in our outstanding service metrics.

Despite severe -- extended severe weather across most of our network, we actually improved our cargo claim ratio to 0.26% of revenue, over 20% better than the first quarter last year. This is the best cargo claim ratio we have ever known to be achieved in the LTL industry.

And our team produced it in the depths of one of the worst winters we've seen in years. Despite the difficult weather conditions, we still achieved a 99% on-time record for -- on-time service for the quarter.

We believe the consistency of our superior service performance, despite horrible weather, had a lot to do with our growth in comparable month LTL tons per day, which started in the double digits for January and accelerated each month of the quarter.

The shift of the Easter weekend to the second quarter this year from the first quarter last year contributed to the 19.7% increase in LTL tons per day for March versus March 2013. We continue to benefit from a rational pricing environment in the first quarter, in part because excess industry capacity remains limited.

Our LTL revenue per hundred weight excluding fuel surcharge increased a solid 2.2%, even with the downward pressure exerted on this metric by increased weight per shipment and a lower average length of haul.

In addition, like our experience with LTL tons per day, we're continuing to see strong performance in LTL revenue per hundred weight thus far in the second quarter. As reflected in our tonnage growth and pricing, our increased density and yield for the first quarter drove the 70 basis-point improvement in our operating ratio.

We were pleased with the strength of this performance, given the impact of weather-related reduced productivity in our pickup and delivery and our dock operations.

Pressure on these metrics during the quarter was primarily related to our willingness to incur short-term operating inefficiencies during the poor weather in order to maintain our commitment to on-time customer service.

In addition, we continue to experience inefficiencies associated with hiring and training new employees to address our higher volume and the continued impact of the more restrictive hours of service regulations. As we look forward to the remainder of 2014 and beyond, we expect continued gains in market share will result in improved density.

Given the stable economy, we also expect further improvements in our yield. Our yield discipline and philosophy have not changed. We'll continue to analyze the profitability of each shipment and customer for the services we provide. We are confident that we will recover the productivity lost in the first quarter and produce further gains over time.

Our long-term investments in productivity enhancing technology has historically resulted in improved operating margin, and we have no shortage of investment opportunities ahead. We continue to believe that in -- by improving density, yield and productivity, we can generate incremental operating margin of at least 15% to 20%.

With significant improvement in our first quarter density and yield, offset in part by productivity headwinds, our incremental margin was 17% for the first quarter. Primary focus for Old Dominion, moving forward, will remain execution.

Our company is positioned for growth with a proven business model, a value proposition driving increased demand, and the personnel and financial resources to maximize the opportunities before us. By continuing our long-term record of superior execution, we also expect to extend our long-term record of value creation.

Thanks for being with us today, and now, I'll ask Wes to review our financial results for the first quarter in greater detail..

Thank you, David, and good morning. Old Dominion's revenues grew 15.2% to a company record $620.3 million for the first quarter of 2014 from $538.4 million for the first quarter last year. Our third consecutive quarter of double-digit revenue growth was driven by a 13.9% increase in LTL tons for the quarter, above our expectation of 11% to 11.5%.

This increase reflected an 11.9% increase in LTL shipments and a 1.8% increase in weight per shipment. LTL revenue per hundred weight increased 1.6% for the first quarter, while LTL revenue per hundred weight excluding fuel surcharge increased 2.2%, which was consistent with our expectation of 2% to 2.5%.

This 2.2% increase in the revenue per hundred weight includes the negative impact of a 1.8% increase in weight per shipment, as well as a 0.6% decline in length of haul. For the first quarter of 2014, LTL tons per day increased sequentially by 4.1% from January -- from December, 5% for February and 8.5% for March.

In addition, LTL tons per day for January 2014 increased 10.1% compared with January 2013 with increases of 11.7% and 19.7% for February and March, respectively. We estimate April LTL tonnage to be approximately 14.5%, up versus the same period last year.

In the second quarter of 2014, we expect LTL tons per day to increase in a range of 14% to 14.5% compared to the second quarter of 2013.

We expect revenue per hundred weight, excluding fuel surcharge, to be in a range of 2% and 2.5% for the second quarter, reflecting continued mix changes toward higher weighted contractual business and a decrease in length of haul due to increased volume in our next-day and 2-day regional lanes.

Old Dominion's operating ratio improved 70 basis points for the first quarter to an 87.1 from an 87.8 for the first quarter of 2013.

Our direct labor improved as percentage of revenue, driven primarily by increased operating leverage, although increases in group health expense and weather-related productivity declines offset much of those improvements.

We also benefited from efficient fuel and fleet management that contributed to a 70 basis-point reduction in operating supplies and expense during the quarter. Capital expenditures were $79.8 million for the first quarter of 2014, which included approximately $18 million of our $47 million 2014 budget for technology and other assets.

As we discussed last quarter, these expenditures reflect a launch of a 3- to 5-year process to expand and enhance our technology platform to prepare for anticipated growth trajectory for the next 10 to 20 years.

In addition, today, we announced that we're increasing our planned capital expenditures by $25 million for 2014 for additional tractors and trailers, as a result of our strong volume for the first quarter and our expectation for the remainder of the year.

Therefore, we now estimate CapEx for 2014 will total approximately $367 million, including planned expenditures of $132 million for real estate; $188 million for tractors, trailers and other equipment; and $47 million for technology and other assets.

We expect the sale of assets due in 2014 to be approximately $9 million or a total net CapEx of approximately $358 million. And we expect to fund these expenditures primarily through operating clash -- cash flow, as well as our available borrowing capacity if necessary.

Total debt to total capitalization improved to 12.4% at the end of the first quarter 2014 from 13.4% at the end of 2013. Our effective tax rate for the first quarter of 2014 was 40.6% compared with 36.1% for the first quarter of 2013, and our expected effective tax rate of 39% for the remainder of 2014.

The increase in our effective tax rate for the first quarter of 2014 was due primarily to the expiration of favorable tax credits in 2013 and other discreet tax adjustments. This concludes our prepared remarks this morning, and operator, we'll be happy to open the floor for additional questions at this time..

[Operator Instructions] And our first question will come from Bill Greene from Morgan Stanley..

Wes, maybe you can talk a little bit about how you're thinking about where this tonnage growth is coming from in terms of market share? I've got to believe that when you outgrow the market by that amount, it's perhaps destabilizing to some of the competitors out there.

Do you worry at all at this sort of growth leads to maybe a less rational pacing environment? Where they say like, "Gosh, we got to win some of this back. This is unbelievable how much these guys are growing.".

Well, as David mentioned in his comments, during the quarter, I mean, we saw fairly stable pricing and that's what we've seen for quite a while now. Where it came from, it's difficult to say. Obviously, much of it came from market share.

We can't really say if it came from macro, although we were okay with the macro during the quarter from what we can see in our discussions with customers. But I don't think, that -- I don't think it will result in any accelerated pricing from the sector overall.

I don't think any of us can afford that, especially as we continue to reinvest, and I say we, and I'm talking about the sector, reinvest in our network in our rolling stock..

I'll add to that, Bill. As we look at our growth across the country, every one of our operating regions had very -- have had very nice growth. It's been pretty similar to the path that the Northern half of country has been.

And Midwest and Northeast has been a little bit stronger, say than the south, but what it's look like so far is it's really uniform across the entire network..

I'd like to add, it's Earl Congdon. Also, it's not price that's getting this growth for us. It's customer service and that low claims ratio..

Is it too simplistic of me to think that, if you use that strong service level in the market to get a bit higher price, a little bit lower tonnage growth, if that's not a better outcome? Is that too simplistic, the way I phrase that?.

We're getting that outcome, aren't we?.

Yes. I mean, I don't mean to take anything away from the results. They were obviously very solid. But it's more just like we look at the fact that the yields have come down, the tonnage growth is so significant you're going to have to -- you have to up CapEx.

And that's okay, like there's nothing wrong with that outcome except that is there a mix change here that you can sort of push toward a little bit higher price, and therefore, even more on the margin, and therefore, returns? Maybe that's not a way to do it..

I can't speak for the rest of the sector, but some of that growth was based upon the comparison, and by that, I mean in January, our tonnage was up about 10.1. In February, the tonnage increased to 11.7, and we had this very large growth in March of 19.7. But I think some of that wasn't necessarily market share or macro.

It was just because March last year had that Easter holiday at the end of the year, and that would explain some of that. So that's not necessarily increased volume, but just a comparison from what it was last year..

And some the March growth could also be some slop over of business that did not move in January and February due to weather contributed to that..

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

So when you have a quarter like this you don't have to talk much about weather, but you think that maybe -- what's your sense on what the impact of weather may have been on the tonnage and the cost?.

Well, it's difficult to address the tonnage when you had almost 14%. And so, I'll just relate to the cost, I can't really make a discussion on the revenue level.

But from a cost standpoint, I think, Scott, the relevant thing is -- here is, not only what it cost us this quarter, but even though we had horrible weather this quarter, we did have some weather last year. And also, some of our increased costs is due to volume increases.

So it gets a little tricky trying to separate all those costs between the relative increase in weather headwinds and also the increased volume.

But my best estimate on what those incremental costs, keep in mind, I said incremental, not the cost this quarter, is about $4.5 million to $5 million in increased operating cost due to linehaul, motels, snow removals and those type of related costs. That is the cost that I estimate over what it was last year, about $4.5 million to $5 million..

Okay. That is -- that's helpful. And then just 1 follow-up on the tonnage.

Do you think that -- do you feel like you had any material amount of spillover from truckload just given capacity issues that they saw in truckload? And when you think of about this level of tonnage growth, is the $25 million increase in CapEx enough or do we need to start thinking about more material increases, just to handle this amount of growth?.

Just to talk about the volume and the spot quotes, we saw a little bit of an increase. But keep in mind, we don't -- we manage that increase. We do not want a lot of truckload business on this on the truckline because we're an LTL carrier, and that's what the cost of our network should include, that cost.

But -- so that wasn't that much, but we maybe saw a little bit. As far as the level of equipment, I mean, we haven't given any guidance on tonnage for the rest of the year other than what we're seeing, and we gave some estimated tonnage growth, obviously, for the second quarter.

So we obviously based our initial CapEx for equipment on one number, but obviously, that number is higher. And we think that at this point, the additional equipment that we put into play and ordered will be sufficient to handle that estimated increase volume for the year..

[Operator Instructions] Our next question will come from Chris Wetherbee from Citi..

Just kind of curious, when you think about just the overall business, taking a step back for a second, if you look at the tonnage growth, which is very, very strong and outlook for second quarter also very strong, it seems like there's a bit of an inflection going on in the business the last several quarters.

I don't know if you can speak to that necessarily, but is there anything that you're doing differently outside of the very, very stellar sort of cargo claims and continued good service, which I think has been your hallmark for many years? That ultimately is sparking that change. It doesn't seem like the underlying economy is picking up that much.

Just curious, what's going on from a market dynamic perspective that may change that..

Chris, David here. The -- honestly, we believe our service performance is what is winning market share, as Earl pointed out here a minute ago. And I think, it's going to be interesting to see what really comes out with all the rest of the carrier's reports, because we haven't heard that much about volume increases, and so forth.

It'll be interesting to see how the industry sector fares for the quarter to see if maybe there's been any inflection in the economy. Perhaps, it hasn’t surfaced yet. So we will just have to wait and see how that looks. But again, service performance, we believe, is driving our tonnage growth..

Okay, that's helpful. I guess we'll see how that plays out the rest of the carriers. When you think about the network and how it stands right now, given that very robust growth you've had in last couple of quarters, I know, obviously, adding to the CapEx side, I think you said trailer -- tractors and trailers was the main focus.

When you think about sort of the network geographically, any pinch points we need to worry about? I know you opened a couple of terminals in the last quarter, so just wanted to get a rough sense if there's anywhere else that might need some incremental maybe real estate capital or otherwise?.

No, Chris. We're really in good shape across the entire network. No pinch points. Thanks to all the CapEx we've invested in the last year or 2 to solve some of the pinch points that we had in 2012 and '13..

And our next question will come from Todd Fowler with KeyBanc Capital Markets..

David, I was curious if you could talk about your philosophy on a general rate increase this year?.

Well, our philosophy on that is to generally look at our cost, and look at our various cost of doing business increases, and to pass on what we believe, is a fair and equitable increase in our rates.

Also, if you look at our GRIs that we put in over the last several years, we've been fairly consistent in 4% to 4.5% range, maybe, I think 4.9% is about the highest that we've announced in last 2 to 3 years, and this just appears to be what we need to do and what we need to pass on..

So does that -- I think that historically you've done your wage increase sometime in the third quarter.

Does that mean that the general rate increase might be more closely aligned with when you're going to -- or when you have historically done your wage increases?.

No. Our wage increase has typically been September. We don't have any intention at this point of changing that timing..

But with the general rate increase more closely, if you did a general rate increase, would the expectation be that, that would be most closely aligned with the wage increases?.

Are you talking about the percentage of wage increase?.

Timing..

We're not -- are you -- we've already announced our GRI.

You're aware of that, right, Todd?.

I'm sorry, I was thinking about the impact of the GRI with the wage increases into the second quarter. So the wage increases are going to be -- you haven't said anything on the wage increase side, I guess, is what I was thinking about..

We normally increase on the first Friday in September. It's when our wage increases go into effect..

Okay. And then just my follow-up on that, I guess, is could you talk about the labor availability? Talking about growing -- with the tonnage growth that you're seeing right now increasing the rolling side. We've heard a lot about the labor market right now, particularly on the driver side.

And I guess, this is why I was trying to get ultimately, your ability to attract and bring in labor right now, given the growth that you're seeing?.

We're not having any problem of attracting good, qualified people to our company..

And no pressure on wages then as a result of that?.

No. We pay a very, very competitive wages and benefit package. And we don't see any pressure to do anything out of the ordinary as it relates to compensation. We attract employees..

And our next question will come from David Ross from Stifel..

Can you talk a little bit about your sales force growth year-over-year? Do you have a lot more feet on the street now, driving this tonnage growth, or is it mostly coming from the existing guys that are out there selling the business?.

It's mostly coming from the existing guys. We've had some increase in the sales force, but nothing, nothing dramatic at all. It's just winning business from existing accounts, continuing to win new accounts that are coming onboard with the company. And just general growth and improvements in density across the board..

And then I guess, if you had to look at the overall tonnage growth numbers and divide that up between tonnage that came from existing accounts, whether it be them doing more business or you getting a bigger share of their business versus new accounts, how would that first quarter tonnage growth break down?.

We don’t have a breakdown on that..

Okay.

You think it's more than half from existing or do think it's mostly from new?.

I would just say, just a gut feel, just probably at least half and -- a bit half and half..

And then last question just on the equipment side.

The additional tractors and trailers you're bringing on, are those predominantly Freightliner and Wabash?.

Yes..

Yes..

And our next question will come from Brad Delco with Stephens Investment Bank..

Wes, I wanted to ask you, I guess, first on the margin. I guess, you identified $4.5 million to $5 million of cost in the first quarter.

Is there anything else in terms of maybe Easter or anything else that would cause sequential margins to not follow normal historical trends? Or should we just assume, given the amount of tonnage growth versus your yield guidance that kind of 15% to 20% incrementals is what we should be thinking about in the near term, or is there anything that would adjust that for 2Q?.

Well, we've -- I don't know what you -- our definition of normal that we said for years is incremental margins of 15% to 20%, and we've produced higher than that the best with the other -- with certain characteristics being different.

In 2010 and 2011, when we were producing 30% plus margins, I mean, we had a lot of excess capacity, not only in network, but also in people, in labor. And pricing, quite frankly, was on the rebound. We're getting 4% and 5% increases in the yield. So that wasn't normal, but we think that this environment is more normal.

And that's why we keep saying that our incremental margins should be in the 15% to 20% range.

Now having said that, as we said many times, if those ingredients of that incremental margin, which would include a macro that's behaving, a price discipline in the sector, and with our own ability to leverage the density, that is no reason we shouldn't be maybe too [indiscernible] at the top that range.

But keep in mind that the 17% that we produced in the first quarter did have some headwinds on the productivity. The comp [ph] is due to weather and other cost that I kind of gave you a range of, so we're still in that 15% to 20% range. Keeping in mind that 20% incremental margin represents an eighty OR. That's not bad..

No, no. By no means is it bad. But -- and then I guess sort of longer-term, I mean you guys aren't skimping at all on CapEx. You're still declining your debt-to-cap. I mean, at some point, you're going to have a high-dollar problem where you could be debt free and still investing a tremendous amount of CapEx relative to your peers.

What other thoughts have you guys had in terms of the use of that capital, considering you're already growing at likely industry best growth rates and at industry best margins?.

Well, a gulf stream [ph] wouldn't be bad, but -- no, we've had many discussions with excess cash and obviously, we are considering and have considered in evaluating returning some of the cash to shareholders. Whether that's in the form of stock repurchases or dividends, we're still looking at those alternatives.

But we are under evaluation of those alternatives going forward, Brad..

But the primary thing that we're going to invest in is investing in the company, and if that continues to generate 18% or so return on equity as we did last year, we think that's a pretty good return to our shareholders as well.

So number one is to continue to look at opportunities to grow our business profitably, before we consider using that excess cash for those other purposes Wes mentioned..

Well said..

And maybe 1 quick question for you, Wes.

Tax rate outlook going forward, I don’t know if you provided that, but what should we be modeling?.

I did. 39% is what I mentioned for the remainder of the year..

And our next question will come from Allison Landry from Crédit Suisse..

I wanted to ask about the use of third-party brokers and to get your thoughts on whether you think this has contributed to the consistent increases in weight per shipment that we've seen for the last several quarters? And following on that from a strategic perspective, could you maybe talk about what you might be doing differently with respect to the way that you use brokers relative to some of your peers? I think you've mentioned in the past that you used the brokers to show some of your backhaul moves? So I was just wondering if I was thinking about that correctly..

No, I'm not sure that sure you're, Allison. When you say third-party brokers, you're talking about 3PLs, and about 25% of our LTL business does come from 3PLs. Now, if you look at -- you're discussing purchase transportation, that's another sector. And we use purchase transportation -- that's another matter.

So I'm not sure which one you're referring to. About 25% of our revenue is through 3PLs. But it has nothing really to do with the weight per shipment..

Backhaul..

Or backhauls..

It doesn't have to do with backhaul. Okay. I guess I was just thinking that there was a tendency for freight that comes from the brokers to just generally be a higher weight per shipment. So I didn't know if that was a trend that you were seeing..

Not really. The 3PL -- any given 3PL might have 5 or 6 or 10 or 20 or 30 different customers that they bring -- might bring to us. And the changes in weight per shipment, could just be -- just the natural evolution of customers you happen to bring home on the truck line. But also, hopefully, the economy's turned a little bit.

It'll be interesting to see what the rest of the carriers report. And usually, with an improving economy you start to get slightly larger weight per shipment, at least that's been the historical trend over the years. So maybe the economy is infecting a little bit.

But the other thing we do as far as strategic use of brokers, we just consider -- we don't call them brokers per se. We call then third-party logistics companies.

They've been infiltrating the LTL marketplace for many, many years and we just work with those 3PLs on each individual customer they bring to us and we treat those customers just the same way as if we were dealing direct with the customer without a 3PL in terms of analyzing the freight and analyzing the profitability of that freight, given the service -- services that the customer needs..

Got it. And so I guess, is it sort of fair to think about the increased use of the 3PL's as having an impact on purchase transportation cost or maybe we'll see those move..

That has nothing to do with the purchase transportation cost..

Okay, okay. That's helpful. And just my second question. I found it interesting that you guys took action sort of and really a hit on your productivity to make sure that shipments made it to customers on time.

So I was just curious, did you -- did customers understand that you guys did this? And what was sort of their reaction? And is this something that could potentially just bolster your general ability to take market share and get solid price?.

Well, I think they noticed, and I think that our tonnage growth is reflective of them noticing. So what the future holds for that continuing is yet to be seen..

And our next question comes from Ben Hartford with Baird..

So I guess, along that line of questioning about utilization of third-party logistics providers, it doesn’t sounds like, Wes, that the number it changed or the amount of revenue you generated from those third-party logistics providers in the first quarter was any different than what you've talked about in the past, it's 25%.

And it's probably too granular for me to ask how that trended through the quarter, because I'm interested in that March number, in particular, and some of these anecdotes about truckloads being broken up and put into LTL networks.

You get a sense for whether that took place in March that helped the March number? And the fact that you guys do have healthy relationships with these third-party logistics providers help facilitate some of that? Can you provide any perspective to that?.

As David mentioned, third-party logistics is -- the only difference in third-party logistics and directly with customers is we deal with the third-party logistics. We still go underneath those logistics company and look at the customers and provide those customers with high levels of service.

And so, I don't really see a relationship there with growth in March due to third-party or anyone else. It's just overall volumes coming on board..

And the Easter holiday..

And the Easter holiday was fairly substantial. Remember not only did Easter fall into the first, quarter last year it fell into the last day of the quarter. And so, and some of that -- whatever we did pick up and move on that last day of March 2013 probably flowed over into April, making the swing of the comparisons a little bit funky, so to speak..

Okay. But we have heard instances of the tightness in truckload capacity forcing some truckloads being broken up and put into LTL networks. And just the trajectory of the volume growth through the quarters would suggest that you might've seen some of that.

But did you have any insight in terms of whether that was happening and whether you guys were taking advantage of some of that in March and into April?.

As I mentioned, we saw our volume loads -- when I say volume, for us, that's in the 8,000 to 10,000 pound shipments, did increase some. But it wasn't like it was twice the normal growth or twice what the LTL. It was just in line, basically, with what the LTL growth was..

And our next question comes from Thomas Kim, Goldman Sachs..

Wanted to ask with regard to the cost structure. We've seen several of your cost constituents rising with revenue and sellers is one of them. Just wondering if you could talk a little bit more about your headcount requirements as you grow the business.

And then, also what's the best way for us to be thinking about labor productivity, given the ongoing reinvestment in the business?.

Our headcount has definitely increased from last -- that really began last fall. We're fairly stable with the headcount from -- remain fairly stable with the headcount from November all the way through February. But we started increasing headcount again in March, based on the tonnage we were seeing.

But the productivity pounds per hour, bills per hour and things like that, that we watched took a little bit of a -- were hit a little bit due to the winter weather and due to the training of all these new people that we brought on board.

But as we -- I'd say right now, from the headcount standpoint, we're probably pretty stable going through April, May and June, and all of those new employees will become more and more productive as they get more used to this -- the work that they do.

So we should see some improvements in labor productivity in the second quarter versus the first, because of the new employees getting more educated as to what they need to do. And secondly, with the spring coming and then lack of a cold weather and snow and ice and all the things we had in the first quarter..

And then, can you give us a -- your sort of guidance as to what your year-end headcount numbers should be? Like, at the end of the year, what would that growth look like?.

Well, we -- Tom, we don't give guidance on growth. So that would be an element of that guidance. So we're not prepared to give that number..

Okay. Again, if I can just ask 1 last question. If we sort of look at cost ex-labor, can you break down the fix versus variable component for -- the one area that I'm more interested in is the operating supplies and expenses.

So if we look at that, just that cost constituent, can you give us a breakdown of fix versus variable?.

On -- excluding labor?.

So the operating supplies and expense, just that category. I was wondering what the fixed versus variable component was..

Most, by definition, most of the operating supply and expense line are variable cost. But you also, to some extent, you have to run certain peddle runs out in the areas regardless how much freight you got on the trucks. So some portion of that variable cost is....

It depends on the time frame. On the hourly basis, all costs are fixed, on a yearly basis, all costs are variable. It depends on the timeframe..

And I'm just trying to understand with regard to the potential operating leverage. Obviously, it's a little complicated by the fact that you are growing and I'm just trying to parse out the growth that's attributable to the ongoing reinvestment versus the organic growth. But I appreciate looking in that there are a lot of moving parts there..

And our next question comes from Rob Salmon from Deutsche Bank..

On the fourth quarter, you guys had called out the hours of service as being a headwind to the linehaul network.

Could you give us an update in terms of how you guys have adjusted the networks? Because if I'm look at the salary wages and benefits line item, it didn't increase sequentially from the fourth quarter to the first quarter as much as it traditionally does, which could imply that you guys have kind of rightsized the network now where it needs to be..

Rob, I'd say, we're definitely -- we had to make adjustments to that as primarily a 34-hour restart, which caused us in the third quarter of last year to add some extra road drivers to pick up the slack from the work that the existing road drivers and existing city drivers could not do on weekends. So that slack was picked up in the third quarter.

So the cost levels and what you're seeing in our linehaul cost component, say, in the fourth quarter and what we have in the first quarter is pretty stable with what it ought to be going forward..

David, that color is really helpful. Just a quick follow-up in terms of the network capacity, clearly, you're adding a few extra tractors given the strong growth that you guys experienced in the months of March, April in Q1.

Can you give us a sense of how much spare capacity there is on the linehaul fleet right now?.

On linehaul, we don't really track capacity. We try to maintain a certain percent of capacity. Of course, that fluctuates by week, by month, by quarter. And on seasonality, but I would say, anywhere from 5% to 10% on our fleet. I mean, is that the best number we have. You don’t operate your equipment with a lot of capacity.

But you don’t operate your equipment with no capacity either..

It normally increases purchase transportation also if you get an unexpected surge [indiscernible]..

That's fair. So sounds pretty stable to kind of hit historical numbers..

Our equipment obviously is stable and -- but we've -- with our tonnage increases year-to-date, we thought that we probably should increase our number of equipment, which we have. So I mean, that's our expectation..

Our next call will come from Willard Milby, BB&T Capital Markets..

Kind of want to ask the question everybody had been dancing around a little bit, but a little bit different way.

Can you give your percentage growth in shipments over 5,000 pounds and also over 10,000 pounds?.

We don't necessarily even track that. That's -- I don't have those numbers in front of me, of what those numbers are..

Okay.

Also the tonnage guidance 14% to 14.5% that's LTL only, correct?.

Correct..

At this time, we have 1 question remaining in the queue. [Operator Instructions] We'll take our next question from Todd Fowler from KeyBanc Capital Markets..

Just a follow-up on that last question.

Wes, do you have a restated LTL tonnage number for the second quarter of '13?.

Todd, when we issue our first quarter, our 10-Q for the first quarter, we'll provide a table for each of the remaining quarters of 2013 is give you those tonnage numbers..

Okay.

But so the 14% to 14.5% that you gave today, that's not going to be comparable to what you had for the second quarter of '13, the number that we have in our models?.

It will not. Now the relationship should be fairly consistent with total tonnage and LTL tonnage. But we'll get you those numbers when we file the 10-Q, of what those restated numbers from 2013 are..

Just directionally, if we look at the restatement for the first quarter, would the magnitude be somewhat similar in the second quarter, just for kind of a zip code or ballpark?.

Yes, yes..

And then just the last one I had.

Wes, do you have any comments on expectations for depreciation expense, given the increase in CapEx, either how we should think about it, on a dollar basis or percent basis now in '14 versus '13?.

I would say, as percent of revenue, once the year is done, the percentage revenue for depreciation will be fairly flat between 2013 and 2014..

And our next question will be from Matt Brooklier from Longbow Research..

So I have a kind of a higher-level question.

As 3PLs become kind of the larger percentage of the overall market, what are your thoughts on 3PLs' impact on overall market pricing? And is it a positive for pricing? Is it a negative for pricing overall? Or is it -- does it not have an impact on market pricing?.

Matt, I believe that a lot of it has to do with how the carriers deal with the third-party logistics firms. As we've stated in -- today, and we think it is very important to look at each and every customer that a third-party logistics firm brings to your company and to determine your pricing based upon the merits of those individual shippers.

Because oftentimes the 3PLs are looking for some kind of a blanket discount that they could apply to every time they can hear that they want to apply it to. And I think, that is what has gotten so many of the players in the LTL space in trouble. And if they would -- so, then that's not something that we have done.

So -- I'm just not -- our thoughts on how to deal with it and we would hope others would listen to these comments..

Okay. And the 3PLs contribute I think 25% of your total volume at this point in time.

Does that number stay about the same over the longer-term? Does that number grow? Are you guys thinking about shrinking kind of your relationship with 3PLs and the total amount of volume that they contribute in a given quarter?.

We view 3PLs as an extension of our sales force. And we have very good relationships with our 3PL partners. And we're not trying to necessarily grow that segment of the business, nor shrink that segment. If we have a good relationship with our 3PL customers, we could do with most. Our goal is to grow with each and every one of them..

And our next question is from Jason Seidl from Cowen and Company..

I promise no 3PL questions for me. Listen, Wes, you mentioned capacity in terms of your equipment. You used to think about 5% or 10%. But your growth rates are very, very impressive compared to the rest of the industry.

And how long can you grow at double-digit rates until you have to add physical capacity? Are we talking another year, another 2 years? On a terminal side..

Well, Jason, when you look at term loan capacity, and our most basic way we look at it is pounds per door per day, you'll find some service centers that have 50% to 60% capacity, some of the small ones. You find some that are up there in the 80% to 90% of maximum capacity.

And therein lies our continued investment in real estate, because you're always having some of the service centers that are up at the upper end of the capacity limits.

And based upon those, our future projected growth in those service centers, we're just -- we'll have incremental investments in real estate for the foreseeable future as we continue to strive for double-digit market share in the LTL space.

But we've been investing in the same way for the last decade, and you've seen the results that we've been able to achieve in our operating ratio, despite those investments in those service centers. So it's just -- there'll be some incremental -- some ratio of sales, maybe Wes would say....

Well, we acquired. Yes, we -- as David mentioned, even though we may have service centers that are at 80% or 90% capacity, that doesn’t mean that we already aren't looking at expanding those facilities. As a matter of fact, we have 5 or 6 facilities right now going on that's either moving to a larger facility or expanding an existing facility.

So that's just something we inherently do. Obviously, when you expand a facility, you don't expand it to take care of your volume for the next 1 or 2 years. You expand it to take care of your volume for a longer-term..

I think it will be fair to say that we're in better shape, as far as the capacity of our real estate is concerned, than we've been in years. We're in better shape for taking on additional business than we have been on the past because of the money that we spent on these real estate....

We've invested almost $1 billion in real estate over the last 8, 9, 10 years. So we continuously do that and will..

It appears there are no further questions at this time. Mr. Earl Congdon, I'd like to turn the conference back to you, for additional or closing remarks..

Well, guys as always, we thank you for your participation today. We appreciate your questions, and most of all, your support for Old Dominion. So give us a call, if you have any further questions. Thank you and good day..

This concludes today's conference. Thank you for your participation..