Earl Congdon - Executive Chairman David Congdon - Vice Chairman and Chief Executive Officer Adam Satterfield - Chief Financial Officer.

Chris Wetherbee - Citi Matt Brooklier - Longbow Research Ari Rosa - Band of America Todd Fowler - KeyBanc Capital Markets Ravi Shanker - Morgan Stanley David Ross - Stifel Rob Salmon - Deutsche Bank Scott Group - Wolfe Research Brad Delco - Stephens David Campbell - Thompson Davis & Company Taylor Brown - Raymond James Ben Hartford - Baird Jason Seidl - Cowen & Company.

Good morning and welcome to the Second Quarter 2016 Conference Call for Old Dominion Freight Line. Today’s call is being recorded and will be available for replay beginning today and through August 5 by dialing 719-457-0820. The replay passcode is 4636822. The replay may also be accessed through August 28 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 other 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 are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion’s filings with the Securities and Exchange Commission, and in this morning’s news release. 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. As a final note before we begin, we welcome your questions today, but ask, in fairness to all, that you limit yourself to just a couple of questions at a time before returning to the queue.

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. Thank you for joining us today for our second quarter conference call. Joining me this morning are David Congdon, Old Dominion’s Vice Chairman and CEO; and Adam Satterfield, our CFO. After some brief remarks, we’ll be glad to take your questions.

During the second quarter, we remained focused on executing our strategic plan and customers continued to respond to our value proposition of providing on-time claims-free service at a fair price. Based on our on-time delivery of 99%, and our cargo claims ratio of 0.28% for the quarter, we continue to believe our service is the best in the industry.

The economic environment remains soft however and our year-over-year results reflect the softness. We expect that our second quarter financial results will continue to outpace our industry peer group and believe our LTL tonnage represents a gain in market share, despite being down slightly from the second quarter last year.

We note that the second quarter started out slower than expected in April but we began to see more of a normal sequential trend with our May and June results.

In addition, the comparable quarter decline in the fuel surcharge moderated for the second quarter, a trend that we expect will continue in the second half of 2016 based on current diesel fuel prices.

We also expect that the decline in non-LTL revenues will lessen in the second half of 2016 based on our timing for eliminating certain services in 2015. Before I turn things over to David, I would like to take a moment to pay our respects to Mr. Harwood Cochrane, the Founder of Old Dominion Transportation Company, who passed away earlier this week.

Harwood Cochrane was I think the very best LTL trucker of his generation. And he certainly made significant contributions to our industry, And the Congdon family and the Cochrane family have been very good friends for many-many years. I’d like to offer our deepest sympathy to the Cochrane family during this difficult time.

Now, here is David Congdon to give you more details on the quarter..

Thanks Earl, and good morning. From a financial perspective the second quarter was similar to the first quarter in many respects.

Adam will review the specific numbers, but the basic story is that the combination of our tonnage, yield and productivity for the second quarter was not sufficient to drive operating leverage versus the second quarter of last year.

Instead, the small decline in revenue had a de-leveraging effect on our income statement and increased operating costs resulted in an 80-basis point increase in our operating ratio for the quarter.

We have consistently said that the key factors to long-term margin improvements are increased density, productivity and yield but a positive macro environment is necessary to support our revenue and yield growth. While our density has not increased like we would have liked this year, I am pleased with the improvement in our direct cost.

We improved our platform productivity with a 3.7% increase in platform shipments per hour. And our P&D productivity metrics were flat. Our line haul latent load average decreased 2% as we continued to run schedules to meet service. And this is not an area of opportunity for us.

Our yield remains steady during the second quarter with revenue per 100 weight excluding fuel surcharges up 2.7%. As Earl said, however, the economic environment remains challenging although recently reported data from ISM and industrial production has been positive.

Despite the economy, we will continue to focus on the disciplined execution of our strategic plan. Our value proposition is built on providing superior service at a fair price and we do not intend to waver from this core strategy. In addition, we will continue to focus on further controlling our costs.

With that said however, we will continue to make strategic investments that position us for long-term success. We invested nearly $300 million in capital expenditures during the first half of 2016 which we expect will again differentiate us in an industry that is spending far less on a relative basis.

Our balance sheet remains strong with a debt to total capitalization of only 11%. To summarize, let me repeat what I’ve said many times before. Our plan regardless of whether we face ongoing macro weakness or a strong environment, it’s absolutely clear and has not changed.

We will continue to provide our customers with superior, on-time, claim-free service and fair price. We will maintain our disciplined pricing philosophy and we will continue to make significant investments in capacity, technology and training and education for our OD family of employees.

These factors all contribute to a value proposition that allows us to keep the promises we make to our customers and that they make to their customers every day.

We’re confident that the execution of this strategy will enable Old Dominion to continue to win market share, driving our long-term prospects for further profitable growth and increase shareholder value. Thanks for joining us today. And now Adam will review our financial results for the second quarter in greater detail.

Adam?.

Thank you, David and good morning. Old Dominion’s revenue was $755.4 million for the second quarter of 2016, a 0.9% decrease from last year. Our operating ratio was 82.3% which was an 80-basis point increase over the same quarter of 2015.

Earnings per diluted share were $0.98 which was a 2% decrease from the $1 earned in the second quarter of last year. Revenue for the second continued to be impacted by a decline in fuel surcharges as well as a $9.7 million decrease in non-LTL revenue.

Our LTL revenue benefited from an increase in yield that was partially offset by a decrease in LTL tons.

I don’t see our revenue per 100 weight increase 0.8% for the quarter and increase 2.7% when excluding fuel surcharges While we noted an increase in price competition during our first quarter call, we did not see as many of those issues in the second quarter. And we continue to characterize the pricing environment as relatively stable.

We expect that our contractual renewals will continue to increase at rates between 3% to 4%, although reported fields may differ from this range. As David mentioned, we do not intend to make any changes to our pricing philosophy.

LTL tons decreased 0.3% as compared to the second quarter of 2015 which included a 1% decrease in weight per shipment, partially offset by 0.6% increase in LTL shipment. For July, on a year-over-basis, our month-to-date tell-tail tons per day decreased 1.5% as compared to July of 2015.

On a sequential basis, LTL tons per day for the second quarter increased 5.3% as compared to the first quarter of 2016.

While this was lower than our 10-year average sequential trend which is an 8.5% increase, we’re encouraged by the sequential increases in tons per-day for May and June that were pretty much in-line with averages for years one Good Friday was in the first quarter.

In addition, the sequential trend for July is in line with our 10-year average which is 2.4% decrease and LTL tons per day as compared to June. Our operating ratio for the second quarter of 2016 increased 80 basis points as compared to the last quarter of last year.

The decline in revenue generally had a de-leveraging impact on all, of our expense item. However the 90-basis point increase in depreciation and amortizing costs was also a result of the long-term investment we have made in real-estate, equipment and information technology. Our overhead costs were generally higher as a percent of revenue.

Our direct operating cost such as salaries, wages, benefit, operating supplies and expenses and purchase transportation improved slightly as a percentage of revenue on an aggregate basis.

Year-over-year increase in salaries, wages and benefits for the second quarter was primarily due to a 2.2% increase in the average number of full-time employees and general wage inflation. Our fringe benefit costs were 31.9% of salaries and wages as compared to 35.1% in the second quarter of 2015.

Fringe benefit cost in the second quarter benefited from a reduction and expense for retirement plans and were lower as a percent of salaries and wages than the fourth quarter of 2015 and the first quarter of 2016. I don’t expect for this trend to continue however and believe that benefit cost will trend higher again in the second half of the year.

Old Dominion’s cash flow from operations totaled $123.8 million for the second quarter and $292.2 million for the first half of 2016. Capital expenditures were $175.2 million for the quarter and $295.5 million for the first six months of 2016 which is approximately 75% of $405 million estimate for the year.

We repurchased $40 million of common stock during the second quarter and $84.7 million in the first half of 2016 which left us with $245.6 million available for purchase under our new $250 million repurchase program.

We completed the previously authorized $200 million repurchase program in June which was approximately five months prior to its scheduled expiration. Effective tax rate for the second quarter and first half of 2016 was 38.4% compared to 38.6% for the second quarter and first half of 2015. This concludes our prepared remarks this morning.

Operator, we’ll be happy to open the floor for questions at this time. We are in different locations today, so please forgive us if we talk over each other a bit..

[Operator Instructions]. And we’ll go first to Chris Wetherbee of Citi..

Hi, thanks. Good morning, guys. Thanks for the July month-to-date tonnage number.

I was wondering if you could give us the June number, and then maybe a comment on sort of how the revenue per 100-weight actually you might be looking July month to date?.

The tons per day for June on a year-over-year basis were down 0.3% and our shipments in June were basically flat, again, on a year-over-year basis. And then the revenue per 100-weight excluding the fuel, it did trend below 3%.

When you look sequentially though, the absolute number for the revenue per 100-weight ex-fuel is 16.6 in the second quarter, and our weight for shipment was 15.59. If you look at the first quarter, our rate per shipment was 15.45 and revenue per 100 weight x-field was 1654.

So, sequentially our weight per shipment has increased, yet our revenue per 100-weight has actually increases slightly as well.

Some of what’s going on with the comparison is last year, the weight per shipment was decreasing, now on a sequential basis, now we’ve got it increasing so there is some different actors going different ways, that’s’ going to impact that overall comparison. And that continued into the back half of last year and.

And we’re seeing weight per shipment continuing to hold pretty steady in terms of moving enough right now. But we still feel good about the pricing environment we’re still getting contractual renewals at the same rate that we were earlier in the year and feel pretty good about the environment..

In terms of - sticking on pricing for a second - in terms of that pricing dynamic that you mentioned that you saw a little less of the pricing competition, I’m guessing that probably is holding over here until at least the beginnings of the third quarter, but can you sort of speak to maybe what has changed, sort of individual carrier decisions that they’re making a little bit more rationality or is their weight per shipment getting a little stronger? I mean, what’s your sort of read on how things are trending from that perspective?.

We said in the first quarter call that really it was selective some of the actions that we had seen that nothing was broad based. And I think carriers go through their own assessments for business they need, and different lanes and so forth.

And we felt like some of the pricing actions on a few customers and a few places, didn’t necessarily make sense to us. But overall we had characterized the environment as stable then. And we continue to characterize, it’s stable today.

So, I think there is always spotting issues regardless of the environment and nothing that’s just what we were seeing in the first quarter..

Okay, okay, that’s helpful. And one quick follow-up question. I think you mentioned in the prepared remarks that headcount was up 2.2% in the second quarter.

How should we think about sort of the year-over-year progressions in 3Q? If tonnage is down, does that number flatten out, turn lower? How can you manage that sort of on a quarter-to-quarter basis?.

Go ahead David..

I’ll say absolute headcount should remain relatively flat. And yes, aside from attrition that we may have - but we’re looking, if we have some attrition in our headcount just for normal reasons, we’ll look real strong whether we need to replace positions or not. But I would think absolutely headcount will remain relatively flat now.

We’re properly staffed to do the amount of work that we’re doing now. I guess a lot of it will depend upon how the economy shakes out, coming out of July and into the third quarter peak season..

Okay, that’s helpful. Thank you for the time. I appreciate it..

And we’ll go next to Matt Brooklier of Longbow Research..

Yes, thanks, good morning. I just had a follow-up to the headcount question. Is there a number in terms of tonnage in your mind that would require you to add additional heads? Let’s say that tonnage starts to pick-up, we start to see re-acceleration in the second half of this year.

Is there a certain level of tonnage growth that you would need to reach before you start adding heads again to the model?.

It’s hard to say that Matt. It’s really, all depends on those decisions are made on the service center by service center basis. Historically coming into the third quarter, yes, July has been a pretty decent month for us last several years. But August it builds and September builds to a larger amount.

We’re using hiring some people for peak season in September about now but we don’t necessarily gauge at it. Also we’re up 5% so we’re going to add x number of people.

It’s just stuff that we have to gauge based on the workload, hitting our service centers and how many hours per week people are working to determine if we need this more people on payroll..

Okay, but just to reiterate, with kind of the current trajectory of tonnage right now, you feel comfortable with holding headcount I guess flat going into the second half of this year?.

I wouldn’t say for the whole second half. Maybe I misspoke a few minutes ago to say head count was big, fly that out. I believe from an overhead standpoint and management salaries and fixed salary standpoint, our headcount should be relatively flat.

From dock workers and drivers’ standpoint, I would anticipate that we will grow headcount a little bit going into the fall. But we’re going to watch it because this economy just remains soft and we don’t want to go overboard with too much headcount.

But we got to stay ahead of it too because it takes a good couple of months to train somebody to our methods of moving freight in our network. So, we got, it’s just a very careful balance..

Okay, that helps. And then just in terms of the month-to-date tonnage, it’s down a little bit more than it was in June. I’m trying to get a sense for - it wasn’t a huge change. And obviously things can shift from month to month.

Was there anything going on with the calendar that potentially impacted your tonnage, and drove tonnage down maybe a little bit more than where it was in June?.

The comparison for July is probably little tougher last year. On a sequential basis, we were down 1.2%. And I mentioned the 10-year average is down 2.4%, July compared to June. So, I think that we still feel good about our sequential trends being in-line. This is basically three months in a row we talked about April in last quarter’s call.

But May and June and the way July is trending, we’re encouraged by that as well as some of the positive economic data that’s come out recently, it’s not necessarily strong. But at least it has been positive. And we feel good about the fact that we’ve got three months now that’s back on trend and we’d like to see that continue..

Okay, appreciate the time..

And now we’ll take a question from Ari Rosa from Bank of America..

Hi, good morning, guys. So, first, I wanted to start follow-up on pricing. Last year and for the past several years there’s been a pretty big step-up in sequential pricing between first half and second half.

Just wanted to get your sense of, if that’s likely to repeat?.

Some of that though, again, if you look into last year, we had an unusual phenomenon going on with weight per shipment as that was trending down. I’d say trends were 14 or weight per shipment picked up last year, it ticked down. I’m looking at it more on a sequential basis.

So, right now at this end, good stability and our revenue per 100-weight, a revenue per shipment continues to sort of trend in-line with where we would expect. And you’re not seeing any sequential deterioration in that. And so, talking to our pricing department, they’re continuing to see the same types of contractual renewals that we have been seeing.

And we feel like again, as we characterize it, the overall pricing environment continues to be stable..

So, Adam, when you say you’re seeing it consistent on a sequential basis, does that mean kind of on an absolute basis seeing it flat? Or is that even if you can talk about July, maybe, what the trend is looking like?.

I mean, it’s very similar. But yes, revenue for 100-weight ex-fuel ticked up a little bit as compared to the absolute number that was in the first quarter, just active weight per shipment moved up which would in theory put negative pressure on that revenue per 100-weight number..

Okay, got it. That makes sense. And then the release mentioned some changes in freight mix weighing on yields.

Could you go into that a little bit more, and what it is that changes and kind of what you’re shipping?.

Mix changes every day, depending on what we’re picking up and what customers are coming in or what customers are going out. And so, we’ve talked about, we’ve had in the first quarter call little bit of customer churn. But we’re replacing the customers that we lost some of them maybe coming back to us and we’re bringing in new business.

And that’s supporting the sequential trends that we started since May. So, I mean, all of that goes into play. And we often talk about the fact that revenue per 100-weight is a yield metric and not core pricing.

And so there were times when revenue per 100-weight will be lower like it was in second quarter than what we’re seeing in our contractual renewals are holding. And there were times when it’s been higher. So you can’t always reconcile those two numbers.

But we still feel good about the pricing environment and our own ability to get necessary price increases to support our continued investments here at the company..

I guess, Adam, I meant more is the freight mix a reflection of anything that’s going on with the economy and kind of the underlying LTL industry?.

No. The revenue per 100-weight is what it is and our mix is what it is. And it’s just, main thing is we manage to the operating ratio of each and every account. And yes, we’ve got targeted warrants and we’re signing that, we can manage to that and environment is stable.

This revenue per 100-weight what is done sequentially, or what it does year-over-year is clearly an end-result of yield management process. And again, different customers give us different lanes and different consistencies of freight, different pounds per cubic foot. And that’s the moving target all the time.

So, you just can’t focus on that and tell good or bad pricing environment based on year-over-year or sequential trends and the revenue dried away..

Okay, great. Thank you..

And now we’ll go next to Todd Fowler of KeyBanc Capital Markets..

Great, good morning. David, the past several quarters we’ve been talking about the impact of the smaller shipments on your productivity and some of the costs associated with that. And it looks like the weight per shipment stabilized here sequentially.

Do you think that the network has adjusted to the smaller shipments, and that the costs are more in line with where the shipment sizes are, or is there still some opportunity to get some efficiencies with where the shipments, with where the shipment size is trending?.

We….

I didn’t mean to make you sigh that deeply..

Yes. We focus on the productivity day-in and day-out and actually hourly. And we’re always working on improving efficiency. I think the points I tried to make that the, on the last call is that if you’re dealing with a shipment of ways, 1,500 pounds and moving it across the dock.

And now your weight per shipment is I would say 1,300 pounds and it’s still three skids a freight but they’re just little bit shorter or little bit less weighed on the pallets. It takes the same amount of time to move it across the dock. And so the lower weight per shipment was impacting some of those freights handling metrics negatively.

And now the things have leveled out. It’s maybe less of an impact..

Okay.

And so, when you think about if weight per shipment stays here sequentially going forward, is there still some opportunity on the productivity side, or do you think that you kind of have adjusted, and are handling the freight the way you need to, based on where the weight per shipment is?.

Yes, you can look at any, with 226 service centers there is always some service centers where productivity is not where it ought to be. And we’re working to refine that and working towards improving productivity.

Then, other centers might be kind of peaked out in their productivity because you just can’t move a forklift in the pasture across the dock or load trailers any shack.

But again it’s something we’re continually looking at that our productivity and weakness in productivity and any particular turmoil or any particular shift within service center or any particular individuals that are working on a ship, we’re continuing addressing our productivity and striving for improvement..

Okay, that helps. Maybe for a follow-up, Adam, I know that depreciation’s been a bit of a headwind here in the first part of the year, because of some of the investments that you’ve been making.

How does that play out? I mean, are you caught up now on the fleet side, or is depreciation still going to be a bit of a headwind until revenue growth kicks back in at some point in the future? I guess, how do we think about the investments you’re making in the first part of the year relative to the changes in revenue?.

Yes, we definitely need the revenue to catch back up. And we will, for one thing we’ve about purchased all of our revenue equipment the first half of the year which was on a little bit of an accelerated basis from prior periods. That’s usually what contributes most as depreciation for the year.

And there will still be some continued up-tick as it wasn’t fully complete. But then you’ve got the ongoing investments in IT and the real-estate which doesn’t have as much of an impact on the short term on your depreciation line. But we probably bought more equipment this year than perhaps what we needed based on where our growth is.

And so we continue to look at that. And as we start making preparations for next year, we’ll weigh what the size of the fleet is, what our replacement needs are and what our growth may be. But we certainly would like for the top-line to catch up with where we are..

Okay, but it sounds like if nothing else, you’ll pulled some of that forward, and you can grow into it at some point in the future?.

That’s right..

Okay, thanks a lot for the time this morning. And congratulations on a nice quarter..

Thanks Todd..

And now we’ll go to Ravi Shanker of Morgan Stanley..

Thanks. Good morning, everyone. A couple of follow-ups here, and a bigger-picture question.

The follow-ups would be, I’m sorry if I missed this but did you give us the revenue per 100-weight ex-fuel in July and how that’s trending year-on-year?.

I didn’t give that number yet, right now we’re trending, it’s trending up about 2%. That’s the comments that we had made before that but on an absolute basis it’s riding on with where we have been. But we’ll continue to see that number potentially differ from that 3% to 4% target range that we have on true underlying pricing as compared to yield..

And that’s because the funky math that you said - is because the direction of movement?.

Yes, well, there is always a difference between price versus yield. But yes, the weight per shipment trend definitely impacts that..

Okay, and the weight per shipment trend, is that up sequentially or year-on-year so far in 3Q?.

Right now our weight per shipment continues to trend, yes, we’ve been saying since the back half of last year around 1,550 pounds. And that’s basically where it continues. It was 1,559 in the second quarter.

And that was up a little bit from the first quarter of 1,545 but it’s somewhere around 1,550 plus or minus 10 pounds is what we’ve been trending this year. But last year, particularly in the first half of the year, it was declining sequentially..

Got it. And the bigger-picture question on just e-commerce. I just wanted to clarify a few things.

Can you just remind me what percentage of your revenues roughly do you guys believe comes from e-commerce? Maybe what percentage of that is from Amazon versus the other retailers? Also, what are you seeing in terms of e-commerce trends right now? There’s a lot of talk about the omni-channel shift in the next year or two, especially, do you guys see that as a real long-term opportunity for you guys?.

Right now, about, we’ve got I would say a little e-commerce, true e-commerce freight and we don’t have any last mile. I mean, we do some residential deliveries but about 15% of our revenue overall is retail. And we would focus more on freight is going into distribution centers then we would going into some residential area.

But I think the long-term trends and we’ve talked about this before is that, as the e-commerce, as that environment changes, I think it can ultimately drive more freight into the LTL industry. And I think that having the amount of capacity that we do and the continued investments and capacity that we would be benefactors of that..

Got it. I think it’s understandable that you guys don’t have much B2C last-mile e-commerce, but do you have a sense of the, when you consider the B2B kind of intra-DC moves.

Again what percentage of that, the stuff you’re moving comes from e-commerce?.

We don’t have a breakdown on that, Ravi..

Okay, thanks for the help..

And now we’ll take a question from David Ross with Stifel..

Yes, good morning, gentlemen..

Hi Dave..

Good morning, David..

Adam, if you could give us an update on the IT roll-out, the new platform I think you were migrating towards, maybe about halfway through now.

Is that on plan, any issues?.

Yes, we continued the work on that as a big project. I wouldn’t say that we’re half way through. But that’s not going to be a big bang theory kind of deal order we flip the switch and things alive. It’s coming on in multiple pieces. And I think we’re making progress at a pace that we have established.

And there are certain applications that are being switched and turned on live from an old green screen there as application to the new world of Java and user interface screens that we’ve got. So, things seem to be progressing but that’s a long-term deal as we convert all of our systems, most of which are home-grown into this new programming format.

But we’re taking the time to do it in a way to enhance the processing capabilities and overall efficiency that we hope will drive long-term productivity for us and give us a further differentiated advantage in the marketplace..

But no negative surprises so far and everything, seems to be tracking on plan?.

Yes, I’d say it’s tracking on plan. It’s just, it’s a big project. Some things are going to go better than expect, some things not as good as expected. And we just continue to work through it every day. And it’s a big coordinated effort from a lot of people involved. And we’ll continue to work at it.

That’s just one of these things though that it comes at a short-term cost. And when you’re going into it, if revenue softens, that we got to stay committed to it. Because again we think it gives us long-term strategic advantage. And we’re continuing to do that.

So, it’s higher overhead in the short-run but long-term we think it’s going to be beneficial for us..

I got the June tonnage; it was down 0.3% in July down 1.5%.

Did you provide April and May year-over-year tonnage comps?.

Yes, April was plus 0.1%, May was down 1.0%..

Okay. Thank you very much..

And now we’ll go to Rob Salmon of Deutsche Bank..

Hi, good morning, guys. Adam, in your prepared remarks I thought you had called out a fringe benefit in the second quarter.

Can you remind us what the magnitude is at, and kind of what you guys are expecting with regard to fringe benefit inflation in the back half of the year?.

Yes. I mean, the benefit costs are what they are and there is a lot of different things that they go into. The past couple of quarters I’ve talked about it initially in the fourth quarter of last year that our cost had ticked up as a percent of salaries and wages. So to add a line with what the previous quarters had been.

So it had ticked up sort of 33% to 34%, as a percent of salaries and wages in the fourth quarter of ‘15 and first quarter of ‘16. It was 31.9% and an element of that is retirement plan benefit cost that is linked share price. And that share price decline we got a little bit of more benefit but there is a lot of moving parts and pieces.

I would just expect that we continue to see higher group health benefit cost. And our pay time-off benefits are continuing to be higher as well. So we’re not necessarily giving a hard fast number but I would just expect it to be higher than that 31.9% that we saw this most recent quarter..

Okay, that’s helpful just from a contextual standpoint. What do you guys think is the right optimal capital structure for Old Dominion from a debt-to-cap or a debt-to-EBITDA perspective? If I think about the first half of this year, despite really front-loading the CapEx for the full year, you’re still at just 11%.

Basically, what I’m trying to get at is how should I think about the use of that free cash flow in the back half of the year, given the lower CapEx needs?.

We continue to look at that. And obviously we won’t optimize our balance sheet. We finished our $200 million repurchase program early and marched into an up-sized $250 million deal. I think the last few quarters, the last 12 months I guess we have purchased close to $150 million.

Our capital allocation strategy is one to invest and LTL, we think that’s where the best returns have been. We’ve said that we’ll continue to look. Secondly, M&A opportunities, and we haven’t had one since 2008 because they’re just the ones that we look at haven’t made sense for us. And then we’ll look at returning capital to shareholders.

So, I think that in absence of the right M&A opportunity, we’ve increased that pace of repurchasing. But we continue to look at ways that we can make strategic investments in the company as well and we want to maintain some dry powder. But our debt-to-cap did move up to 11% at the end of the quarter from where it had been in lower single-digit..

Right, makes a lot of sense. Nice execution in the tough quarter, guys..

Thank you..

Thank you..

And now we’ll take a question from Scott Group of Wolfe Research..

Hi, thanks. Good morning, guys..

Good morning Scott..

So, Adam, if we assume that normal sequential volume trend continues in August and September, do you have a sense, what does that imply for third-quarter tonnage? I think it’s a little bit better than the down 1.5% in July, but just want to make sure we’re thinking about that right..

On a 10-year average basis, third quarter’s weight per day is generally up 2%. So, if things continue to move in August and September according to normal sequential trend, that’s the number that you would get..

You’re talking sequentially up 2%, so down slightly, but not down as much as 1.5% year-over-year?.

Yes, the year-over-year is again, last year, we’re looking at it, I think that we were a little bit stronger sequentially than just slightly than sort of the long-term average. But we’ll just have to wait and see, I guess we’re not ready to give a range on what we think that our total tons for the quarter would be. But again, we’re looking at it.

I guess now we’re trying to look more as getting back on to a consistent sequential type of change with our volumes knowing that we’ve mentioned it before, we’ve started out some business. And we’ll continue to look at that that main impact as we were growing in the last year some of the year-over-year trends..

Okay, that makes sense.

Can you remind us when and how big the annual wage increase was this year, and how that compares versus a year ago?.

Well, we haven’t talked about. Typically it happens the 1 September. And last year we gave about 3.5% wage increase. And we haven’t announced that to our anything to our employees at this point. But based on current trends we would expect that there would be a wage increase this year. We’re just not ready to talk about the amount..

Okay, fair enough. And then, just kind of last question. So, you talked a little bit on the prepared comments about the de-leveraging impact of down revenue and slower tonnage.

What is the level of either tonnage or revenue growth, where you can start to see margin improvement again on a year-over-year basis? And given the easier fuel comp, do you think we can get back to margin improvement in the third quarter, or is that tougher, just given the tonnage environment?.

We’re not really ready to give any guidance on where our OR is going to be for the third quarter at this point. But we’ll still continue to have some headwinds on the top-line basis as we go into the back half of the year. We knew the first half of the year was going to be more challenging than the back.

The third quarter will continue to, the fuel should moderate if prices stay where they are on that comparison. But a non-LTL or really it was - it was more so the fourth quarter. Those services were fully out of our number. So we still had close to or just call it $19 million of non-LTL revenue in the third quarter of last year.

And while we gave that number in the first quarter, it was about $13 million and that about was what it was in the second quarter as well. So, if that continues to trend we still have that headwind there..

But there’s not a good rule of thumb in terms of how much tonnage or total revenue growth you need for to see margin improvement?.

It’s going to vary every year based on the investments that we’re making, what the contribution to expense or depreciation is going to be, what our CapEx size is and so forth. But obviously we need more growth to start with at this point..

Okay, thank you guys..

And now we’ll go to Brad Delco of Stephens..

Good morning, David. Good morning, Adam.

How are you guys doing?.

Hi Brad..

Good..

David, I don’t know if maybe this is best for you, but in the earlier comments I think it was mentioned that you believe your tonnage in the quarter suggest you’re still taking market share.

And so, I guess the bigger-picture question is, why do you think there’s such disconnect between maybe the ISM data and/or industrial production relative to what we’re seeing amongst LTL carriers?.

That’s a good question. Obviously we don’t have an answer why there is disconnect with the ISM data. ISM has improved a little bit but we just haven’t seen it come through yet in terms of LTL tonnage. But why, is, I’m not in Congress I have no earthly idea..

Now, and would you subscribe to the idea that we generally see LTL tonnage lag by about three months? I guess July would have sort of been the fifth month of when we saw the inflection to positive territory with ISM?.

Subscribed areas, they lag with the ISM data and perhaps three months sounds good to me. We had seen some improvement in our sequential trends in the last couple of months.

And the logistics of that because I don’t see it, the old better, the daily tonnage, the daily shipments that we’re seeing feel better every day when we kind of look at how much business we get each day. And so, but Adam, touch on the overall sequential trends we’re doing recently..

I mean, as we went through the second quarter, our weight per day was up 0.6% in April versus March. The 10-year average was up 0.3% but remember this is, and into the last quarter where I have talked about it, but with the Good Friday in the first quarter, these are thrown off. And we would have expected that number to beef up more.

Weight per day in May was up 2.1% versus the 4.7% average and it was up 2.4% in June versus the 2.3% average. And shipments were more in line and we talked about that when we put our mid-quarter update, shipments per day in May was up 2%. And when you just look at years when Good Friday was in the first quarter, the average is 1.4% for us.

So we felt good about the way May’s revenue built. From start to finish we saw a similar trend in June. And July pretty much has been very similar as well.

And so, things are still a little bit better and perhaps what we are seeing though is once ISM turned back and stayed above 50, pretty much consistently in March forward that maybe supportive of these trends..

Okay, got you. Thanks for the color, guys..

And now we’ll go to David Campbell of Thompson Davis & Company..

Yes, thanks for taking my question. This issue of non-LTL revenue, which you too were down, I guess you were down about $6 million year-over-year in the second quarter. And it’s from business services that you terminated near the end of last year.

What were those services, and why did you terminate them?.

It was two things David. One was where we pulled back our ocean container dredge operations off the West Coast. We discontinued those as well as Chicago. The second; non-LTL change has been with our global freight forwarding where we were booking the entire revenue of the additional containers and the purchase transportation against that.

And we have partnered with Mallory Alexander to manage our ocean forwarding now. And so we don’t have that top-line revenue. We’re getting a, we work basically off of a commission type basis on the net revenue. So those are the two primary areas.

Adam, did I miss anything?.

That’s it. I’ll add that the decrease in second quarter was $9.7 million, not the $6 million that was mentioned..

$9.7 million?.

Yes..

And those are likely to continue in the third quarter, and then be less in the fourth?.

Right..

Okay. So, some of it is in, sort of an accounting thing, where you’re just picking up commissions instead of grossing the revenues.

It’s not really a reduced - it doesn’t sound like you’ve really reduced services, you’re just partnering with somebody else?.

That’s correct..

Okay, thank you for the help. Have a good third quarter. Thanks for the good second quarter..

Thank you..

Thanks..

And now we’ll go to Taylor Brown with Raymond James..

Hi, good morning, guys. Hi Adam, just quick housekeeping item.

Can you guys give the service center count at quarter-end, and actually in Q1, if you have it?.

That was 225 at the end of the first quarter and I think it’s 226..

Okay, all right. Okay, perfect. And then, David, can we talk a little bit about the real estate CapEx. So, you guys mentioned in the release that you’re looking to spend $170 million earmarked for facilities. I think that’s the highest budget we’ve seen.

I’m just curious if you could talk about how tight land and facility availability is, with industrial occupancy nearing all-time highs.

Are you guys seeing the cost per door, whether you acquire it or build it, rise significantly?.

Well, acquiring land and building a freight service center has been a problem, a difficult endeavor for the last 30 years that I could remember. So, and I believe it always will be unfortunately enjoys to close on their back, the foods that they eat, they just don’t want to see the truck bring the products in.

But so, our cost per door on construction has definitely risen, of various environmental concerns, neighborhood concerns, landscaping, storm-water run-off, all those kinds of things have caused a cost for a door to rise.

As far as the acquisition of used facilities, one of the issues we face today is, most of the facilities that are out there on the market are just not big enough for us. And if we’re lucky enough to find one that has some additional land then we can run them and add doors. We found that to be the case from time to time.

So, it’s - real estate is always a challenge. And historically we talk about real estate budget but historically we’re going usually spend what we say we’re going to spend. And year-to-year because of the time delays and acquiring land and getting through the permitting processes and so forth..

Okay, yes, now that’s great.

And then, can you give any sense how much door capacity you guys are looking to add this year?.

Do you have that Adam?.

No, and we don’t necessarily break that down Taylor. But I would say that the investments that we’re making are generally more and expanding in existing locations. The fact that we’ve only added one facility this year, it’s primarily been expanding the existing locations in their dollar amount. But we may add a couple of more facilities this year..

Okay, perfect. Thanks guys..

And next we’ll go to Ben Hartford of Baird..

Hi, good morning. Adam interested in any perspective you might have on bids in the back half of the year.

Are you hearing any talk from customers regarding potentially pulling forward bids that might hit in the fourth quarter or early next year into the third quarter?.

We haven’t heard anything like that. Bids for us, it’s not any kind of seasonal thing. They come in on a fairly regular basis throughout the year. And this is something that constant communication that you have with our customer base and between our pricing department and our sales department as well..

Sure, and then a follow-up on the last question.

The long-term service center count, are you still targeting 250 to 260?.

Yes, I mean, obviously that’s going to vary as we grow and get bigger and we may find that we need spin-off locations. But right now I think that we’ve got another 35 to 40 facilities when we think long-term we may grow to.

And there is probably going to be some ebb and flow there as we continue to make our way and achieve our long-term growth objectives. But right now I add to that, probably the capacity in the system that we have is somewhere in the ballpark of 25% plus or minus..

Okay, that’s helpful. Thank you..

And now we’ll go to Jason Seidl with Cowen & Company..

Thanks, good morning, guys. Just a quick one here.

In the past, when truckload capacity has tightened its impact at the LTLs, in terms of different freight shifting around the move, if truckload continues to tighten, should we see a similar impact that we’ve seen in the past with you guys? What do you think it might do for your pricing in that sort of in that 3% to 4% range? Could that boost it any?.

Jason, our pricing philosophy is that we target the increases that we need on a fairly consistent basis to just be in line with what our cost inflation is. And so I think that there have been periods where maybe the industry is going up more, it’s based on capacity or they may be cutting rates from an environment that’s - capacity has flipped.

And their needing to get that volume. And I think our customers like our consistent approach. And we’ve had good success with them..

Okay, now that’s fair enough. I guess, one follow-up. I mean, you guys touched on it briefly about looking at some ancillary opportunities to tack on with acquisitions.

What are the ones that you think would fit most? Is it still something in maybe the warehousing mode, or is there anything else that we should be thinking about that would make sense for OD?.

Yes, it varies. We obviously continue to look Jason and try to figure out what we think would maintain this long-term for us. And we’re doing a couple of different things here as it is. I mean, LTL is really the growth engine of the company. And first and foremost, we’ve only got 8% to 9% market share.

So we’re going to continue to focus on this long runway of growth that we have within LTL.

There are other services that are complimentary, those other non-LTL services that we have today are the dredge which we’ve changed our business model and we’re trying to focus and be able to capture coming growth and maybe changes in capacity within that marketplace.

We’ve got the truckload brokerage operation we can continue to enhance that offering. Really we’re going to focus on things that are complementary to our LTL business. And maybe a service that when we’re making sales calls on a decision maker at our existing customers, that we can leverage those relationships..

All right. Gentleman, I appreciate the time..

Yes, okay..

And we’ll go back to Ari Rosa of Bank of America..

Hi, guys. Just wanted to sneak one last one in. On some of the pricing initiatives that you took kind of at the end of last year, specifically thinking about the changes in the way or having a change in the fuel surcharge option. And then also looking at some of the surcharges going into and out of California.

Just wanted to get a bit of a comment on how those are being received by customers, if you’ve gotten push-back, if they’ve generally responded well? Just thoughts, generally?.

Yes, I mean, some of those things and changes that were made is just as it always, we’re looking at what our costs are doing. And the industry change, fuel surcharge, rate early in ‘15.

And we had just gone through a GRI and felt like that it wasn’t the right thing to do to sit across our customer and say that fuel is going down but we need a rate increase. And so, we’ve worked through that but the fuel surcharge has just become a variable component of pricing.

And like David mentioned, earlier in the call, is that we’ve got target ORs for our customers and we’re managing base rates. And any type of auctorial charge based on what the cost of handling that customer’s business is. And so, that’s been a consistent approach that we’ve had.

We try to put in spare price in programs that’s beneficial for both parties involved and continue to support the growth of our company..

Anything on adoption rates of the alternate pricing structure?.

Are you speaking of that new tariff that we put in?.

Yes, for the alternative fuel surcharge arrangement..

Yes, that’s been pretty small in terms of acceptance. But we went through that process of identifying it and working through it because there were some customers that wanted to switch and not have that fluctuation in variance with our fuel and have to update their systems every week as the DOE price is changing.

So it’s been responded to by some customers that really were asking for it. But we didn’t really anticipate that that would become widespread in the most adopted tariff option that we have. Because we’ve got multiple tariff options. But our 559, the most traditional one continues to be what most of that business moves on..

Okay. That’s terrific. Thanks for taking the follow-up..

And with that that does conclude today’s question-and-answer session. I’d like to turn the conference back to Earl Congdon for any additional or closing comments..

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

And again ladies and gentlemen that does conclude today’s call. We’d like to thank you again for your participation. You may now disconnect..