Unverified Participant Earl E. Congdon - Old Dominion Freight Line, Inc. David S. Congdon - Old Dominion Freight Line, Inc. Adam N. Satterfield - Old Dominion Freight Line, Inc..

Amit Mehrotra - Deutsche Bank Securities, Inc. Danny C. Schuster - Credit Suisse Securities (USA) LLC Todd C. Fowler - KeyBanc Capital Markets, Inc. David Ross - Stifel, Nicolaus & Co., Inc. Chris Wetherbee - Citigroup Global Markets, Inc. Ben J. Hartford - Robert W. Baird & Co., Inc. Ravi Shanker - Morgan Stanley & Co. LLC Scott H.

Group - Wolfe Research LLC Ariel Luis Rosa - Bank of America Merrill Lynch Matt S. Brooklier - Longbow Research LLC David Pearce Campbell - Thompson Davis & Co., Inc..

Please standby. We are ready to begin..

Good morning, and welcome to the Fourth 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 February 11 by dialing 719-457-0820. The replay passcode is 6904652. The replay may also be accessed through March 2 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 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 fourth quarter conference call. With 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.

For the fourth quarter, Old Dominion continued to produce sound financial results although our earnings per diluted share decreased by $0.02 as compared with the fourth quarter of 2015. These results reflect the impact of having one less business day than the same period of 2015.

In addition, we had another quarter with higher depreciation and amortization expense along with an increase in the fringe benefit costs that were largely tied to the 25% increase in our share price during the fourth quarter of 2016. On a positive note, our revenue trends improved as the fourth quarter progressed.

Net revenue per day increased by 3.2% which is the strongest growth we have seen in the last five quarters. We also returned to the year-over-year growth in LTL tons per day. After two quarters of decline, our LTL weight per shipment increased 2.5% and LTL revenue per hundredweight increased 2.6%.

With momentum continuing into January, we believe Old Dominion is well-positioned to benefit from a potentially stronger economic environment in 2017.

One reason is that consistent with our long-term strategy, we continued substantial investments in infrastructure and technology in 2016 while also investing in our employees by providing ongoing education and training as well as a 3% pay raise in September.

Our cash flow provided by operations allowed us to make these investments while we also returned $130 million of capital to our shareholders in the form of share repurchases.

To further improve shareholder return, the company announced today that our Board of Directors has declared a quarterly dividend of $0.10 per share to be paid in the first quarter.

Given the long-term strength of our financial position and our cash flow generation, we are confident in our ability to return additional capital to our shareholders even as we continue to fund significant investments in our business to leverage our near and long-term growth opportunities. Thank you for joining us this morning.

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

Thanks, Earl, and good morning, everyone. Stepping back from the specific quarterly numbers for a moment, I'll begin by saying that the overall fourth quarter operating environment was similar to what we experienced through 2016.

We had a slow start to the quarter, but our revenue and tonnage marginally improved on a year-over-year basis, as the quarter progressed. Our LTL tons per day essentially trended in line or slightly above normal sequential trends for November and December. This continued into January as LTL tons per day were also in line with normal seasonality.

These trends, combined with the increase in LTL weight per shipment and other improving macroeconomic indicators for the fourth quarter, provided us with a sense of cautious optimism for an improved economy in 2017, which also concurs with economic forecasts or improved GDP.

As I mentioned more than once in 2016, and regardless of the economic environment, we remain focused on the things that we can control by continuing to deliver superior service at a fair price while also remaining diligent with regards to cost.

Our on-time delivery and cargo claim ratio each improved for the fourth quarter and the full year compared with respective periods of 2015. Providing the superior service that our customers expect can create cost inefficiencies within operations and periods when our volumes are not as strong.

We operated very efficiently throughout 2016, however, as evidenced by an improvement in our variable operating costs as a percent of revenue for both the quarter and the year. I think this is a real testament to the value of our team to effectively manage productivity and costs in the face of lower volumes throughout the year.

As you've heard me say before, to improve our operating margin over the long term, we need improvements in density and yield, both of which require the support of a positive economic environment.

Our yield suffered a bit in 2016 with the decrease in fuel surcharges, but it remained positive in what was a generally stable albeit competitive pricing environment. The pricing environment continued to be stable in the fourth quarter, and our LTL revenue per hundredweight increased 2.6% or 1.6% when excluding fuel surcharges.

While this rate of growth was lower than the first three quarters of the year, the fourth quarter included a 2.5% increase in weight per shipment and a 50-basis-point decline in average length of haul.

These changes generally have a negative impact on the LTL revenue per hundredweight, but as I've just mentioned, we are encouraged by the increase in LTL weight per shipment which is typically an indicator of an improving economy. We obviously didn't have the benefit of a strong economy in 2016, and the reduction in volumes didn't help with density.

As a result, we were unable to leverage our fixed costs to improve our operating margin in the fourth quarter and the year. Our OR increased 30 basis points for the fourth quarter and 60 basis points for the year.

Even so, we are only 40 basis points above our record fourth quarter operating ratio and 60 basis points above our best annual operating ratio performance.

We remain confident that we can increase our margins in the future with improved density and yield, supported by a positive economic environment, and therefore, are encouraged by the potential for stronger growth in 2017. Thanks for joining us today. And now, Adam will review our financial results for the fourth quarter in greater detail..

Thank you, David, and good morning. Old Dominion's revenue was $745.7 million for the fourth quarter of 2016, which was a 1.5% increase from last year. Our revenue on a per day basis increased 3.2% as the fourth quarter of 2016 had one less operating day than last year.

The operating ratio was 84.8%, and earnings per diluted share were $0.83 which was a 2.4% decrease from the $0.85 of earnings per diluted share in the prior year. The increase in revenue for the fourth quarter reflects a slight increase in LTL tons per day as well as increase in yield.

LTL revenue per hundredweight increased 2.6% for the quarter and increased 1.6% when excluding fuel surcharges. I'll repeat what David just said and note that these metrics were impacted by changes in our mix and do not reflect any change in our pricing philosophy.

LTL tons per day increased 0.3% as compared to the fourth quarter of 2015, as our LTL weight per shipment increased 2.5% to offset the 2.2% decrease in LTL shipments per day. On a sequential basis, our LTL tons per day in the fourth quarter decreased 2.6% as compared with the third quarter of 2016.

This change was in line with our 10-year average sequential trend. For January, our revenue per day increased approximately 5% on a year-over-year basis, as we continued to see good yield performance and our LTL tons per day increased 2.2%.

Our operating ratio for the fourth quarter of 2016 increased 30 basis points as compared to the fourth quarter of 2015. This change reflects a 60-basis-point increase in depreciation costs as a percent of revenue as well as a 50-basis-point increase in salaries, wages and benefits.

The increase in salaries and benefits was primarily the result of a $7.7 million increase in our fringe benefit costs as compared to the fourth quarter of 2015, as retirement plan expenses were impacted by the increase in our share price.

It is important to note that a portion of the increase in both depreciation and employee-related costs resulted from our reduced reliance on purchased transportation during the year. As a result, purchased transportation costs as a percent of revenue improved 70 basis points.

Old Dominion's cash flow from operations totaled $155.5 million for the fourth quarter and $565.6 million for the year. Capital expenditures were $66.8 million for the quarter and $417.9 million for 2016.

The company currently expects capital expenditures for 2017 to total approximately $385 million, including planned expenditures of $185 million for real estate and service center expansion projects, $155 million for tractors and trailers, and $45 million for technology and other assets.

We repurchased $11.3 million of common stock during the fourth quarter and $130.3 million for 2016. These purchases left us with $200 million available for purchase under our current $250 million repurchase program.

We intend (12:45) for our share repurchase program to be our primary form of returning capital to shareholders, although repurchases in the fourth quarter were lower than previous quarters this year due to the increase in our share price.

We are excited about today's announcement of the quarterly dividend, which provides us with another means to consistently return capital to shareholders, while also leaving dry powder for other investment opportunities that can drive long-term growth.

Our effective tax rate was 38.5% as compared to 35.5% for the fourth quarter of 2015, which included certain discrete tax adjustments. We are hopeful for corporate tax reform in 2017; however, we currently expect our effective tax rate to be 38.6% in the first quarter of 2017. This concludes our prepared remarks this morning.

Operator, we'll be happy to open the floor for questions at this time..

Are we still on?.

Yes. And we'll go first to Amit Mehrotra from Deutsche Bank..

Hey, thanks for taking my question. Appreciate it.

Just going back to the – just question on basically – trying to ask about tonnage growth and – if you have a tightening environment, do you expect to see where market share essentially will go relative to your geographic expansion? I think last quarter you talked about potentially increasing up to 35 to 40 service centers.

Is that the case, given maybe a little bit better macro backdrop? And then, just following up on that, in a sort of struggling economic environment, where do you expect market share to trend or where did it go in the quarter given some of the expansion and better service levels of some of the competitors? Thanks..

Yeah. Good morning. This is Adam. We still have our list of 35 to 40 service centers that we want to add to the network over time. And certainly, we continue to look and evaluate if there are opportunities to purchase land – if those opportunities present themselves, we certainly would look at taking advantage of that.

From a market share standpoint, typically when periods are slower like the economic environment that we were in in 2016, and perhaps price becomes more of an issue for shippers versus looking along the spectrum towards the service side of things, then our market share gains were not as strong as they have been in better periods.

So, certainly, our trends turned positive, we felt good in the third quarter. We started out a little slow. October, from a sequential standpoint, was a little bit below what our normal sequential trend is. November came back, was better than our normal sequentials. December was right in line.

And January of 2017 is pretty much right in line with those normals as well. So, yeah, we'd look to get some sustained improvement in the economy, and we feel like when that happens, we certainly can get back to growing market share like we have over the longer term..

And then – thanks for that. And then, on the weight per shipment trends, there were some nice sequential uptick, at least. Can you just talk about the sequential change in January – and is there anything in particular that drove that or was that kind of broad based, and you'd expect that to continue into 2017? Thanks..

Yes, the weight per shipment sort of trended about the same all year long, around 1,550 pounds, kind of plus or minus 10 pounds. We saw definitely an increase moving into November. It increased above 1,600 pounds there in November and December. So, it was a nice increase on a year-over-year and a sequential basis.

It dropped a little bit in January to about 1,570 pounds, but that's pretty normal. You normally will see a little bit of, in history, your weight per shipment decline. So, we still feel good. It's been consistent.

We're seeing it across the board, and like we mentioned in our comments, we feel like that that's just one more data point that we look at that's indicating that maybe we're turning the corner with the economy and can see some sustained improvement there..

And just last one on the dividend, just wanted to get an understanding on sort of the thought process there.

I mean, have you been hearing from your investors that dividend would be appreciated, looking to maybe expand out the share capital base? And it's a pretty obviously nominal amount on a yield basis, would you sort of look to slowly improve that over the next quarters or so, and essentially make this more of a dividend growth story? Just trying to understand, one, the reason for the initiation of the dividend, and then how you see that evolving over time.

Thank you..

Yeah. I mean, we felt like that with the quality of our cash provided by operations that the strength of the balance sheet that we certainly had, the room to be able to initiate, and as we mentioned, we continue to want the share buyback program to have the priority in the terms of returning capital to shareholders.

So, we have heard – and over the course of years, when we first put our buyback program in place that that shareholders would have appreciated a dividend, it's something that we evaluated back in 2014, and we've continued to evaluate it. So, we felt like we're in a good position to do so. It is a nominal amount.

But as we've said that we still feel like we're a growth company and we've got plenty of dry powder to continue to invest in our business. That's where our best return on invested capital comes from. That's what we're going to continue to focus on. But this is just one of another complementary means of improving the overall shareholder return..

Great. Okay. Thanks for taking my questions. Appreciate it..

Thank you. And we'll go next to Allison Landry from Credit Suisse..

Hi. Good morning. This is Danny Schuster on for Allison. Thank you for taking our question. So, we were just wondering if you could clarify what the normal, I guess, historical sequential trends are for October, November and December. I know you mentioned that they were fairly in line with normal sequential trends in November and December 2016.

And we're also wondering if you could share the same details for January, February and March..

Yeah. So, the normal sequential trend or weight per day, October would be down 3.5% as compared to September, November would then be up 3.2%, December would be down 9.2%. And then, in the first quarter, January would be an increase of 1.9%, February would be an increase of 1.9%, and March would be an increase of 5%..

Okay, great. That's very helpful. Thank you. And shifting to the capital allocation, it looks like you're stepping up the capital you're putting towards real estate and technology this year, and holding back a little bit on tractor and trailer investments in 2017.

Just wondering if you could give us a little bit of a color into what projects you're working on on the real estate and tech areas this year?.

The real estate projects are – I think it was somewhere in the neighborhood of the 70 different projects that's involved expansion of service centers, we've got re-paving yards and re-roofing facilities. We've got land in there for our future building projects. It's just a wide variety of real estate projects.

I think – I don't think we've given account on how many new service centers we anticipate opening but there is a handful lot in there..

There's about four or five new facilities we think we'll open this year..

Yeah. And on the equipment side of the equation, we're – as we said, we are approaching this year cautiously optimistic. I will say that back in the fall when we first – in October, when we first did our equipment projections and our growth projections for next year, we were less optimistic about the economy.

But when the election results came out, we have become more optimistic about the economy for next year. And frankly, our equipment numbers are basically a – our replacement program, and we don't have much equipment in there – there is a little bit but not much equipment in there for growth.

Should we see the economy actually pick up, and as we watch our equipment and just volumes going into next year, there could be a possibility of increasing the equipment spend as we get into the year and see how things are actually trending..

Okay, great. Thank you for the color..

Thank you. And we'll go next to Todd Fowler from KeyBanc Capital Markets..

Great, thanks. Good morning.

Adam, I know you probably don't want to get into giving specific items on the OR for the first quarter, but given some of the moving parts in the fourth quarter with the variable compensation, can you just help us maybe think about the basis point impact from some of those things in the fourth quarter and then what we should think about for the progression into 1Q?.

I was going to give you the detail on the first quarter, but since you gave me the out, I won't -.

One of these days, I'm going to learn just to ask the question..

One of the biggest things that did really hurt us this whole year was the increase in our fringe benefit costs, and it fluctuated. And this past quarter, it was a little over 36% of our salaries and wages, where it had been 34% of that number for basically earlier in the year, and that started back in the fourth quarter of last year.

So, I mean, that's something that we've got some opportunity on, but we don't necessarily see that there is a short-term fix or a silver bullet for that. And so, we're kind of looking at that probably continuing more in the 34% of salaries and wages range.

Again, a lot of the increase that we saw just in this fourth quarter – and overall, it was a net $7.7 million increase, but a lot of that was coming from the impact of the increase in the share price on our retirement plans that are linked to that. So, obviously, we've got wage inflation in those numbers.

We've still got – if you remember last year, we were still in a little bit of year-over-year growth in January and February. It was really March where we started rolling off, we had our top 10 customer. We spend a lot of time talking about last year, but we had a few large customers that rolled off the books.

But we still were seeing tonnage and shipment growth in January and February. So, we've got that to deal with. But overall, I think for next year we're probably looking at cost inflation excluding the fuel of around 4%, just with some other things that we've got going on.

And then, obviously, from a fuel standpoint where we are today, we're just shy of $2.60 a gallon, and I think the average in the first quarter of last year was $2.80, so we've got – definitely have a fuel cost headwind that we'll be looking at..

So, you gave me the answer, but I've got to do some work to get to the specifics, I guess. No, I appreciate the color there.

And then, just my follow-up I wanted to ask, I got the comments on the January tonnage trends and the revenue per day, so – but just the thought on the revenue per hundredweight here in January, where are you seeing that trend at and how is that versus where you were in the fourth quarter?.

Yeah, I mean, we don't really talk about the revenue per hundredweight on a month-to-month basis because it can – there is more impact of mix when you look at it on the month, but we still feel good about the performance of our pricing. I think that our contract renewals, those that renewed in the fourth quarter, were consistent.

It was a pretty good size increase in weight per shipment, and we had the decreases only in the fall. So, on an absolute basis, our revenue per hundredweight, excluding fuel, was $16.78 in the fourth quarter, and that was down a little bit sequentially from the third.

But it was still above where we were in the second quarter, despite our weight per shipment being up between those two periods compared as well, so – I mean we still feel good about the environment overall.

All of the reasons are still – that we felt good about the pricing environment in the industry last year are all still in place, and you've got an economy that may be improving.

So, we still feel good about pricing overall for the industry, and we certainly will continue to look and execute on our pricing philosophy of trying to get an increase that will offset our own cost inflation.

But yeah, from a reported yield standpoint, with an increase in weight per shipment just like we saw in the fourth quarter, it's likely that that rate of growth on a year-over-year basis could be lower than 3% to 4% true price increases that we target..

Okay. Okay. Thanks for all the thoughts this morning and the time. Nice quarter..

Thank you..

Thank you..

Thank you..

Thank you. We'll go next to David Ross from Stifel..

Yes. Good morning, everyone..

Good morning..

Good morning, David..

Hello, David..

Anymore optimism on twin 33s with the new administration, David?.

I think there is a decent chance that that may go through. Fred Smith is the one that's really leading the charge on the twin 33s.

We've been studying our lanes and load averages and so forth, and we are honestly finding that our long-haul lanes where we could get the most bang for the buck are being loaded very, very full, and we don't have as much potential benefit from them as we once thought. So, we're leaving it up to Fred to lead the charge on that.

And should the law pass, we anticipate trying to figure out the best places and ways that we could use them in our fleet..

And then, on the CapEx side, you got about $155 million budgeted for the year with tractors and trailers, are you doing anything different on the replacement front in terms of either equipment vendors or types of equipment that you're buying?.

The vendors are basically the same. Our freight liners are predominant vendor. We are equipping all of the trucks this year with the crash mitigation systems that have the automatic braking, we believe that that's a very good feature to put on the trucks, a worthwhile safety feature.

That's probably the predominant difference in what we're doing this year..

Excellent. Well, thank you very much..

Thank you. We'll go next to Chris Wetherbee from Citi..

Hey, great. Thanks and good morning.

I don't know if I missed it, but did you guys give the December year-over-year tonnage?.

December's year-over-year tonnage was 2.6%..

Okay, got it. And then, when you think about the growth in January as well, it seems like a little bit of a pickup, at least on a two-year stack basis, I mean, you talked about the sequential trends and kind of how that's playing out.

Generally speaking, when you're talking to customers or at least just sort of seeing activity in the market, are there certain areas where we're seeing sort of pickup is a little bit more broad based? Just want to get a rough sense on maybe how you guys are looking at freight environment, it seems like it's a touch better than it was certainly at some point in the middle of last year..

Yes. I mean, it generally feels better. There is no one particular area that's growing. We've got some that are in pockets growing faster than others, but it's pretty balanced across the system which is good and what we would want and – but no, we're just getting it sort of across the board, I guess. But we are getting positive feedback from customers.

We're starting to see some pickup in some customer wins, and that's already reflected in some of the numbers. But even some of the customers that we lost some business with last year, some of that is coming back. It may not be all of it, and we may not want all of it back. But we are getting some pocket to that.

So, we feel like we've got some positive momentum going with us from a revenue standpoint..

Okay, got it. That's helpful. And when you think about the outlook for – you talked a little bit about pricing for 2017 or at least sort of the environment, and it sounds like you feel good about how things are playing out. I guess I just wanted to get a sense of sort of what you think it takes to maybe accelerate pricing.

So, I think some of us might argue that 2016 probably outperformed the tonnage environment, pricing outperformed tonnage environment, was a bit sluggish on the tonnage side, but we saw decent pricing.

Do you need a big step forward, you think, in tonnage to be able to see a reacceleration of pricing? I'm just trying to get a sense of maybe how you guys are approaching the market, what you need to see?.

Chris, this is David. The forecast we hear for GDP next year is like 2.5% compared to 1.6% this year, which is not a huge increase. I guess, it's close to 50% more growth than we had this year, so maybe that is a huge increase. But I think you'll see some acceleration in yield that would come with that.

But perhaps the biggest potential acceleration in tonnage and yield could be with this electronic logging device mandate that's scheduled for the end of 2017. The predictions that we hear is that some time in the latter half of the year, we're likely to see some capacity come out of the truckload arena.

And with the for-hire truckload market being roughly 10 times the size of the LTL market, if you had a 1% falloff in tonnage from the truckload arena, it could equate to 10% increase in the LTL arena with larger LTL shipments. And so, that could be a significant increase in our business in the latter half of the year or a surge.

If we have a surge, I would expect pricing will surge along with that increase in tonnage and reduction in trucking capacity..

That's really helpful. And one just very quick follow-up on that point, I think it's an interesting one.

When you think about – or when you talk to customers, as we're entering sort of the early part of 2017, are they engaging with you at all in terms of conversations about contingencies for that potential implementation? I just want to get a sense of maybe if it's in the customer conversation on the LTL side yet, or maybe just something that could come later in the year..

We're not having the – we're not hearing much about it yet.

I guess I hear more about it just at conferences and different things and people speculating, and we're certainly not betting on anything in particular happening, but we'll keep our ear to the ground and stand ready to increase our truck buying, if we need to, in the latter half of the year as it comes along..

One thing to add to that as well is that we do know that we probably lost a little business that is managed by the third-party logistics companies, with the weakness in truckload pricing, I think they were able to leverage their relationships and maybe find some trucks that were available to move, some heavier weighted shipments that otherwise would have moved through 3PL.

So, if you get that general tightening, it may be rate inflection up in truckload, that certainly could be a benefit to the LTL industry..

Let me add one more thing is that we believe, and I believe very strongly personally, that we are in the best position in the LTL industry with capacity across our network because of the investments we – the continued investments we have made in our real estate over time to stay ahead of the power curve and to build out and expand our centers in the markets where our growth is the strongest and where we see the potential for future growth.

So, should there be a sudden surge in the latter part of the year or first part of 2018, we are ready to handle it..

That's great. Well, thanks very much for the time, guys. Very helpful..

Thank you. We'll go next to Ben Hartford from Baird..

Hey, good morning guys. Adam, a few balance sheet-related questions.

Did you provide a debt reduction or a debt paydown target at all for 2017, and how do you think about carrying debt levels as you kind of reconsider or consider dividends as an option to return cash to shareholders plus the reduction in CapEx for 2017? Any change as to how you think about carrying debt going forward?.

We don't have any scheduled maturities with our debt in the coming years – next year, we've got one in January of 2018 that's coming due, so – and we had about $105 million of debt, there's a little bit outstanding on the revolver at the end of the year but not a lot.

And frankly, that's what – our debt-to-cap was 5.4%, and that's one of the things that we were looking at as we were going into next year and making the decision on implementing the dividend.

So – we feel like we've definitely got some opportunities and we can afford to put a little debt on the balance sheet, but we just want to make sure that we're prudent with our decisions and that we're doing it in the right ways and for the right reasons..

And I guess to that point, and I imagine there is more to come on that front, but if you kind of look back to where you carried debt levels during the previous cycle, it was obviously materially higher, I mean can we think about 1 times debt-to-EBITDA as a reasonable targets, without pinning it down on a specific number?.

Yeah, I'd rather not say because we don't just have a stated target. Again, I think that we want to look at ways that enhance the shareholder return, and I think we've done that through the implementation of the repurchase program. We increased our repurchases in early part of 2016 and ended up buying $130 million last year on that.

Now, we've added this other component, but we're still looking at ways that we can expand and grow the business.

And if that's available real estate that we can take advantage of, above and beyond what's already planned, we will look at those opportunities – or other opportunities to invest and some are non-LTL business, and try to generate some growth there.

But certainly, we know we've got an opportunity with the balance sheet, we just want to make sure that we're using it in a smart way..

Okay. And just to finalize that point, you had talked about expanding kind of – into complementary and potentially non-LTL businesses.

Does the fact that you're introducing a dividend reduce the likelihood of – suggest that you are less inclined to do acquisitions to expand above and beyond LTL? I mean how do you think about acquisitions in the context of organic growth opportunities outside of LTL specifically?.

Yeah. Our priority for allocating capital really hasn't changed. I mean it starts with reinvesting in the LTL business, that's where our best returns have been, and that's what we're going to continue to stay focused on.

We continue to say that acquisitions are in second place, and granted we haven't had one since 2008, we've looked at a plenty of them and – the pricing, the valuation, whatever, just didn't make sense or just strategically we didn't think it made sense. So, we haven't executed it, and that's why we implemented the shareholder return program.

But to answer your question directly, in no way is the dividend going to take away from that focus, and we're going to continue to look in – at investing first in LTL, if we can do that at a higher level this year or in the next coming years, we will. And we'll continue to evaluate acquisition opportunities as well..

Okay. And last one, if I could.

The $7.7 million that you called out this quarter in fringe benefits costs that you kind of tied to incentive comp, if you will, tied to the stock price, is that all of that $7.7 million that you have or was there some other element to that fringe cost above and beyond the share price appreciation related inflation?.

That was a lot of it. It wasn't all of it, and that's something that we wanted to give as information and definitely not something that needs to be adjusted out or anything of that nature. It's just trying to disclose more information about something that changed.

I guess our retirement plan expense has been – or it was kind of choppy this whole year, as there was a lot of volatility with our stock price up and down movements, and most of the annual expense came in the fourth quarter but – in the third and the fourth quarters, as we saw a good surge in our share price.

And so, that – there – and you can look and we disclosed in our 10-K the number of vested shares that we have in the Phantom Stock programs and make some calculations on a dollar movement in our share price, and do sort of a back of the envelope calculation with those.

But the other costs that we've seen, as mentioned I earlier, we've just had inflated group health and dental costs this entire year, and that's a trend that really is something we can manage to and something we're looking at. We're continuing to evaluate work with our partners in trying to put other wellness programs in place.

Other types of preventative programs that we can try to get a good control on the health and well-being of our employees and their families..

Okay. That's great. Thank you..

Thank you. And we'll go next to Ravi Shanker from Morgan Stanley..

Thanks. Good morning, everyone. So, just a follow-up to your responses for a few questions earlier on this call, when do you – you said that you're seeing the shift from – in your customers from service to price.

What gets them to focus back on service? Is it just going to be ELDs and the potential shortage on that, or do you think that the markets that have close enough to being in a balance that even an improvement in demand with seasonality should get them there?.

I think that some of it, Ravi, will come from just the general uptick in the economy. And the other part is – we've seen this time and time again through previous down cycles where customers that will leave us because a competitor offers a lower price than ours.

And when they get a taste of someone else's service compared to the service levels they had in OD, they come back to us. So – and we're seeing that happen now.

And we believe, as the market and capacity might tighten up going into next year and as orders are picking up and customers are trying to make their customers happy, that they will lean toward our premium service..

Got it. And just sticking with the pricing, you altered your pricing strategy a little bit last year, at least a timing of it in terms when you announce your GRI.

Can you give us an update on what your experience has been with that, what's your customers' reaction been, and what can we expect for 2017 in terms of timing?.

Are you saying we altered our pricing strategy....

The timing of your GRI announcement..

Adam?.

I mean, the only thing we did was – I mean, we pretty much announced for the most part, in line with the industry, it was on a 10-month cycle. We came out at the end of September, in 2015, it was at the end of November, but we pretty much came out in line with the rest of the group really.

And I think there was only one large carrier that pretty much didn't go out in that same timeframe.

But really nothing's changed in that regard, and I think that the GRI went through, there wasn't a lot of pushback because most of the other carriers were out seeking rate increases as well, which we think they need to continue to push for, if the industry is going to get healthier from a margin standpoint, to be able to support any reinvestment in capacity, and we frankly haven't seen it, on a total basis other than us, we believe that the industry has got to continue to push price up..

Got it.

And then, lastly, you spoke about focus on technology, can you talk about what are you hearing in terms of platooning, are you running any platooning trials out there? And do you have a potential time line for implementation?.

Ravi, we have not joined in on platooning at this point and do not have any plans to do so in the near future. But we're watching how things are transpiring on that front and the autonomous front, and so forth..

Great. Thank you..

Thank you. We'll go next to Scott Group from Wolfe..

Hey, thanks, morning, guys..

Hi, Scott..

Adam, did you say what weight per shipment is up in January?.

I didn't say what it was up but – let's see, it is about 1,570 pounds versus about 1,540 last year, give or take. I don't have the....

Okay. We can do that. So, I want to go back to the question on margins.

So, if we think about the environment of low-single-digit tonnage and low-single-digit revenue per hundred weight net of fuel and fuel higher and some of the cost inflation, just directionally, is this an environment where we should be expecting year-over-year margin improvement?.

We always expect margin improvement, and we're always focused on it. This year, obviously, we talked about – or I mentioned earlier, some of the cost inflation, and I think in David's prepared comments, and certainly we think that the ingredients for margin improvement are certainly there.

If these trends continue, if we continue to have a strengthening economy, that will be supportive of a positive yield environment and certainly we think that we're already seeing year-over-year tonnage growth. And as I mentioned, those numbers can look a little bit better once we get through March.

So, certainly, we've got a density opportunity and we've got the yield opportunity that's in front of us, we just need the economy to really continue to be sustained. I mean, as we went through last year, we'd see a couple of good months, and then you take a step back and it just felt really rocky and sort of bumping along the bottom.

So, I think IFCL number that was released yesterday is one of the strongest numbers in a couple of years. There is a lot of things that we feel like are turning, but I can tell you, we're certainly focused on managing our costs, managing productivity. And all of these things are certainly looking better than they looked when we entered 2016..

Another thing is that our fixed cost structure this year includes a lot of investments we've made in IT and also our human resources functions. And those costs should be relatively level going into 2017 and beyond, and as the growth improves a little bit, we should be able to get some leverage against those fixed costs..

Okay. That's helpful. Maybe I'll try and ask it a little bit differently.

Is there historically a tonnage level that you think you need to see to see margin improvement? And then, when I just think about the mix of weight per shipment going higher and revenue per hundredweight net of fuel, a little less, does that generally help or hurt incremental margin?.

If you look at revenue per shipment, certainly this year, that can be higher and – I mean that's – if you look at our revenue per shipment and then compare that with what our costs per shipment and how those are trending, that's the more relevant comparison, I guess. But there's so many variables that go into it, Scott, it depends.

And we get asked that question a lot of what tonnage do you need, it depends on what other actions are we taking.

I think that that we've had margin improvement in periods with lower tonnage and with higher tonnage, but what level of CapEx do we have? I mean, there are so many other variables that go into it that it's hard to say what's the specific number of tonnage growth we need because you'd have to have that wide variable of what's the yield increase offsetting.

Obviously, we'd like to have more yield, that increasing versus the volume. We always use to say that a 1% change in yield or decrease, you would need 5% to 6% increase in tons to offset..

Okay. And then, just lastly, I think you guys in the past have talked about your goal is to grow tonnage 500 or 600 or 700 basis points faster than the market.

Is that still your goal? Is that still a realistic goal once the environment gets a little bit better?.

It's a little bit harder to get that much tonnage – I mean that much spread on our growth rate today than it used to be back when we were expanding geography and also when we look back at some of the disruption in the marketplace with the fallout of business from YRC, and we touched on that I think last fall in a conference call.

But – and then, also when the market is soft and the freight environment is soft, our spread in tonnage growth has gotten down to – and if you take aside one of the carriers who was using price to get tonnage recently or this past year, our spread in growth is down in the 200 to 300 basis point maybe difference between the rest of us and the rest of the LTL industry.

Yeah, so, as we – as the environment is changing and the overall economy is getting a little bit better, maybe 300 to 500 sounds – is maybe more realistic than 500 to 700 bps of difference..

Okay. I appreciate the time, guys. Thank you..

Thank you. And we'll go next to Ari Rosa from Bank of America Merrill Lynch..

Hey, good morning, guys.

So, wanted to touch on the competitive landscape, just – I was hoping you could talk about how competitors may be expanding their geographic footprint has impacted your business, if at all, and what competitors are doing broadly on kind of the pricing front and what you're seeing out there?.

I think that on the pricing front, we continue to feel like it's been stable. No signs of increasing competitiveness or anything along that front, and I would say too that we mentioned we're getting some business back from – that we lost last year. Generally, when we lose business, it's on price. And I think some of that freight is being re-bid.

So, some of the carriers that maybe took it at a little bit cheaper price last year figured out it did not operate as well and they're trying to push prices up a little bit more, and that may be contributing again to some of our marginal improvement. But it takes service pricing capacity to grow.

And as David mentioned before, we feel like we're definitely in the best shape in the industry in terms of service. We continue to have award-winning service, 99% on time and a low claims ratio each year. We certainly got the capacity in the network, and price is now becoming maybe more normalized.

And so, we certainly think that if price is not a factor, that we're going to win on service and capacity. So, we feel good or feel really good from that standpoint..

Okay. That's helpful. Thank you. And then, just switching a bit to the spend and (54:57) capital allocation, you mentioned that the decision to start paying a dividend was a little bit driven by the fact that the share price had risen so much.

I mean, I was hoping you could provide a little bit of visibility into what the criteria is that you're using internally as you look at the share price and as you decide what ideal reasonable level to buy back shares and then be allocated (55:19) to shareholder returns, and why you may have decided that this quarter wasn't such a good time?.

I got you, you're breaking up a little bit, Ari, so I'm going to answer what I think you asked, but yeah, we did....

Sorry about that. I can ask it again.

I don't know if you heard, I was saying just what the level is – what the criteria is that you're using to decide when's a good time for share buybacks, and what's behind the decision to pay dividends instead of increasing the buyback?.

I got you. So, we have a grid and we don't disclose the details of that, for which, buying our shares, and obviously we want to buy when the price is lower. And I think when you look at the average price, as we put this program in place, we bought shares at about an average price of $65, and that doesn't mean that that's our ceiling.

We certainly have bought when the price is higher, but we continue to execute on that grid. We changed it a little bit at the beginning of 2016.

And if you go back into 2015, we had not bought more than $35 million in a quarter, and we stepped that up in the first half of 2016 when our share price was lower and bought about $90 million in the first half of the year. So as the price increased, we've started buying fewer shares, that's the way our grid is designed.

And we've been out of the market of late, and we'll continue to evaluate the change in landscape and perhaps make changes to our grid this year, but we would rather buy it when the price is cheaper.

That didn't impact – the decision on the dividend is not to replace, but anything with the buybacks, and as I mentioned, we continue to think that the buyback is a better form of returning capital, and that's our intention and that would be the primary means of doing so.

But the dividend – just – is one complementary means of returning capital that's consistent, and that was some of the decision-making in adding that cash dividend..

Great. That makes sense.

And then, (57:43) about deregulation, I was hoping you guys could talk on what you think the impact of that might be across the industry, and if there are any regulations in particular that you guys are targeting as going away and what impact that might have on your cost structure?.

You broke up a lot, and I think you were asking about that regulatory reform that's....

Yes. Exactly..

I don't think any of us know exactly what that regulatory reform might look like.

I know one thing in particular that there was a proposed rule-making last year for speed limiter devices, you know for the trucking industry, and that is highly, highly contested by different parties within the American Trucking Association, it was – and we like to see that thing rolled back right now.

Most all of the fleets out there today have speed limiting devices already on our fleets, but due to the wide variance in speed limits across the nation, there is no perfect speed that could be uniformly applied across the United States. And so, that's one that needs some attention.

But other regulatory reform, who knows what's going to come down the pipe..

Yeah. Okay, great.

And then, just one real quick housekeeping, could you just give the number of working days by quarter in 2017, and also just say the number again of what LTL tonnage per day was up in January?.

Sure. The tons per day in January was up 2.2% on year-over-year basis, and mostly workdays – let me get to it, by quarter for 2017, it's 64 in the first quarter, 64 in the second quarter, 63 in the third quarter and 62 in the fourth quarter..

Okay. Great. Thank you very much..

Thank you..

Thank you. We'll go next to Matt Brooklier from Longbow Research..

Hey, thanks. Good morning.

Is 3% to 4% price growth, is that still a good bogey to think about for this year?.

Well, as I mentioned before, that's what we target with our contractual renewals, and our pricing philosophy is – that we look at our own cost inflation and that's what we ask for in the form of a price increase to offset.

Now, from a revenue per hundredweight standpoint, that yield metric, as it was in the fourth quarter, is likely to be lower than 3% to 4% because of mix changes. And when you got an increase in weight per shipment like we had in the fourth quarter, that certainly going to put a – have a negative effect on that reported metric.

It doesn't mean that underlying core pricing is weaker at all or in any way. So, we still feel good about being able to get those sort of 3% to 4% targeted increases next year or this year..

Okay.

And then, can you just remind us when the weight per shipment comps, when those get easier this year?.

Easier in terms of like when it will comp with where we were in the fourth quarter?.

Yeah, when do we lap – I mean I can look back in my model, but when do we lap the increases in weight per shipment that we saw last year, the beginning of that?.

Yes. So, well, it trended again sort of ballpark about 1,550 pounds in each of the first three quarters. So, we've been closer to 1,600 pounds in the fourth quarter.

So, if – depending on if we stay at around 1,600 in the first three quarters of the year making that assumption, then obviously we'd have an increase there and an impact on – that impact on yield for those first three quarters..

Okay. And then, just a question on head count, I think head count was down in fourth quarter. You guys did a good job of managing head count into kind of a less robust growth environment.

Now that tonnage is picking up, how should we think about head count going into first quarter? I think traditionally head count has grown sequentially, but are you at a point, with where tonnage starting to pick up again here, meeting that heads in first quarter? And then, maybe just some color on the progression of potential head count growth through the rest of the year..

Yeah, I think we're in pretty good shape with the workforce, where we are and the volumes we have. Certainly, at the local level, it's up to each terminal manager to make decisions on what their volumes are and what their head count needs should be.

We always – to protect service, we like to add our employees before the volumes are picking up because we want to make sure that they've had suitable time to train and to be able to protect our own service. So, certainly, if we continue to see volumes picking up, there could be an increase in head count for that reason..

Okay, but you're not getting pinched right now, just given the fact we're kind of in the initial stages of tonnage reaccelerating potentially?.

No. I think we're in pretty good shape, and our head count overall was down slightly in December compared to September, which a lot of times could be normal. But I think the shape across the network with where we are today, but certainly we're finally starting to see some year-over-year growth.

And we'll continue to be mindful of what those labor needs should be in each particular area..

Okay.

And then, last question, where did the service center count end the year?.

It was 254. Pardon me, I am sorry....

226..

Wrong number..

225, you're already – it's a couple years out there, Adam. Okay. Thank you for the time..

Yes, thank you..

Thank you. We'll go next to David Campbell from Thompson Davis & Company..

Yes, thank you very much. My questions have been answered. I think you may report it in your press release that you haven't seen a number of employees at the end of the year..

Yes, the number of employees, the actual number at the end of the year was 17,543 full-time employees..

Okay, great. Well, thank you very much. All my other questions have been answered. Thank you..

All right..

Thank you, David..

There are no further questions in the queue at this time..

Okay. As always, thank you, all, for your participation today. We appreciate your questions and support of Old Dominion. Please feel free to give us a call if you have any further questions. Thanks and good day..

That does conclude today's conference. Thank you for your participation..