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Celadon Group (NYSE:CGI)

Q4 2013 Earnings Call

July 30, 2013 11:00 am ET

Executives

Stephen Russell - Founder and Executive Chairman

Paul A. Will - Vice Chairman, Chief Executive Officer and President

Jonathan Russell - President of Asset Light Business Units

Analysts

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division

Jeffrey Asher Kauffman - The Buckingham Research Group Incorporated

A. Brad Delco - Stephens Inc., Research Division

Scott H. Group - Wolfe Research, LLC

Chaz G. Jones - Wunderlich Securities Inc., Research Division

Jason H. Seidl - Cowen and Company, LLC, Research Division

Robert Dunn - Sidoti & Company, LLC

Operator

Hello, and welcome to the Celadon Fourth Quarter Earnings Conference Call. [Operator Instructions] I'll now turn the call over to Stephen Russell, Chairman. Mr. Russel, you may begin.

Stephen Russell

Thanks very much, Dan, and thanks for joining our June 2013 quarterly conference call. I'm joined here in Indianapolis by Paul Will, our President and CEO; Eric Meek, our CFO; and Jon Russell, President of our Asset Light Division.

I'd like to remind you that my comments and those of others representing Celadon may contain forward-looking statements, which are subject to risks and uncertainties. Our press release and SEC filings contain additional information about factors that could cost actual results to differ from management expectations. Please refer to our press release and SEC documents for the full forward-looking statement disclosures.

Moving on to the business, we're very pleased with our 2013 June quarter results. Earnings per share were $0.31 a share, despite a challenging freight environment and a relatively weak economy. Included in the 2012 quarterly earnings per share of $0.39 was $3.2 million or approximately $0.08 in gains on sale compared with approximately $0.015 in the current quarter. The June 2013 earnings of $0.31 compares with $0.19 in the March 2013 quarter.

Our key metrics improved in the quarter, which contributed to the positive operating results. Our average seated count of 2,770 trucks was up 6% from 2,624 in the March 2013 quarter. Average miles per week per seated truck was 2,081 in the June quarter, which was comparable to our March quarter of 2,080, and both being higher than the previous September and December '12 quarters.

The rate per loaded mile of $1.588 was up 2.2% from June 2012 quarter and 2.8% from the March quarter. Revenue per week per seated truck rose from 20 -- $2,898 in March of 2013 to $2,941 in June of 2013.

We're pleased with our recent acquisitions of -- in Canada of Hyndman, which we believe meaningfully strengthens our Canadian presence and continues to define us as a company that can service all of North America with many different service offerings for our customers.

Further, we believe there continues to be truckload capacity in the industry under constraints from both an economic and a regulatory standpoint. From an economic standpoint, there are higher equipment costs, more challenging financing and generally higher operating costs, especially for the smaller carriers that don't possess the economies of scale like the bigger carriers.

From a regulatory standpoint, the government has just mandated another change in the hours-of-service rules, further enforcement of CSA by the government and scrutiny by customers for those unsafe carriers, and the eventual required implementation of ELDs or EOBRs, which is defined by the Department of Transportation as electronic logging devices. We believe we've been properly addressed the above issues and have positioned ourselves well for the future. We're quite pleased and proud of our management strength in this challenging economic environment.

And Dan, we'll now open it to questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Todd Fowler.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

I wanted to follow up on the comments about the sequential increase in the seated tractor count. First, I was hoping you can provide a breakout of how much of that was, what I would call, organic-related to your recruiting and your drivers initiatives. And then secondly, how much of that came from Hyndman, and then how should we think about that as we move into the calendar third quarter?

Paul A. Will

Yes. If you look at that, it's broken out fairly evenly between the 2. Hyndman was about 70, 75 trucks, and so was the -- the balance would have been through recruiting -- so about 50-50 from that perspective. But kind of way we laid it out and broke it out and tried to put it in the press release was 3 real key components. It's how we laid our structure, what we've discussed in the last call, when we had a downtick in the seated count, how we're going to address the issue, and that was to utilize our current brick-and-mortar terminal locations to expand our recruiting and orientation efforts at those locations. And we begun to roll that out from just Indianapolis to Carlisle, Pennsylvania, Little Rock, Arkansas, and we've got a couple of additional locations that we'll be rolling out this quarter as well, which should help from a hiring of experienced driver basis, as well as drivers for different kind of applications that we have, whether it be dedicated local, regional, et cetera. The other piece was -- which we talked about as well is to open a driver's school. That's come along nicely as far as how we've increased the number of students coming in. Obviously, the first 6 months, we were really ramping up, getting the trainers in place, getting the processes in place, et cetera. And that's moved up to the level where we think -- we're currently still doing it -- bringing in classes every 2 weeks, that will eventually go to a class every week. So there's still additional upside opportunity there, we believe. But at this point in time, that's worked out well as far as adding to the seated count. And we've got a pipeline now, more importantly, with individual trainees in with trainers running trucks, as well as students coming through the school. So, so far, those 2 components as well as, obviously, as acquisitions go. I think one thing to really make note of is that -- and we've talked about this on the last couple of calls. When you look at the stress situations, there's obviously a lot of challenges to them. But if we could into acquisitions, such as a Hyndman, where it's a quality company and we can get back off synergies, but not necessarily affect the operation because it's running well already. We believe that, that can help from a stability and maintain driver standpoint, which we believe we, as a management group, have been very successful in maintaining the drivers associated with Hyndman. And that's -- the combination of those 3 items is why you've seen the seated count go up. On a go-forward basis, I think our expanded recruiting efforts at the terminals, outside locations, as well as potential acquisitions and schools should help continue to drive that number.

Stephen Russell

As Paul mentioned, Hyndman contributed about 75 that's because the acquisition was done in the middle of May. So in other words that number should grow over the next quarter. And in addition, the driver training school has been -- we started it in October. First few weeks, we averaged 5 or 6 drivers joining us a week, and we're now at 30 to 40. So nice, nice gains.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

I'm sorry, Steve, you actually broke up a little bit. It might have been the connection, maybe on my side. But I guess, is it right to think about kind of the result from the internal initiatives, those 70 drivers, I mean, is that a reasonable number to use? And if we're not going to model acquisitions into the third quarter, or should we model something higher than that based on the fact that some of these initiatives are taking hold and you're seeing some better traction?

Stephen Russell

I think for the quarter, obviously, we don't typically give guidance. But I would say that you should be able to see our seated count go up by a comparable amount, call it 70 trucks in the quarter. We'd like to be higher than that, but I think we're comfortable that the seated count go up by at least 70 in the quarter.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Okay, that helps. And then I guess, I'd be curious, Paul, to get your comments on the revenue per mile here in the quarter, up slightly more than 2%. It's a bit at the higher end of the range of what we've seen from some of your peers. I guess I'm curious, specifically, some of the things that you saw, is that mostly the implementation of new contracts here during the quarter, maybe some things, I don't know, on the mix side? And then, if you can talk about your expectations for the rest of the year based on the bid season, that would be helpful.

Paul A. Will

I'll start with -- on the rest of the year. I think similar to what others have said, I think when you're looking at 1% to 3%, I think it's kind of what's out there. We've been saying 1% to 3%, 2% to 3%, I think is what we've been saying over the last probably 4 quarters, 6 quarters. And I think that in that range, I think we're comfortable with. If you look at kind of where it's coming from, I think length of haul -- our length of haul went up about 30 miles over last year, as well as the rates that we've gotten increased with customers. So a mix of business, as well as the length of haul are kind of 2 of the drivers, as far as where we've gotten the rate.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

Okay. And then the last one that I'll ask, and I'll turn it over, but when we look at the salaries and wages on a per-mile basis, it was higher than what we were looking for. It was up both year-over-year and sequentially. I know in the calendar first quarter, you had some unusual medical costs. Is there anything unusual under the salaries and wages line, this item, for this quarter? And is there anything we should think about, I guess, as we move forward with that one as well?

Paul A. Will

Yes, that will trend up a little bit. But a part of that, probably about $0.5 million of that came from the most recent acquisition of Hyndman, as well as we're still seeing not -- although not as bad as December or the March quarter medical claims are probably $700,000 higher year-over-year when you look at that. So there's obviously things no different than what other companies are doing, trying to combat that. But that's still an expense issue that we're dealing with. So although we've gotten it down from the March quarter, it's still higher than where it was year-over-year.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

The $0.5 million from Hyndman, is that acquisition-related cost or kind of one-time? Or is that new corporate costs related to the acquisition?

Paul A. Will

New corp cost as it goes into that bucket. So I think you'll see that bucket trend up. It should be up probably about $1 million, $1.5 million over the next quarter. But then you'll also see, as we look at it from a budgeting standpoint, higher seated count, which will generate higher wage as well. So that overall bucket will probably trend up because of those components, both Hyndman and the higher seated count.

Operator

And our next question comes from John Larkin.

John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division

As I was looking at the key operating statistic table included in the press release, as a longtime student of what I'll call truckload math, I was having a hard time understanding how trucking revenue could be up 5%, 6% year-over-year while the average revenue per loaded mile was up 2.2%, and some of the other metrics year-over-year were actually down. And then I looked at the footnote, which indicated that in a couple of the line items in that table, the Mexican numbers are not included, which kind of led me to conclude, perhaps incorrectly, that maybe things south of the border are actually very robust compared to operations within the U.S. and elsewhere. Am I misreading that?

Paul A. Will

Yes. If you look at -- yes, I think you're right as far as your question and where it's at. It's the outside revenues associated with Jaguar, our Mexican operation.

John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division

So is it fair to say that the rate momentum there is a little bit more positive than it is in the rest of the U.S.?

Paul A. Will

Yes, I think when you look at our Mexican operation, as well as our Canadian operation, that's part of the reason we did the Hyndman acquisition. The rates, as far as those 2 operations, are better than what we're seeing globally in the U.S.

John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division

Okay. So that probably explains it then. Could we talk a little bit about unseated trucks? Are those in any of the numbers? Do you have trucks on the property for the 70 to 75 new drivers that you expect to produce here in the third quarter to immediately go into? Or how is that working?

Paul A. Will

Yes, as we went through a refresh cycle, we have additional trucks because we had a decline, obviously, in the seated count. And our seated count was, what, 2,851, I believe, a few quarters ago. So we've got the trucks still on the books running through, obviously, equipment costs, depreciation and/or equipment rentals. So we don't have any additional P&L costs associated with bringing in new drivers, as far as from an overall P&L standpoint. Obviously, they'll all plated etcetera. So we feel like we're in pretty good shape to expand the margin above and beyond what you'd have to do to bring a truck in and a driver. So those are -- probably about 100 to 110 trucks currently that could be deployed that wouldn't cost us anything from a P&L standpoint to get those drivers going.

John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division

So the incremental margins there should be pretty attractive, I would think?

Paul A. Will

Yes, correct. That's correct. We're pretty -- I mean, we're pretty excited about that opportunity.

John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division

A question on the Hyndman acquisition. Is it fair to assume that the Hyndman acquisition is more of a strategic acquisition of maybe a higher-quality company that really creates for you a bigger footprint in Canada as opposed to the previous 7 or 8 acquisitions, which have really been designed to produce incremental drivers?

Paul A. Will

That's a correct statement. That's exactly what we kind of tried to explain in the last call. That's what we're looking for. We are fortunate enough to have the opportunity to get the Hyndman acquisition. But that's exactly right, if you take Hyndman, which is about 50 miles away from our Kitchener facility, which is Cedadon Canada, if we utilize the back-office synergies but then keep the name intact, keep the business intact, and then utilize -- share the loads and so forth, so business services that the 2 offer, even if it's different customers, we're able to share loads and generate better profits from that standpoint, improve the key metrics. But when we look at Canada, we look at the Canadian rates as being higher than the U.S. rates. And it's a market that we want to expand in, no different than your previous question as it relates to our Mexican business and our Canadian business. They're both higher-margin business areas that's a little bit more difficult or challenging to operate in, although because of that, the margins are better. So because we've been up there, it's a good opportunity for us to expand into markets that are more -- have higher margins than the U.S.

John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division

Is that the type of acquisition we would expect to see in the future as opposed to the previous type of acquisition where you would liquidate the fleet and hope to hold on to some of the customers and some of the drivers?

Paul A. Will

Strategically, that's -- we'd rather do acquisitions like that now. And that's not say if a distressed carrier came to the forefront, obviously, we would definitely entertain doing the transaction because we think there's value there as well. But these type of transactions like Hyndman, we believe, long term, will be more accretive to the bottom line.

John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division

Okay, that's helpful. And maybe just one question for Jon, if he's the right one. On the TruckersB2B operation, it's an interesting way to sort of take a deep dive into what's happening with some of the smaller fleets in terms of their financial stability or lack thereof. Do you have any comments on what you're seeing down there amongst the smaller carriers that are taking advantage of TruckersB2B purchasing economies?

Jonathan Russell

Yes, we are seeing a fair amount of churn, obviously, other analysts puts out their bankruptcy report. And I would say we're seeing a little more churn than what that shows. Credit is certainly an issue not just from a banking side, but even when their daily expense side that you've got the card companies that are out there, Comdata, ZFS, the Right Express. We are seeing those credit limits tighten up a little bit, both from a fuel purchasing, and we run a fair amount of tires through those type of cards. And on all sides, we're not seeing that relax as much what you hear about the banking environment or the captive environment. So I think there's still a lot of pressure on that small fleet from what we're seeing on a churn rate. Does that answer your question?

John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division

That's very helpful. It sure does.

Operator

[Operator Instructions] Our next question comes from Jeff Kauffman.

Jeffrey Asher Kauffman - The Buckingham Research Group Incorporated

I just want to clarify something, Jon, just to make sure I understood it. The comments about Jaguar were just referring to the yield portion, because it looked to me like the miles were down almost 9% in Mexico? If I'm looking at the seated vehicles for Jaguar and the miles for Jaguar, it was down 9%. So to get the flat rate revenues, that would imply almost a positive 8% to 9% on the yield side. Is that what you were referring to in John's question?

Jonathan Russell

Yes, I think that's correct. I would have to -- I'm going to have to dig into that one a little bit further, and I can get back to you and John on the more specifics. But I think that's -- the yield -- the rate is definitely on the freight that we're hauling. So relative to the miles, that would be a correct statement...

Jeffrey Asher Kauffman - The Buckingham Research Group Incorporated

Okay, that's what I was asking. Yes, because it looked like the revenues were kind of flat at Jaguar, which would make sense, given that the Mexican industrial production was kind of flat. I've got to tell you what I was most impressed was the growth in the other revenues, when I was looking at intermodal and some of the products there, I mean, you're up almost 50%. Not to take away from truck, because everything you did in truck was very impressive, considering the gain on sale headwind. But can you talk a little bit more about some of these non-truck revenues and what you're doing in particular on the LTL consolidation and intermodal?

Paul A. Will

Yes, I think we're pretty-- overall, our non-asset base is up around about 14%. Intermodal is up about 40%. And I'll talk about the intermodal and then I'll let Jon speak a little bit about the LTL consolidation because I think that's a big opportunity for us. I think there's a lot of good stuff going on there, as it ties in with the truck load side as well, tying the companies together. But if you look at the intermodal, that's one where we replaced out all our trailers over the last 2.5 years, allowing ourselves the opportunity to service our customer with a wider service offering, which includes working on the contracts over the last couple of years, brokerage, intermodal, et cetera, so that we can supply those service offerings to the customer and not turn down loads, but tell a customer that we can't maybe move it by truck, but we can move it with a broker with another carrier or we can move it with an intermodal. So if we look at intermodal, it does that. It gives the additional service offering to the customer. It allows us to move their freight, as well as it allows us to be able to move our equipment around and get more efficient use of our equipment. As opposed to having trailer pools in given areas, it allows us more free flow, move our equipment around to better service internally ourselves, as well as our customers. So that's moved up nicely, as you said, 40%. We're looking for that to continue to grow as we service customers, as capacity continues to tighten. So tying the service offering to those customers together, if you look at LTL consideration, I'll let Jon talk about that, that ties to the different divisions together as well, but also services customer. Jon?

Jonathan Russell

We've seen growth in that, really leveraging the complete offering. It is -- most of our competitors in that space are not asset providers. By going in and offering the availability of capacity, it does allow that customer of ours eyes to open. Everyone is seeing that capacity shrink. They want to walk in with key partners. And so we are seeing a greater degree of bids than we have historically, though not at quite the growth rate we'd like to see as to what the total opportunity is, but certainly, we're seeing that continuing to grow and have a fair amount of bids in-house, leveraging our ability to control the freight from an LTL pickup and delivery standpoint and then utilizing our equipment for a good percentage of the moves to and from the border longer term -- longer haul from a consolidation run. So it's certainly looking up by leveraging our existing customers.

Paul A. Will

The other thing I would add to that is that I think we're -- Celadon's of the size and we have enough service offerings with LTL consolidation, intermodal opportunities, dedicated local and regional, et cetera, that as we start to look at customers, they want to get as much with an asset-based carrier. Now they'll let you broker a certain amount, but they'll you if you broker 30%, but you put 70% on your equipment, that allows our divisions to be able to work together, to be able to service the customer globally. And also, as we've finally gotten enough mass, too, in size, that we can actually service the customer out of a single source, out of the location now which we historically have shied away from or haven't been large enough really to do, which we believe that's a good opportunity for us to be, service the customer, you single source a plan, you can broker some loads, intermodal loads, as well as put them on your truck. But then the other thing that it allows us to do is be in a position where we're going to be able to maintain drivers longer, because there are more dedicated-type runs associated with those customers. You'll send them out, you send them back. So as we continue to do that, we'll improve deadhead, we'll improve driver satisfaction, reduce turnover. And then part of reducing turnover is increasing your fleet count. So I think we're heading in the right direction as far as that goes.

Jeffrey Asher Kauffman - The Buckingham Research Group Incorporated

Okay. And one final question. What I was surprised at was more the growth of the owner operator fleet or that you've exceeded owner operators this quarter relative to company trucks. Is this something that continues, or was this just more a function of acquisitions that kind of how the chip fell?

Paul A. Will

No. That's -- we've trended that way for the last several quarters. That's -- and most of it is in the form of lease purchase. There's owner operators as well, but lease purchase is the biggest gross -- growth aspect of that. If you look at purchased transportation, that's been a question in the past, where $5 million, $5.5 million of the increase year-over-year was purchased transportation. It relates to that piece of the lease purchase are owner operators, and then another $1.5 million relates to cost associated with intermodal. So that's where you're seeing that bucket grow, and I think you'll see that bucket continue to trend in that direction based on the desire for drivers to put themselves in position to be independent contractors, utilizing a piece of equipment that they could potentially own in the future.

Operator

And our next question comes from Brad Delco.

A. Brad Delco - Stephens Inc., Research Division

On that owner operator question that Jeff just asked, I was noticing the same thing. Curious if you could provide kind of what your driver turnover is on your owner operator fleet versus your company, just to kind see the impact on the overall book of business as that fleet grows.

Paul A. Will

Yes. And that's a good question. We see our turnover go down the last quarter over the previous 2 quarters. And one of the things that's beneficial is our lease purchases is running around 63% turnover. The students are coming out of school, getting in trucks after they've been with the trainers, running around 30%, and has brought our overall turnover down below 100% if you look at the June quarter. So those 2 items being lower than, I guess, what you say is industry average based on hiring experienced drivers, should help us continue to trend in the right direction as far as being able to grow seated count. But lease purchases is beneficial from that perspective.

Stephen Russell

The industry, Brad, is really changing. In the old days, there were owner operators are all over the place. But now owner operators can't buy a truck. There's certainly been a major decline in the number of owner operators. Part of -- and as things get moved forward, like demand at the Department of Transportation, demanding EL, electronics on-board recorders, it's certainly going to impact those little fleets and the individual owner operators. In our company, everyone is required to use one of those electronic logging devices. But little fleets are really likely to be mandated to do it, and that's going to be a major impact, positive for the big fleets like ourselves.

A. Brad Delco - Stephens Inc., Research Division

Got you. That's -- I appreciate that color. Paul, when I think about owner operators, I've traditionally thought they tend to be a little more productive, given the more kind of entrepreneurial type of driver. When I look at your utilization, it looked like it was down 4.5% on the total fleet. Is the improvement on that metric, going forward, largely a function of getting the seated truck count better, or should we see with the greater mix of owner operators that, by default, get better? I guess what are the -- what -- kind of what should we expect in the quarters to come on that metric?

Paul A. Will

I think we should see the utilization -- that's one of the items we've been working from the overall utilization standpoint. If you look at where we were in, I think, it was 2,070, 2,068 or something like that in the September quarter, December went down to 2,014, I think, miles per week. In the last 2 quarters, I think we're at 2,080, and then this quarter, 2,081 miles per week per truck. So I think one thing is that we've stabilized that, we've grown that. And I think the important thing is that adding 150 trucks and still having the same utilization means that, obviously, we didn't bring on that additional capacity and not have the freight for it, so that's good. As far as what I think we're working on, on a go-forward basis is to improve that utilization through our freight selection, utilizing the operational tools that we've got in place. And the freight that we're bringing on, based on origin, destination, trying to increase that utilization from where it's at today. So I think our goals are definitely getting seated count up, and that's first and foremost. But the utilization, I think you'll see that continue to trend up based on some of the initiatives that we're doing internally.

A. Brad Delco - Stephens Inc., Research Division

Got you. And just to kind of make sure I'm clear on that. So I have your average truck count at 3,082 for the fourth quarter with the utilization down that I just suggested. So we should think about the truck count from here kind of flattening out but just seeing better utilization of the assets. Is that kind of what I'm reading into that, your response?

Paul A. Will

Yes. Our average seated count is 2,770. So you'll see that go up, and I think you'll see the 2,081 go up as well. So I think you should see both trend in the -- both should increase.

Operator

Our next question comes from Scott Group.

Scott H. Group - Wolfe Research, LLC

So just wanted to follow up on that last point there. You're talking about your expectations for both the tractor count and utilization to get better sequentially. Maybe -- what kind of experience are you seeing so far with hours of service, and does that create some risk to what you're talking about at all? Or do you think you're managing well through that, or just not much of an impact from that yet?

Paul A. Will

We really don't have enough information at this point in time to really comment. So I think similar to what other fleets I've heard with their calls. But I think the negative impact associated with that we should -- we believe, internally, we've got measures in place to offset that. So there will be an impact from that, but there's things that we've -- our internal initiatives that we put in place and been working on over the last 6 to 12 months that should offset any of that, plus some. That's what we believe at this point in time.

Scott H. Group - Wolfe Research, LLC

Okay, that's helpful. And can you just maybe give us an update on kind of the freight trends that you're seeing so far this month and kind of your outlook on freight for the rest of the year?

Paul A. Will

I think if you look at kind of the June quarter, somewhat choppy, May and June were more seasonal, April is a little bit more challenging for us. But I think you're -- into July, now that July is basically over, I think what you saw in July was kind of similar to what we saw in June. From where our expectations, on a go-forward basis, we really don't have a good feel for what that will bring. But based on what we're hearing, based on what we're seeing from our customers, it's pretty much similar to what we've seen in May, June, July, which is seasonal. It's comparable to last year. There's nothing negative out there. So it's a decent freight environment, not great, but decent.

Scott H. Group - Wolfe Research, LLC

Okay. And maybe just to follow-up on that. When you think about kind of our models for fiscal '14, do you have a view on, one, pricing, if you think it still stays in that 2% to 3% range? And then, two, how are you thinking about net CapEx for the year, excluding acquisitions?

Paul A. Will

As far as the rates go, I think 1% to 3% is kind of what I've heard a lot of the other fleets saying, which we would fall into that range. I think we've been trending closer to the 2% range, is kind of what we've seen, really, for the last, I guess, 4 to 6 quarters probably. So I think we're pretty comfortable in that range. I think it's all a function of as capacity continues to exit the market and tighten up or volumes pick up in the back half, that could change obviously, a significant upside potential from that standpoint. But right now, we're seeing the 1% to 3% probably closer to what you've -- we've been trending, which is 2%. As far as net CapEx, we're pretty much done with our refresh cycle at this point in time. So I think what you'll see is a 0 net CapEx requirement for until the back half of next year.

Stephen Russell

I think that the economy will drive it certainly. But I think capacity going out is going to help the overall rate environment. But until it's there, you can't be that sure. So we're positive and hopeful. But until it really takes place, it hasn't.

Scott H. Group - Wolfe Research, LLC

So with no CapEx, net CapEx the next 2 quarters or so, do you think about just holding on to that cash for an acquisition? Doing anything else with it?

Stephen Russell

Just paying down debt. We have $200 million bank line. So we've got plenty of flexibility. But as Paul said, it would be a great opportunity just to pay down debt without those CapEx.

Paul A. Will

We're just going to keep that $2 million -- $200 million line available and outstanding, and then update on debt as we go. As acquisitions present themselves, we'll have flexibility to do a timely acquisition.

Operator

And our next question comes from John Larkin.

John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division

Gentlemen, when you're talking about the owner operator growth that, I guess, Jeff brought up, the question is with the lease purchase program being the primary source of those owner operators, are you taking used trucks from the Celadon fleet and moving them into the lease purchase program? Are you using new trucks instead? And is the company directly providing the financing, or do you have an outside third party to do that?

Paul A. Will

We are doing both to both questions. Basically, we have purchased new trucks for the program to try to make sure that they're successful. Those trucks have come in, are similar to the Celadon trucks in the sense of -- with respect with battery-powered APUs, which allows them to save on fuel. The pull-off [ph] trailers which have skirts on them, which saves fuel. So obviously, we want them to be in a situation where they're successful. We also allow them to buy trucks outside, from other third parties that -- we'll do the financing, they'll run our fleets, that we basically coordinate with the third party to be able to have those trucks financed, which would not be on the Celadon's -- using Celadon's capital. And then we also have older trucks, maybe out of Celadon fleet, that they'd be able to drive an older truck, have a lower payment potentially and have an opportunity to own that truck little faster. Obviously, that -- what comes with that is no different than what you see with small fleets is you have more maintenance costs, et cetera, with older truck and you don't have the luxury of the battery-powered APU and the fuel savings associated with that. So we try to give as many alternatives, not options, to individuals, so they're not locked in. Third party financing, even though we've got low -- pretty low turnover relative to the industry, relative to that, it still gives them the opportunity if they feel like they own a truck through third party financing, they could potentially go somewhere else. So that flexibility, even though it's there, they don't necessarily utilize that. But it's us being open to deal with them as independent contractors.

John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division

And then on the year-over-year revenue per loaded mile increase of 2.2%, we tend to talk about pricing being the driver of that. But you also have, if I'm not mistaken, a fairly big initiative internally to utilize some of the software of -- from Manhattan Associates to do a better job of freight selection -- which, in theory, let's you also maybe boost utilization, reduce empty miles, or perhaps increasing your rate at the same time. Is any of that 2.2% a function of that effort?

Paul A. Will

I think the answer is yes. And that's -- that I think goes -- dovetails into the question on -- it wasn't a question, but on the deadhead as well. I think when you utilize that software, you may have to create some more deadhead, but that deadhead will be a function of what is your better overall yield for that freight. So I think when you look at the combined, it's generating a higher rate and a higher net rate when you combine the 2. I think we're probably in the middle stages, if you will, of utilizing that software. So I think there's still upside potential, which we believe is part of the reason that we're going to be able to increase utilization on our existing trucks as well. But I get -- the answer to your question is yes.

Operator

And our next question comes from Chaz Jones.

Chaz G. Jones - Wunderlich Securities Inc., Research Division

Sorry if these have already been asked. We were having some phone issues here in Memphis. So maybe a point of clarification. Paul, on the CapEx, did you mean 0 CapEx for the next 6 months or the next 18 months?

Paul A. Will

Other than barring acquisitions or growth. And as I said earlier in the conversation, we could grow by about 110 truck -- 110 drivers and not have to add any trucks because of what we have in the fleet today. But net CapEx means 0 until the back half of next year, so at least the next 12 months.

Stephen Russell

And it's just curious -- Chaz, this is Steve. When you look at our average tractors, about 1.4 years old, but our average trailer is now like 2.2, 2.3. You don't need to buy trailers other than perhaps every 8 years or 10 years. So we're done with trailer purchases unless something specific came up, and therefore, dramatically less CapEx than we've had in the last couple of years.

Paul A. Will

Yes. I mean -- and that's a good point from Steve's standpoint. I mean, when you look at our tractors, we don't have to -- I mean, 12 months for sure. And really, it could go out to your point is as far as 18 months. And that only puts the truck at basically 3 to 3.5 years old, which some individual, even large fleets, will run those trucks to 5 years. And then to Steve's point on trailers, the reality is part of what we've done from the CapEx standpoint over the last 2.5 years is bringing all those trailers. And some fleets run those, the type of trailer we're running, DuraPlate-type trailer or plate-type material, 10 to 12 years. So if you kind of roll that out, our next CapEx cycle, really, whether it be 12 or 18 months from now, is just for trucks and not for trailers, other than for growth. So I think we put ourselves in pretty good position, and you'll see debt continue to pay down as a result of us been doing this.

Chaz G. Jones - Wunderlich Securities Inc., Research Division

Would you maybe consider also, at the board level, sort of maybe increasing the quarterly dividend as well?

Paul A. Will

I think similar to what I think Werner maybe put out, and they talked about basically either buying the stock, in their case and our case, it'll be paying down debt is probably the better use of assets to grow the fleet as opposed to paying additional dividend above where it's at today.

Chaz G. Jones - Wunderlich Securities Inc., Research Division

And then I was curious -- I'm sorry, go ahead?

Stephen Russell

Chaz, we're not ruling anything out.

Chaz G. Jones - Wunderlich Securities Inc., Research Division

Got it. And then I was curious with the increased fuel efficiency, are any of the shippers pushing back on the fuel surcharge programs?

Paul A. Will

We have not at this point in time. And I think it really goes -- comes back to what you're charging the shipper is what you need based on your cost structure. So whether it comes in fuel, whether it comes in rate, I think your total charge to the shipper is what you need to generate enough return, so that you're going to be able to reinvest in capital. But we have not had those conversations with shippers because I think they look at what they're paying, overall cost, to ship the freight.

Chaz G. Jones - Wunderlich Securities Inc., Research Division

Okay. And then if you covered this, just let me know. I can go back and look -- and find it. I was curious if there was maybe anything onetime in salaries, wages, and benefit, whether health insurance or something like that, it seemed to step up. And then D&A, I heard you mention bringing in some more trucks. So perhaps there's maybe a little bit more of a step-up in D&A before it starts to stabilize.

Paul A. Will

If you look at D&A, take last year and then this year and look equipment rentals, depreciation and amortization and then add back the gains just to get a more pure number. We were running last year around $16.7 million. This year around $17 million. So it's up around $300,000 year-over-year. We have -- what we talked about earlier in the call is we have about 110 trucks that are currently in that number already, that can be deployed as we grow our seated count without having to add. So you shouldn't see much change from that standpoint as to overall equipment cost in those 3 buckets. And that is -- as far as the other, other expenses, on SG&A, that includes about $500,000 from the Hyndman acquisition. Those are ongoing wages that you'll see on a go-forward basis, as well as medical benefits year-over-year, probably about $700,000 higher year-over-year.

Operator

And our next question comes from Jason Seidl.

Jason H. Seidl - Cowen and Company, LLC, Research Division

Going back to the rate, or the 2.2%, you mentioned that some of it was mix and some of it was length of haul. If you kind of remove those impacts, where would you guys say you were on a more of pure rate basis?

Paul A. Will

Probably at 2%. I mean, I'd have to get to...

Jason H. Seidl - Cowen and Company, LLC, Research Division

So it wasn't much, okay.

Paul A. Will

No, because if you think about length of haul going up, length of haul increase would reduce your rate a little bit. The different mix may increase it little bit, and then pure rate may be closer to 2% to 2.5% -- sorry, 2% to 2.2%. So I think you got a combination of 3 items to get you there.

Jason H. Seidl - Cowen and Company, LLC, Research Division

Okay, that's fair enough. That's still very impressive. When I'm looking at your year-over-year gains on sales, when do your comparisons start getting a little bit easier?

Paul A. Will

I'm sorry, with the gain on sale?

Jason H. Seidl - Cowen and Company, LLC, Research Division

Versus last year, so like -- when do you start lapping easier year-over-year gains on sales?

Paul A. Will

Well, we -- what we had said that -- is you'll see gains through first couple of quarters of this year, which -- that's when you saw about $1.9 million in the September quarter and $3.9 million in the December quarter, and then the last 2 quarters have only been $300,000 and $600,000. So you'll have September and December quarters of next year will be $2 million, call it, $4 million. So those would be significant year-over-year items that we'll lap over. I think the important thing is that the last couple of quarters, those numbers have then been kind of purer, independent of gains. And more specifically, this quarter at $0.31 was -- we only have, basically, a $0.01 of gain, so therefore, we did $0.30 pure operations, which we're pretty pleased with.

Jason H. Seidl - Cowen and Company, LLC, Research Division

Okay. And thinking about CapEx, you made a very big point of saying you're really not going to need trailers, say, for any specific event that might come up for a while. So how do you think about, Paul, your sort of maintenance CapEx levels when you do go to sort of refresh that fleet again? What number should you think about -- should we think about on an ongoing basis?

Paul A. Will

We -- because it's so far out we really haven't laid that out at this point in time, what we'll do is instead taking the trucks over a 2- or 2.5-year period like we did this time, we'll probably stretch it out, more like 3 to 3.5 years. So we'll start bringing them in at that. But what do you think net, $50 million? Net -- maybe net CapEx of $50 million a year when we start...

Operator

Our next question comes from Robert Dunn.

Robert Dunn - Sidoti & Company, LLC

I was just wondering if you've seen -- I know it's still early. But have you seen any divergence in terms of the safety records relative to prior averages of the guys coming out of the schools?

Paul A. Will

We closely monitor that. And one of the ones that we have looked on an acquisition. They started school probably 3 or 4 months before we did the acquisition of a piece of their business, and they've been really pretty much growing 100%, refreshing their -- any of the drivers that they lose with their school. They had really good experience and no difference with their students coming out as opposed to what they have from experienced driver standpoint. We probably have about 124 grads currently that are in trucks, running in trucks that came out of the school, worked with a trainer for a period of time and now are on their own. And we have not seen anything substantially different with them compared to our existing fleet. And kind of the thought is, if you think about it, as a new driver, you're behind the wheel. And the good thing with Celadon is we have over 800-mile length haul. So when you're behind the wheel, you're behind the wheel for a long period of time. In essence, you're not doing as much LTL inside cities, maneuvering around. You're really more on the open road, which is less opportunity for accidents from that perspective, being stuck in traffic, et cetera. So -- but when you look at that, maybe an experienced driver may come in and maybe a little bit more confident than he should be and be in a situation where he may get in accidents more than someone that's a little bit more cautious. So, so far, to this point in time, we've actually seen no difference between the safety experience on an existing driver that has experience compared to a driver coming out of school.

Stephen Russell

Which, frankly, surprise us somewhat, but it's actually pretty decent.

Operator

And our next question comes from Todd Fowler.

Todd C. Fowler - KeyBanc Capital Markets Inc., Research Division

My follow-up question was already asked.

Operator

And our next question comes from John Larkin.

John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division

Just one last straggler of a question here. We haven't heard any comments on the application of your refrigerated trailers in the marketplace. How's that working? And are those trailers in dedicated applications, or are they running more of an irregular route network?

Paul A. Will

We currently have about 90. We're bringing -- we've announced that we're bringing 200. We had 40 associated with previous acquisition and -- that we did in Warren, Indiana, with Rock Leasing. And then we brought on 90 new ones subsequent to that, so about 130 in total. They're running part of them -- 50% are more dedicated, 50% are more irregular route. And what we're trying to do with those is put them in more dedicated-type lanes, even if it's not dedicated round trip, but dedicated more between 2 customers, out and back. So, so far, we've -- we're pretty satisfied with what we're doing. The rates are -- we finding is better than what we're getting from a drive-end standpoint. And we find -- have found that the drivers have been -- actually, the retention of those drivers have been better than our driving as well.

John G. Larkin - Stifel, Nicolaus & Co., Inc., Research Division

Are you working mostly with existing customers where you also provide dry van service, or are these totally new customers?

Paul A. Will

No. There are some new customers, but most of them -- the reason we got into it originally, which is we were getting asked by a lot of our existing customers. So as part of our overall service offering to those customers, more on a dedicated-type basis, we would supply refrigerated. But we do have a couple of new ones as well that have come on because, obviously, we want to balance those individual or given lanes, right. So if it's existing customer and they're going from point A to B to go from point B to back to point A, we'll get a different customer on the refrigerator side. But we'll do -- we'll put dry in the -- in refrigerated as well, like others do.

Operator

[Operator Instructions] And I'm showing no further questions at this time.

Stephen Russell

Thank you, Dan. Thanks, everybody, for participating. And any specific questions, feel free to reach out to Paul or whomever.

Paul A. Will

Thanks, everybody.

Stephen Russell

Thank you. Bye-bye.

Operator

Thank you for attending today's call. You may now disconnect.

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