Celadon Group, Inc. F3Q10 Earnings Call Transcript

Apr.28.10 | About: Celadon Group, (CGI)

Celadon Group, Inc. (NYSE:CGI)

F3Q10 Earnings Conference Call

April 27, 2010 10:00 AM ET

Executives

Steve Russell – Chairman and CEO

Paul Will – Vice Chairman and CFO

Jon Russell – EVP

Chris Hines – President and COO

Analysts

Mike Adewin – Wolfe Research

Todd Fowler – KeyBanc Capital Market

Jack Waldo – Stephens Incorporated

Chaz Jones – Morgan Keegan

Mike Baudendistel – Stifel Nicolaus

Jeff Coffman – Strom

Barry Haimes – Sage Asset Management

Operator

Good day, ladies and gentleman, and welcome to the quarter three 2010 Celadon Group earnings conference call. My name is (Medusta) and I will be your operator for today. At this time, all participants are in listen-only mode. Later we will conduct a question-and-answer session. (Operator Instructions). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the conference over to your host for today, Steve Russell, Chairman and Chief Executive Officer, please proceed.

Steve Russell

Thank you very much (Medusta). Welcome to the third fiscal quarter of 2010 fiscal year press release teleconference. And I am joined here in Indianapolis by Paul Will, our Vice Chairman and CFO; Chris Hines, President and COO; and John Russell, our Executive Vice President, in-charge of our non-asset based businesses. I would 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 SEC filings contain additional information about factors that could cause actual results to differ from management expectations.

From the $0.10 a share loss that we incurred in the March '09 quarter, our results improved to a $0.02 profit in the March '010 quarter, therefore an increase of $0.12 in earnings per share. As indicated in our press release, our increase in loaded miles accounted for a pickup of $0.17 per share. Loaded miles improved by 18% year-over-year. Domestic business group driven by new customers and growth with existing customers changes in our sales force was a key factor in our success with new customers.

Our business between the US and Mexico grew significantly as Mexico has become more competitive with China and elsewhere as the Peso went from 10 to the dollar in September of '08 to roughly 8 to the dollar at this point, reducing Mexican labor and other costs by 20% when expressed in US dollars or in Euros or other currencies.

Although, the average rate per loaded mile improved marginally from the December 2009 quarter, which by the way is the first consecutive quarter increase in many quarters and a $1.39 per mile, it was down about $0.057 cents from the March '09 quarter and $0.15 for the peak in December of '06. The adverse impact of the $0.06 rate reduction was a decline of $0.10 in earnings per share. So the net impact of the increase in loaded miles and the lower average rate is a net positive of $0.07 March '010 versus March '09. The other $0.05 were principally other factors including the effect of a series of cost reduction actions that we took early in the 2009 calendar year, which more than offset higher fuel costs and certain other factors.

The impact to the drop of $0.152 in rate per loaded mile compared with the average rate in December '06 cost us $0.27 per share in the March '010 quarter. Utilization was 842 miles per truck per week in March '010, compared to 1962 in March '07 quarter three years ago. The affect of the 120 mile per week decline had an adverse impact of about $0.07, so essentially rate and utilization cost us a total of $0.34 compared with the prior periods.

Before opening for questions, a couple of other points. Our non-asset based business has continued to expand profitably with the only negative relating to a decline in truckers B2B results as a consequence of the pain, the smaller and midsized fleets have experienced particularly with the relative inability for those fleets who obtained bank lending or capital.

Dedicated logistics and intermodal continued to grow. Although brokerage is growing, margins have contracted due to the overall supply and demand situation in the industry. No bank debt and just under $10 million in cash evidence our positive financial position. Further, our average truck is about 1.4 years old at this time and so we have no plans to place orders for any new tractors or trailers for some time but at least a year.

On Friday, April 23rd, we celebrated the 25th Birthday of Celadon by ringing the opening bell at the New York Stock Exchange. Early last week, we received what I considered a similarly wonderful event when we received Wal-Mart's top carrier award for 2009 as we received the Diamond Award for Carrier of the Year demonstrating outstanding service. We felt quite honored in receiving that award. Last week, we were also named as one of the 10 best places to work in the State of Indiana.

(Medusta) we would be happy to open the floor for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from the line of Edward Wolfe, please proceed.

Steve Russell

Thank you, Ed.

Mike Adewin – Wolfe Research

Hey guys, this is (Mike Adewin) for Ed. Ed's going to be in a little bit. Just quick question, if you can discuss the amount of off balance sheet operating leases versus CapEx going forward? And how should we think about that in terms of the impact on the OR versus pretax earnings as you decrease CapEx and you utilize more of these leases?

Steve Russell

Paul want a chance with that?

Paul Will

Hi, currently we have got about $193 million with off balance sheet debt and on balance sheet debt we have got the remaining balance to reach up to $233 million. As leases expire, we continue to buy leases out. So therefore, you will see a shift going from operating expenses to own equipment therefore depreciation and amortization. Over time what that does obviously is it takes the interest component and drops the balloon line into the interest expense if it's funded. And if it's not funded, you pick up the interest expense from the cash flow from operation taken out of the rent expense line.

Steve Russell

Of the $193 million, Paul how much is sort of the net residual payments in order to the value of the truck at the (inaudible).

Paul Will

Of the $193 million, about $93 million. So it's about a half, little less than half.

Mike Adewin – Wolfe Research

Okay.

Paul Will

What Steve is referring to is that we typically and since we have replaced our whole fleet basically over the last few years, that means that unlike some fleets, we are not carrying any equipment that is under water, because everything has to flow to the balance or through the income statement. And as a result, the residuals we take the equipment to we believe are pretty representative off the market even in this depressed market. So, therefore, you could always refinance that equipment at that level and continue to run as we did, three-year operating leases even though we have gotten some warrantees for four years.

Mike Adewin – Wolfe Research

Okay. I mean we could expect a little bit more pressure on the OR just going forward I guess given the operating leases.

Paul Will

No, I think what you will see right now, and this is probably our high mark as far as equipment cost. If you take a combination of depreciation revenue equipment rentals, and then I think you will see that number trend down over the next two quarters and then kind of reach a level that you will see for a period of time until we start replacing equipment on again.

Mike Adewin – Wolfe Research

Okay, thanks. And then could you talk a little bit about potential implications as you see CSA 2010 and how maybe that will affect driver capacity and carriers on the road going forward?

Steve Russell

Yes this is Steve. Basically I have been very active at the ATA over the last 10 or 12 years. I have been Chairman of Homeland Security on the Executive Committee, the ATA I am actually Chairman of the Audit Committee. So a lot of those discussions have been held at the ATA and that's the American Trucking Association.

What we expect is that it's going to have two principal impacts. Impact number one is smaller fleets where they are not being audited on any regular basis by the US Department of Transportation. Smaller fleets have had therefore more flexibility than bigger fleets; will get audited every three years or something like that. As a consequence, the drivers are now going to be the ones that are going to be measured much like every state has with every individual driver and even a passenger car driver.

So we expect that that's going to hurt the utilization by fleets with under 200 trucks or so. The second this is it's going to affect the number of drivers on the road, that's a tough guess to make. The best estimate that appears to hit somewhere in the probably the 5% to 7% range in terms of the reduction in drivers because of the efforts of the US Department of Transportation to exclude drivers that are unsafe though I think it will adversely affect the number of drivers which maybe a positive to bigger fleets, because it will provide less capacity and it should hurt the utilization, and therefore the financial results of smaller fleets. I hope that answers the question.

Mike Adewin – Wolfe Research

Just a quick follow-up, do you plan on maybe getting ahead of this driver kind of capacity tightening and maybe raise driver pay in the near term?

Steve Russell

We are evaluating that situation. Basically we since that relates to what our rates are to a customers. So they were both related to each other from an economic standpoint. But at this point, we are following it very closely.

Mike Adewin – Wolfe Research

Okay, thanks a lot for the time guys.

Steve Russell

Thank you, Mike.

Operator

Your next question comes from the line of Todd Fowler with KeyBanc Capital Markets please proceed.

Todd Fowler – KeyBanc Capital Markets

Hi, good morning, Steve, and good morning, everybody else.

Steve Russell

Good morning, Todd.

Todd Fowler – KeyBanc Capital Markets

Steve, can you talk a little about the size of the fleet here during the quarter? I have got the average fleet count up about 5% year-over-year. Is a lot of that new capacity or is that increased use of owner operators during the quarter?

Steve Russell

No part of that is trucks for sale that basically we probably have, how many trucks, Paul? About 200 too many or something like that because we took, we wanted to get pre ‘10 engine trucks into the fleet, so we took a fairly significant number of those in ‘09 and towards the end of ’09. So there's probably about 200 to 250 trucks that are up for sale. We now have our own used trucks lots. So we're finding it an effective tool to do that and we think it'll probably take a couple of more months to get those out of the fleet.

Paul Will

I think I explained at the end of the period, the average trucks include some trucks that were in transition. So it doesn't mean that necessarily that's every seated truck, it means the average trucks are in operation.

Todd Fowler – KeyBanc Capital Markets

Okay, so sequentially the average fleet count for, let's say the fiscal fourth quarter should decline from where we were here in the March quarter and that should trend same way for the rest of the year.

Paul Will

Yes, the number of trucks -- our expectations is seated count will be the same or maybe up a little bit but the actual trucks themselves, the idle trucks or trucks in transition should continue to dwindle and that's why I said earlier on the call that what we expected that with the higher mark for equipment cost, that should trend down over the next two quarters.

Todd Fowler – KeyBanc Capital Markets

Okay, and then Paul do you have the number of owner operators that were in the fleet during the quarter?

Paul Will

During the quarter we had 236 in the U.S. and 93 in Canada.

Todd Fowler – KeyBanc Capital Markets

Okay.

Paul Will

That’s a total of 329.

Todd Fowler – KeyBanc Capital Markets

Okay, and then, Steve, can you walk us through the quarter from a utilization standpoint what you saw with miles per tractor during January-February and then into March and if you have any comments on April that would be helpful as well.

Steve Russell

Basically the first couple of weeks in January were weak as they've always been weak in our business particularly because Mexican holidays tend to go into January 10th or something like that. It's then been very strong since then and it's continued strong. And the overall level of driver utilization, miles per week per driver are up significantly from a year ago and overall the demand level is quite satisfactory.

Todd Fowler – KeyBanc Capital Markets

So what would have miles per tractor or loaded miles look like in March?

Steve Russell

We don't split up those numbers generally. They were -- if one were to look at it versus the prior year, we were up probably in the 20% range.

Todd Fowler – KeyBanc Capital Markets

Okay, and then with the comments on profitability for the quarter basically trending kind of in the same way, I'm assuming that January and February would have been more difficult but you were willing to make in most of the quarter in March.

Steve Russell

Yes, March was reasonably profitable; January and February historically have been very poor months from our –

Paul Will

The weather in February.

Steve Russell

Yes, the weather in February adversely affected that as well.

Todd Fowler – KeyBanc Capital Markets

Do you have an estimate of what weather would have cost you during February or a way to think about the impact of weather during the quarter?

Steve Russell

If you look at miles alone that were lost because of the specific storms and one in Dallas, one in the Midwest, two in the East Coast whatever that was, it probably had an adverse effect of about $0.02 on earnings.

Todd Fowler – KeyBanc Capital Markets

Okay, and then the last one and I'll turn it over to somebody else. But Steve at this point can you talk about where your concentration, where your exposure is. I know you guys have moved away from having a lot of automotive exposure, can you talk about how much auto is right now in the freight base and what's some of the other main verticals are right now given the recent account wins and share gains over the past in really a couple of years I guess at this point.

Steve Russell

The total automotive is probably in the 3% range. There is some business with Honda, Volkswagen and the larger ones in the automotive side but that 3% probably include tier 1 kind of suppliers as well.

If you look at Wal-Mart, our largest customer it's just under 5%; it’s about 4.5% of our business; a lot of consumer (inaudible), a lot of food and Procter & Gamble, Kraft, Kellogg's. I think if you added the top 25 customers together, it's probably 22% of our business, it's a very diverse customer base. And from that standpoint, we had an audit committee meeting yesterday before announcing earnings with our auditors and quite interestingly we have not suffered through the economy in any meaningful way with bankruptcy. So we've got a pretty tough standards from the standpoint of the health of our customer base as well.

Todd Fowler – KeyBanc Capital Markets

I'm assuming your referring to collection on receivables and –

Steve Russell

Yes.

Operator

Your next question comes from the line of Jack Waldo with Stephens Incorporated please proceed.

Jack Waldo -- Stephens Incorporated

I wanted to ask you, how did rates progress throughout the first quarter?

Steve Russell

January and February they sort of followed where the December quarter was. March was up in a relative sense and that's continued -- that trend has continued. We've heard things from reliable sources that a year ago a company wanted that wanted to book a 100 loads a day, a shipper got three or four turndowns this year, they're getting 30 turndowns. The reality is that capacity has gone way. It's the reason that brokerage margins are down for us but also (inaudible) lease down from C. H. Robinson. It’s tough trying to pull out the C. H. Robinson numbers but it looks like between March quarter and a year ago their margins went from 20% to 16% or 15%. We're realizing the same thing in terms of the toughness in margins because spot rates are up in virtually every area and we're seeing customers more acceptable to rate changes.

Jack Waldo – Stephens Incorporated

And on the spot market, how did the spot market pricing trend throughout the first quarter and how is that relative to bid pricing?

Steve Russell

Spot pricing trended up in each month and February was better than January and March was better than February and it's virtually all over. I mean on our January conference call we said spot rates were up in a couple of areas but it's now all over the place.

Jack Waldo – Stephens Incorporated

How much do you think it's up here to date? Is it 5%, 10%, 15%?

Steve Russell

We've actually looked at that number and Paul was –

Paul Will

It's up 6% if you look at it from the January to March timeframe.

Jack Waldo – Stephens Incorporated

Six?

Steve Russell

Six percent in perhaps in broker and spot rates.

Jack Waldo – Stephens Incorporated

Got you and what about on the bid side?

Steve Russell

On the bid side, we're not going to quote that number but we are seeing that become a reality as well. Now the bids, of course, most shippers went out for one-year bids; some shippers have not – like they went out last March and the rates, and the commitment rates ended in March 31st of this year. Some shippers are not going out for bids, which means their rates expire and it's up to the carrier to be proactive to change those rates. Some shippers are going after bids but I think the general sense of the industry today is that rates are strengthening.

Jack Waldo – Stephens Incorporated

So is it fair to say you'd expect another sequential improvement in rates here in the upcoming quarter?

Steve Russell

I think that's likely.

Jack Waldo – Stephens Incorporated

Okay, fair enough. Maybe could you talk a little bit about the capacity side, maybe from what you're seeing on truckers B2B, what do you think happened on the capacity front?

Steve Russell

Jon, you want to discuss the specifics of that?

Jon Russell

Sure and we're seeing both on our brokerage internal side as well as on truckers BtoB in a difficult situation of the small fleet to mid size fleets. In March of ’08, we actually just ran the numbers for truckers B2B and in the March of ‘07 quarter we saw roughly about 1100 fleets leave our membership although we added significantly more than that in the prior nine months. So we're just looking in our fiscal comparative, so March of ‘07 for the nine months in that fiscal year we saw 1100 fleets leave. In March of ‘08 we saw 1100 fleets leave and March of ‘09 we saw 30% uptick and we saw 1400 fleets leave. In March of 2010, we have seen 2100 fleets leave. So 100% from two years – three years now.

So we are certainly seeing and it is more reflective in that 1 to 15 fleet market as opposed to the 2200 fleet market in terms of power units and really that's your core brokerage customer, the ones who don't have their own sales force, the ones that need to go out there and just take what the market gives them and we are seeing that very similar capacity crunch in our brokerage unit as well. Certainly a little more geographically focused but very difficult environment.

Steve Russell

The other thing that we're seeing is and we discussed this in January but it’s accelerated, many fleets, parking trucks because they can't get funding and that's the only way to create cash. By parking a truck, you save $800 or $900 a week on the driver by firing the driver, $1000 a week in fuel, a couple of hundred bucks in maintenance etcetera. And then you could use that parked truck to provide parts of tires for the trucks that are still running.

Reality is that's created a factor in the shortage and then the capacity shortage and we're seeing that really on almost the national basis. But then those 550 tractor fleet based in McAllen, Texas, USA Logistics Carriers and we're doing business to and from Mexico, they filed chapter 11 four weeks ago. Will they come out of chapter 11? Maybe they will but if they do, it'll be with a 100 trucks, not 550. That’s affecting people, shippers and also it's a 200 tractor fleet, drop 50 tractors and park them. The only way that those fleets can get those trucks running again is put them back into shape and then borrow five weeks of running cost until they start collecting the receivables though we're not seeing that happening and I think that's a factor. So it’s not just the fleets going out of business, it’s the reduction in the number of trucks that fleets are running.

Jack Waldo – Stephens Incorporated

How much of the improvement are you seeing in trucking is a function of supply and how much do you think is a function of demand?

Steve Russell

I would ask somebody with the Federal Reserve Bank to give you that answer. I think demand is ticking up. I don’t think it’s going up loudly, but capacity is dramatically going down.

Jack Waldo – Stephens Incorporated

So in this environment Steve, what would you think would be a logical expectation for rates by the end of the year? I know Knight was talking about somewhere around a 3.5% to 5% increase. Is that something you would agree with or –?

Steve Russell

Rather than quoting myself, I am going to quote Max Fuller, who is a very smart guy, who is the Chairman of US Express and gave a speech at an investor conference in middle of February. And he said, he expects double digits at least 10% within 12 months.

Jack Waldo – Stephens Incorporated

And you would agree with that?

Steve Russell

I don’t disagree with that.

Jack Waldo – Stephens Incorporated

Okay, fair enough. Thank you guys very much for your time.

Steve Russell

Thank you.

Operator

Your next question comes from the line of Chaz Jones with Morgan Keegan. Please proceed.

Chaz Jones – Morgan Keegan

Yes, good morning, everyone.

Steve Russell

Hi Chaz.

Chaz Jones – Morgan Keegan

Just one last question on rates, can you us the sense at all how much between now I guess and the end of the year of your business might renew?

Steve Russell

I will give you an example and this is anecdotal, it’s one specific example. But with a customer – it’s been a customer for a while, a rate from Texas to the Midwest which was $0.71 a mile and now it’s down from probably $0.90 three years ago, we just renewed at $0.86. Now, how fast can you do that? We have got probably 5,000 customers. Many of them have bids which should expire in May, June, July, August, and September, whatever. And so it’s going to be very difficult to pinpoint when it’s going to happen.

Chaz Jones – Morgan Keegan

Yes, but it’s fair to say that you are probably not going to turn through a 100% of your business in the next three quarters.

Steve Russell

What do you mean by churn?

Chaz Jones – Morgan Keegan

Well, I am just saying you won’t renew a 100% of your contracts in the next three quarters.

Steve Russell

I am sure we won’t renew a 100%.

Chaz Jones – Morgan Keegan

Okay. I guess that’s what I was trying to get at is I think everybody clearly sees pricing moving higher, but I guess I am trying to get at was how much of your businesses has actually going to get a rate increase between now and the end of the year?

Steve Russell

Well, I mean, if one were to look at the macro sense, our average length of haul is about 900 miles. A $0.15 increase is a 150 bucks or a 135 bucks, something like that. The typical value of the goods we shipped is probably $60,000 or something in that range if the shipper wants reliable capacity and needs reliable capacity. So our rate increase is possible. These rates – our average rate is down close to $0.15 over the last three years, while there is – well, maybe be 2% a year inflation in America. So it –

Chaz Jones – Morgan Keegan

It’s tough being a trucker.

Steve Russell

Yes, we are doing what it takes to be a healthy company for our employees, for our shareholders, and for our customers.

Chaz Jones – Morgan Keegan

Okay. And getting off upgrades, have you guys seen any material change in driver turnover, I guess if you can compare this quarter to maybe the year-ago quarter?

Steve Russell

Yes, there has been a decline in driver turnover compared with the year-ago and that’s true in the industry as well.

Chaz Jones – Morgan Keegan

Do you have any driver turnover numbers? I know historically you guys, we are below industry maybe around 70% of new (inaudible)?

Steve Russell

Yes, I mean if you look at voluntary turnover, it’s probably in the 40% range or so. And involuntary, where we are asking somebody to leave for whatever issues is probably another 20% or 25%.

Chaz Jones – Morgan Keegan

Okay. And one housecleaning –

Steve Russell

And the other thing that is a factor and there is really two, one is our average drivers’ miles are up substantially and we have a very new fleet. So to a seasoned driver, those two things are very, very important. One is miles being up, means he is more money or she is making more money. And being in a one point – an average of truck of 1.4 years old, I suppose the average over the road truck is 5.5 years, they have good reasons to work for us.

The other factor that’s I – we find really quite satisfying is, we have reduced non-driver personnel by 12% in the quarter compared to a year-ago. And yet our loaded miles were up 18% and this – the length of haul is about the same. So therefore, the number of transactions were up 18%, the number of people managing those trend – doing their transactions were down 12%. And that was achieved through some wonderful technology by our IT people and by as a much harder work by a lot of our folks. But we have really I think come through this as a much better company that we used to be.

Chaz Jones – Morgan Keegan

Yes, absolutely, the cost rationalizing that you guys have done in the last 12 months has been pretty phenomenal. Do you have an operating income number for truckers B2B?

Steve Russell

Yes.

Paul Will

$289,000.

Steve Russell

A little back for the quarter. I know it’s down like $30,000 or $40,000 a year-ago.

Paul Will

Yes, it was down roughly 7%.

Steve Russell

Okay.

Chaz Jones – Morgan Keegan

And last question and I will get back in the queue. I guess it looks and I know last year a big drag was Mexico with the devaluation of the Peso. But I guess if you kind of zip through the numbers, is Mexico starting to pick back up for you guys materially and it looks it is year-over-year?

Steve Russell

Yes, actually Mexican miles were up substantially. They were up about 30% year-over-year. And I saw Kansas City Southern’s announcement and they are seeing business up. The biggest factor is that Chinese Yuan didn’t devalue if anything there is some discussions of course of it being revalued upward. The Peso devalued by basically 20%, which really reduced cost in Mexico and Mexico became much more competitive in addition with fuel prices up, the cost of bunker fuel for moving the goods from China or India or going up.

And so that’s essentially Mexico, I mean Whirlpool has shut up a plant in Evansville over a 1000 employees I think and shipped it to Mexico. John Deere has done shifting to Mexico. The Fiat is going to build in Mexico. They were the one that’s built in Europe. So I think Mexico’s has become far more competitive with the rest of the world. The violence and drug related issues, that’s a challenge, it’s not really affected business yet. Whether it will or won’t we don’t know. But frankly the reality is that the only way that’s going to be stopped is if the US begins to legalize marijuana in my view. But of course short of that it’s (inaudible) pretty tough see that the crime go away in Mexico.

Chaz Jones – Morgan Keegan

Well, you guys certainly seemed well positioned to capitalize on that. (Inaudible) if that continues to play out. Nice quarter, I will jump off.

Steve Russell

Thank you, Chaz.

Operator

Your next question comes from the line of Mike Baudendistel with Stifel Nicolaus. Please proceed.

Mike Baudendistel – Stifel Nicolaus

Hi Steve and Paul, good morning.

Steve Russell

Hi.

Mike Baudendistel – Stifel Nicolaus

Before, when I talked to you guys, you talked about a privately-held competitor in the US and Mexico lane has filed Chapter 11. They are fairly confident that there will be a large number of trucks coming out. Wondering if you had any more visibility into that as to just how many trucks are maybe coming out of that situation?

Steve Russell

They had 550. I would guess they are probably running 300 now, 300 to 400 now, what's going to happen over the next (series) months as to what – whether they come out or not come out, we don’t know.

Mike Baudendistel – Stifel Nicolaus

Okay, and another question is you guys have talked about maybe gaining some share and increasing volumes over the last year or so by offering prices that maybe were a little bit more attractive than you otherwise were to gain some volume under the theory that as the incumbent carrier, you would be able to raise rates when things do improve. Are we at the point yet where we are raising rates and that rate that you won recently?

Steve Russell

Chris, you want to answer that?

Chris Hines

We actually began on bids that were expiring in November and December of last year starting to ratchet up our bid prices. And we do have a couple of cases with some large shippers where year-over-year we will have an increase going forward this year and from their bid packages that were in the first quarter.

Paul Will

We are in a different position now, Mike because basically we have demonstrated the service capabilities and that's very, very important to a shipper at the end of the day.

Mike Baudendistel – Stifel Nicolaus

The new sales overhaul, just wondering it sounds like you have (inaudible) with the productivity of the salesmen. Am just wondering if you would consider those be among your most productive sales man at this point and were there any kind of new customers that you can point to either by name or by (inaudible) category?

Paul Will

We have made tremendous progress with the sales force. We have added a group of customers brought in by that sales force. I would rather not be specific on the phone in terms of what customers but certainly been very, very effective.

Mike Baudendistel – Stifel Nicolaus

Okay, good. And I think I missed it early, you talked about spot rates increasing. Are you also seeing increasing contract rates at this point?

Paul Will

We are making progress, yes.

Operator

Your next question comes from the line of Jeff Coffman with Strom. Please proceed.

Jeff Coffman – Strom

Just a couple of follow-up questions. You mentioned you burn a lot of trucks very late in the quarter. It looks like the empty to loaded ratio deteriorated about 110 basis points. Was that purely because of the trucks that were brought in late or how did that transfer the quarter?

Steve Russell

That’s not true, Jeff. The way you could determine empty ratio is divide the rate per total mile by the rate per loaded mile. Now, when you do that you will see we actually improved to about 100 basis points the March quarter of ’09 to the March quarter of ’10.

Jeff Coffman – Strom

All right, I will recheck my math. I got 89.9% loaded versus 88.9%. So, okay.

Steve Russell

Yes, you are right.

Jeff Coffman – Strom

On the other way, you are right.

Steven Russell

Yes, you are right.

Jeff Coffman – Strom

110 the other way, thank you. How did that – what did that become as you brought these trucks in line? Can you just give me an idea how that empty mile percentage varied through the quarter?

Steve Russell

Unrelated to that. I mean basically we take delivery of trucks in Minneapolis. So it’s not enough for the fact. The reason the ratio went down is there was a greater abundance of freight and therefore the selection process led us to dead head.

Jeff Coffman – Strom

I am hearing rumblings about changing some of the trucking rules, trucking regulations along the Mexican border. Can you talk about what you are hearing in that respect and how it may or may not affect the company?

Steve Russell

Secretary Lahood of Secretary Transportation has put together a group or is putting together a group to work on that with the objective being to open the border. Congressman Defazio, from I think Oregon has led an effort, and I think 150 signatures from Congress, from representatives against opening the border. The answer is we don’t know.

The board was supposed to open in 1994 and NAFTA was approved. President Clinton had it delayed five years, was then supposed to open in ’99. There was a suit from the union against it. It was then going to open in 2002. The answer is pilot tests were run in 2007. At my age I don’t buy green bananas and I am not expecting that the border will open in the next few weeks.

Jeff Coffman – Strom

All right, very good. One final question. I apologize, I was listening to the Kansas City southern talk about how great Mexico is in the early part of this call. You gave the trucker BtoB OpEx number. Did you talk at all about the revenue number and could you give me an idea for what the revenues were on a year-on-year basis and for the quarter?

Steve Russell

Sure. Our revenue was down roughly about 5%, 6% just under $2 million in the quarter.

Paul Will

Our revenue is really the rebates we received.

Steve Russell

Yes, that has nothing to do with the product value. It is simply the rebates and commission we are being paid.

Jeff Coffman – Strom

Okay. Congratulations. I mean tough quarter, you guys improved the operations. Thank you very much.

Steve Russell

Thank you. I really appreciate that Jeff and I think on a year-over-year basis, we accomplished a lot.

Operator

You have one final question from Barry Haimes with Sage Asset Management. Please proceed.

Barry Haimes – Sage Asset Management

I had just a couple of quick ones. One is just customarily represent if any, which just runs spot for you guys versus what percent of contract? And then the second part of the question is for all the contractor bid business, what percent is already locked in for the year? So maybe it was renegotiated in December, early January and goes for December versus what percent – in theory you could try to reprice because it’s up either already or at some point over the next few months? Thanks.

Steve Russell

Two answers. The first question regarding spot and broker business, broker business is under 2% of our business right now, spot about 2%. The difference is spot is in different load with existing customers. So spot and brokerage is about 4% in total. And with regard to commitments, we have commitments with customers for honoring rates through a certain period of time whether that's a month from now or three months from now or whatever. However in this industry it’s unlike the tanker business, ship tankers where it’s take or pay and you got to commit to it. In this business, the shipper doesn't commit a finite number of loads nor does the carrier commit to move those loads. So the reality is it depends on the capacity and the capacity available and what the opportunities are.

So in many instances, there is billing for dead head in this kind of environment in order to take one load versus another load. So there is more flexibility than there is in other modes of transportation.

Barry Haimes – Sage Asset Management

Right, so same in reality most of the freight can be repriced at some point this year?

Steve Russell

Yes, but we do honor commitments that the company makes. So that's not in either way a 100% of the business.

Operator

I would now like to turn it over to Mr. Steve Russell for closing remarks.

Steve Russell

Thank you very much everybody for joining. Any questions folks are free to call in any people in this room. And I have been in this industry, I was President of what it’s now called Penske Trucks, it was (inaudible) Trucks in between 1973 and 1975 and this industry has been cyclical not only since then but as I have often (tend to see) Egyptians or the (inaudible) invented the first cart. And this is another phase of the cyclicality that poses. We saw very wonderful cycle between 2004 and 2006. We saw a horrendous cycle between 2007 and 2009, and all of the factors seem to be very optimistic right now.

Thanks very much for joining the call and well, thank you, bye-bye.

Operator

Ladies and gentlemen, that concludes today’s conference. Thank you for your participation. You may now disconnect. Have a great day.

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Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

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