Quality Distribution, Inc. Q1 2010 Earnings Call Transcript

May. 9.10 | About: Quality Distribution, (QLTY)

Quality Distribution, Inc. (NASDAQ:QLTY)

Q1 2010 Earnings Call Transcript

May 6, 2010 10:00 am ET

Executives

Joan Rodgers – Director, Financial Reporting & IR

Steve Attwood – CFO

Gary Enzor – CEO

Analysts

Alex Brand – Stephens

Mickey Schleien – Ladenburg Thalmann

David Campbell – Thompson, Davis

Jeff Kauffman – Sterne Agee

Kevin Sterling – BB&T Capital Markets

John Larkin – Stifel Nicolaus

Operator

Good day, everyone. Welcome to the Quality Distribution first quarter 2010 conference call. Today’s call is being recorded. For opening remarks and introductions I would like to turn the conference over to Ms. Joan Rodgers. Please go ahead, ma’am.

Joan Rodgers

Thank you, Melanie, and good morning, everyone. We are delighted to have you join us today for our first quarter 2010 earnings call. Our speakers today are Gary Enzor, our CEO and Steve Attwood, our CFO.

Before I turn the call over to Steve, I’d like to caution all participants that comments made by Quality’s employees during this conference call may contain forward-looking statements. Actual results could differ materially from those projected or expected in these forward-looking statements. Listeners are urged to carefully review and consider the various disclosures made by the company in this conference call and the risk factors disclosed in the Company’s annual report on Form 10-K for the year ended December 31, 2009 as well as other reports filed with the Securities and Exchange Commission.

Copies of the Company’s annual report on Form 10-K and other SEC reports are available on our Web site at www.qualitydistribution.com and on the SEC’s Web site. The company disclaims any obligation to update any forward-looking statements after this conference call. At this time all participants have been placed in listen-only mode. The forum will be open for questions following the presentation.

With that I’d now like to turn the call over to our CFO, Steve Attwood.

Steve Attwood

Thanks, Joan. Good morning, everyone. Thank you for joining us today. I’m pleased to provide the following overview of our first quarter results. Q1 revenue excluding fuel surcharge increased 3.7% over the same period last year even though 2009 results included revenues from our QSI wash business which was sold later in the year. More importantly, transportation revenues were 7.1% higher year-over-year and increased steadily during the quarter.

We achieved double-digit volume increases with many of our national accounts as demand increased in every geographical region and were particularly strong with freight originating out of the Gulf of Mexico.

GAAP earnings for the quarter of $0.04 per diluted share included pretax restructuring charges of $1.1 million, after adjusting for restructuring charges and normalizing tax rates the Company had $0.04 of adjusted earnings compared to an adjusted loss of $0.01 in Q1 of 2009. It’s worth noting although Q1 is historically our toughest quarter on an adjusted basis our Q1 earnings this year are more than half of what we earn for the entire year of 2009.

Our cash position continues to improve as well. We currently have $54.1 million of availability under our ABL facility, an increase of $9.4 million during the quarter and an $11.1 million since the end of Q1 2009. The Company is beginning to realize the earnings potential and cash flow benefits of our new business model.

As previously communicated now that our debt has been restructured and we’ve affiliated trucking operations our focus is on growing our business, both organically and through acquisition.

In April, Randy Strutz joined our team as Senior Vice President of Sales. Randy is aligning his team with our affiliates to jointly pursue new business opportunities.

On May 1st we announced the addition of F.T. Silfies, a dry bulk carrier with annual revenues were approximately $20 million to our affiliate network. We will continue to pursue acquisition opportunities to have the potential to help us grow profitably.

That concludes my prepared remarks. I’ll now turn the call over to Gary.

Gary Enzor

Thanks, Steve. This is a very exciting time for our Company. In the past two years, we’ve taken several major actions to strengthen our Company and better position us for future success.

We’ve changed our business model by affiliating trucking operations with partners who run independent businesses with average revenues in excess of 20 million. Our affiliates are strong operators who build excellent relationships with their customers and drivers. They also share our interest and profitably growing our business.

We dramatically reduced our cost infrastructure to by implementing close to 50 million of cost savings initiatives. Corporate headcount excluding Boasso has been reduced 35% since the beginning of 2008. Contracts for IT services, employee benefits, and fuel purchases have been renegotiated. We’re a much leaner company than we were two years ago.

We restructured our debt removing any question about our financial viability while moving all major maturities out to mid-2013. As earnings improve so will our ability to strengthen our balance sheet by reducing our leverage.

We continue to focus on safety. It makes good business sense. The regulatory agencies that govern our industry are pushing every carrier in that direction and is the right thing to do.

Our insurance and claims expense for Q1 was 2.1% of revenue, well below the industry average of other public carriers.

As I said in our earnings release, it’s great to be able to report year-over-year revenue growth. None of our competitors have the ability to bring additional capacity to the market to the extent that we do. Our pipeline of opportunities with both new and existing accounts continues to be strong.

I’m very excited to have Randy Strutz on board to help ensure we take full advantage of those opportunities.

As Steve mentioned volumes grew steadily during Q1. Early indications are that demand continues to be strong this quarter as well. April transportation revenues excluding fuel were up approximately 10% year-over-year and request for capacity is to support customer campaigns are up as well.

With the expectation and demand will continue to be strong, our affiliates are investing in additional tractors and we’ve ramped up recruiting efforts to ensure we can meet that demand. We’re aggressively pursuing opportunities on multiple fronts.

At this time, operator, we’d like to open the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions). We’ll go to Mickey Schleien with Ladenburg Thalmann.

Steve Attwood

Hello, Mickey.

Operator

Alex Brand with Stephens. Please go ahead.

Alex Brand – Stephens

Thanks. Good morning, guys.

Steve Attwood

Hey, Alex.

Alex Brand – Stephens

Gary, I don’t know if you can comment really on what’s normal, but assuming I mean it sounds like this year is seasonally looking more normal, right. Q1, you actually did maybe a little better than seasonally you might normally, but now you’re getting into the stronger period, sounds like April is doing well. If we think about Q1 and back and let’s say '07 when you would have had a fairly normal seasonal progression, what percentage of the revenue and earnings would Q1 typically account for during the year?

Gary Enzor

Alex, I don’t know that I can cut it right now real time to that level of detail, but Q1 and Q4 are usually our softer quarters than Q2 and Q3 are normally our stronger quarters. And I think we said in the release that this is the first Q1 in several years that we’ve actually had positive adjust to the EPS so that’s a good sign, but I don’t have the data in front of me that answer that with the right level of specificity for you.

Alex Brand – Stephens

Okay, fair enough. The plus 10% in April, is this just kind of existing customers organic or have you gone out and gotten new business that mostly accounts for that?

Gary Enzor

April revenues is generally organic, you know in the last call, Alex, we said January was flat year-over-year, February was up about 5% and then March was close to double-digits or double-digits and April is kind of tracking at that level. It’s really more market-based at this stage, which also tracks of chemical railcars as you have seen.

Alex Brand – Stephens

Right. I guess sort of two questions on the revenue outlook because it seems like that’s really all we need to focus on now. Is the chemical industry now or we now in a restocking mode or are we past that? Is there some kind of growth there? And then second part of that question is where are you in terms of you’ve been working really hard to get a lot of new business wins. Are we may be closer to actually getting some awards?

Gary Enzor

Yes, I think the first question we always say is difficult to answer how much is some type of inventory restocking versus general market, but since the chemical railcars have been basically on that rolling compare for probably approaching half a year now, been running double-digits I think we would say we’re generally seeing some market lift. We work the pipeline with our sales team and again we always say there is more than 75 million in there, there is again right now, and the opportunities can be anywhere from closing $3 million piece of freight to $10 million piece of freight. I wouldn’t say there is any unique about to close piece of revenue that’s any different in the way we normally work our pipeline now.

Alex Brand – Stephens

In terms of the ability to handle additional business, where do you stand in terms of like idle trailer capacity? And is there anything else that you would need to get to handle any additional business?

Steve Attwood

Alex, its Steve. We’ve got sufficient idle trailer capacity to meet increased demand and we’re continually trying to add to our inventory of trailers which are road ready, many of we’ve got idle trailers today we’re investing in them to the point where we can easily place them into service. The challenge obviously is a lot of carriers have is adding driver capacity, we’ve had a fair amount of success with that, I think we provide opportunities for our drivers that other carriers can’t, but that’s clearly where the challenge is and why we’ve ramped up recruiting efforts to make sure we can meet demand.

Alex Brand – Stephens

Thanks. My last question, Steve, is the compensation expense at the Q1 level, is this kind of about where we should base line it going forward?

Steve Attwood

There may have been a couple of anomalies in Q1, but you can see it’s obviously improved, as we move to more of an affiliate model, it should stabilize at roughly that level or just slightly higher.

Alex Brand – Stephens

Great. I appreciate the time guys.

Gary Enzor

Thanks, Alex.

Operator

Next we’ll hear from Mickey Schleien

Mickey Schleien – Ladenburg Thalmann

We got cut off apparently. My question was related to the new affiliate. Could you give us a sense of the structure of that contract and how much accretion there might be to EPS from that contract?

Gary Enzor

Yes, basically, the new affiliate F.T. Silfies is that a $20 million dry bulk carrier and as we bring them on board, we will structure the transaction so it’s favorable to them for the first 90 days, while they’re getting integrated and have additional costs. And at full run rate it’s approximately a nickel to $0.06 accretive to us once we’re past the start-up cost phase and we’re into normal profitability, which really probably starts about six months from now.

Mickey Schleien – Ladenburg Thalmann

And could you give us your operating cash flow and CapEx for the quarter?

Gary Enzor

Steve’s going to look that up real quick.

Steve Attwood

The operating cash flow for the quarter was a negative $4 million. There’s a couple of reasons for driving that. Well, the main reason was driving that was the payment of our last significant claimed, outstanding was finally resolved, was paid in excess of $3 million. We also had CapEx during the quarter, net CapEx about $3.2 million, a lot of that was attributed to the affiliation of a couple of Texas terminals, where in exchange for affiliating the balance of Texas (inaudible) back hundred and some of his traders which we then leased in return immediately to him, which provides a better revenue stream for us.

Gary Enzor

That’s the biggest driver on the negative operating cash flow was accounts receivable moving up an $11 million and that’s just volume driven so if that normalized you’d have an $11 million more cash in the quarter.

Mickey Schleien – Ladenburg Thalmann

Could you give us an update on your success with leasing the idle trailers? I know you hired a third-party to help you with that. Any update on that front?

Gary Enzor

Most of the work we’ve done internally and we’ve had some success, the number of trailers were leasing directly with third parties is growing and also is revenues continue to ramp, we’re starting to place more with the affiliates. The number that’s placed with the affiliates is not growing as quickly as the revenue line is simply because those trailers tended to be underutilized last year, our affiliates had excess capacity, but now the demand continues to increase we think we’ll be able to place more than in their hands.

Mickey Schleien – Ladenburg Thalmann

Okay. My last question, you filed an S-1 at the end of April. Any comments on the proposed timing of that transaction?

Gary Enzor

No, because we’re in a quiet period we really can’t say anything regarding the S-1 other than what’s in the S-1, so we can’t talk about timing or anything else.

Mickey Schleien – Ladenburg Thalmann

Thanks for your time this morning.

Gary Enzor

Thank you.

Operator

Next we’ll go to David Campbell with Thompson, Davis.

David Campbell – Thompson, Davis

Good morning, everybody.

Steve Attwood

Good morning, David.

David Campbell – Thompson, Davis

Pretty good numbers. I like that first quarter. What about the stock offering? It’s confusing. I mean is not a stock offering; it’s related to the note exchange, isn’t it? You’re not selling stock or are you?

Gary Enzor

Are you referencing the S-1 that’s filed, David.

David Campbell – Thompson, Davis

Yes. Yes, they came across the news tape on Friday and then Monday, you released the extension of the exchange offer for quality for senior notes and so forth. Is that the same thing?

Steve Attwood

No, I’m trying to make sure I understand your question, David. I think you’re talking about something different. You’re talking about the S-4 related to the debt note exchange and I got to get little back on that.

David Campbell – Thompson, Davis

Yes, right, there is an exchange offering. And then Friday there was a quick announcement about selling stock.

Gary Enzor

Yes, that was just the S-4 related to the notes, David, and it was just extending it for five business days. So you’re right that was related to the note transaction to the bonds.

David Campbell – Thompson, Davis

So there’s no stock offering? You’re not in the process of selling stock or are you?

Steve Attwood

There is no stock offering related to the S-4.

David Campbell – Thompson, Davis

Okay. Okay. So the S-4 is the only thing that related to any offerings? Is that correct? Or is there an S-1 stock offering as well?

Gary Enzor

Okay, David, we did file the S-1, which also came out and that’s for $65 million in the document, but there is not a stock offering in place at this time, it’s just for the registration for new stock.

David Campbell – Thompson, Davis

So it’s sort of like a shelf registration?

Gary Enzor

It’s not a shelf.

David Campbell – Thompson, Davis

Not a shelf? Okay. So the exchange offer is to delay the exchange in notes so that you have no debt payments until 2013, is that correct?

Steve Attwood

David, we have no debt payments other than $16 million on the old subs that mature in November. The balance of the debt any significant maturities are in mid-2013. We really can’t. As Gary said it’s anything more related to the S-1 other than what’s in the document we’d like to share more but we’re in the quiet periods, we can only refer you to that.

Gary Enzor

David, debt S-4 related to the notes which just basically a perfunctory issue because there were some glitches and it gave the unregistered note holders more time to get their notes registered. It’s purely a perfunctory issue on that S-4 filing.

David Campbell – Thompson, Davis

Okay. In terms of the acquisition in May, acquisition of a new affiliate was there capital costs involved in that or he just was attracted to you because of your network?

Steve Attwood

The affiliate will own all of his equipment. In this case it’s a dry bulk carrier with equipment which is non standard with most of our fleet and so the investment in equipment is entirely the affiliates.

David Campbell – Thompson, Davis

What was his attraction to you? I mean why did he want to join the Quality Distribution network?

Steve Attwood

I think for a couple of reasons, one because we provide as we do it to all our affiliates the back office support, sale support, cash flow benefits, the insurance protection, but also because we extended them a small loan, which provided some working capital allow him to pay off unsecured creditors and get the bankruptcy completely behind them and move on with as a viable company and be able to invest in their business and grow it.

Gary Enzor

It was a $3 million note, which is collateralized by equipment and other guarantees, and again, as I said earlier it’s approximately $0.05 or $0.06 accretive. So you can spend $0.06, it’s about $2 million of pre- tax profit so if you can invest $3 million and get back $2 million we like that transaction.

David Campbell – Thompson, Davis

Absolutely better. And that won’t start to be accretive until the fourth quarter?

Steve Attwood

Yes, early fourth quarter will be start becoming accretive, yes.

David Campbell – Thompson, Davis

In the meantime, it’s not accretive because of start-up cost –

Gary Enzor

Basically we waive a lot of our fees during the start-up 90 days just so they can get integrated and make sure we got everything working well together so it’s just start-up cost.

David Campbell – Thompson, Davis

Right. Okay. And the cost savings are pretty much done now is that correct in terms of changing the Company from somewhat asset-based to affiliate and most of the cost savings are in the first quarter?

Steve Attwood

Yes, I think that’s probably safe to say. Obviously, we continue to look for opportunities to reduce our costs infrastructure, but I think you can see from the P&L there’s fairly significant reductions in the fixed cost component so most of those costs have been fully implemented yes.

David Campbell – Thompson, Davis

And you said during the presentation about the fact that you can add capacity unlike your competitors. Why can’t competitors add capacity?

Gary Enzor

I think we’re referring to the scale. Since we’re basically twice the size of our next competitor and then once you drop down a few were multiples of the remainder just because of our scale they can add capacity to the extent we can. If we add 5% to our driver force, we had a 100 drivers to 150 drivers, most of our competitors they had 5% of their driver force, they’re going to add 10 drivers or 15 drivers so we can just meet the needs of our customers faster due to our scale.

David Campbell – Thompson, Davis

Okay. In April, revenue growth of 10%, it sounds great, but you add roughly 8% in the whole first quarter, at least you did it in transportation revenues. Your 10% includes other services as well, is that correct?

Gary Enzor

No, that was transportation.

David Campbell – Thompson, Davis

Just transportation? That’s good, but I mean it’s not a whole lot different than the 8% growth in the first quarter. Are you kind of stuck at 10% or is it related to the growth of the economy or do you feel like 10% is about as good as you can do?

Gary Enzor

Yes, since we don’t guide, probably I won’t give an exact number, but I will tell you we have many business opportunities than, as Steve said, we have plenty of equipment and we’re ramping up the driver recruiting efforts to match the driver capacity to the opportunities, so we will go after as much as we can get.

David Campbell – Thompson, Davis

Okay, thank you. I’ll let someone else have it.

Steve Attwood

Thanks, David.

Gary Enzor

Thanks, David.

Operator

Our next question comes from Jeff Kauffman with Sterne Agee.

Jeff Kauffman – Sterne Agee

Thank you very much. Gary, Steve, congratulations, very strong quarter.

Steve Attwood

Thanks.

Gary Enzor

Thanks, Jeff.

Jeff Kauffman – Sterne Agee

Steve, can you give us a breakout of the EBITDA by division?

Steve Attwood

We don’t report it that way, Jeff. I’ll tell you that as we’ve just stated before we really have and it’s all that we did, they’re not classic segments, but internally, I look at as two segments, Boasso and then our trucking business on Boasso EBITDA tends to run a little bit stronger on a percentage basis than our trucking business does.

Gary Enzor

I mean Boasso Jeff would be closer to 15% EBITDA.

Jeff Kauffman – Sterne Agee

I was figuring some in that range, so thank you. That’s helpful. With the recent news out of the Gulf and the oil spill shutting down some commerce on the Gulf, is this an opportunity for you or is this something that has to be managed?

Gary Enzor

We talk to primarily Boasso because they’d be impacted more heavily by the intermodal shipments, but I realize it can impact the trucking side as well. Right now they said they’ve got good plans to not impact them as (inaudible) and I guess they are opening Scoways [ph] and moving water into pontchartrain and they believe they’ve got good plans in place and it’s actually aided by all the national flooding I guess that’s making it easier to manage and make sure that it doesn’t impact the Mississippi. As of now we’re not aware of downside, it’s more likely to create upside than downside.

Steve Attwood

There’s some slight upside and we’ve gotten a couple of campaign request for chemicals to use in the treatment of the oil spill and that’s been helpful.

Jeff Kauffman – Sterne Agee

Okay. And, Gary, I think you were getting at this earlier, but can you give us an update with what you’re seeing on the quote activity and the customer bids? Has that changed at all or are the discussions changing?

Gary Enzor

Yes, the discussions are changing, I mean, as you understand a year ago, year and a half ago, there were tons of bids in the market because the supply demand curve was favorable to the shipper to put bids out. We really haven’t seen bids of any consequence over the last several months. We’ve gone to customers on certain lanes where we just can’t afford to hold the freight in those lanes at those rates and we’ve gotten some double-digit rate increases in lanes where we needed to. We don’t have a massive across the board program at this point, but I’d just say that it’s basically turned dramatically.

Jeff Kauffman – Sterne Agee

Okay. I know there was one Cincinnati-based company out there that was trying to go out early in the marketplace. I guess what you’re saying is the pendulum has swung a little bit more toward the carriers now I guess.

Steve Attwood

I’d say a lot more.

Jeff Kauffman – Sterne Agee

Very well, thank you. One final question, when I look at what’s going on in a marketplace with fuel prices, I know that puts some distress on some of the owner-operators and smaller truckers. Is this recent affiliation kind of a one-off situation, or is this more the tip of the iceberg where you’re seeing some affiliates look at the environment, look at the cost increases and maybe look to align themselves?

Gary Enzor

I would say that was an opportunity that came to us and actually one of our existing affiliates brought the idea to us and we’re able to make the deal work. The market does seem favorable to find opportunities either for small acquisitions or affiliations so we’re always working on a handful of them and they close whenever we reach the right place with both parties, but I do think the opportunities exist for us to get incremental revenue through either acquisition or affiliation.

Jeff Kauffman – Sterne Agee

Again, congratulations, terrific quarter. Thank you.

Steve Attwood

Thank you very much

Gary Enzor

Thanks.

Operator

(Operator instructions). We’ll go to Kevin Sterling with BB&T Capital Markets.

Kevin Sterling – BB&T Capital Markets

Good morning, Gary and Steve.

Steve Attwood

Hey, good morning.

Kevin Sterling – BB&T Capital Markets

Gary or Steve, did weather impact you guys at all in the quarter?

Gary Enzor

There was a slight impact, Kevin, that could have impacted a few million dollars of revenue back way early in the quarter. I do remember but I don’t remember the exact week.

Steve Attwood

Yes, I think it also contributed to a couple of rollovers more then we probably would otherwise have experienced, but I don’t know from a revenue stoppage it was any more significant than we’ve experienced in the past.

Kevin Sterling – BB&T Capital Markets

Gary, you’ve been talking about pricing and the pendulum swinging. How would you describe industry capacity now? I mean industry capacity is fairly tight?

Gary Enzor

Yes, I would say industry capacity is tight.

Kevin Sterling – BB&T Capital Markets

Okay. Just my question would be for Steve. It looks like your purchase transportation costs increased sequentially in the quarter. What would you attribute the bulk of that increase to, Steve?

Steve Attwood

I think the big thing or one of the major contributors was we had a major affiliation in Texas and coming out of the gate, as Gary said, when we affiliate company on a performing company terminals we usually make some short-term concessions in order to allow the affiliate to get their feet on the ground and start running it more profitably and we would expect that percentage would improve over time. We still got two terminals or three terminals up in the North West, which we’re anticipating affiliating later part of this quarter which could also increase it just slightly, but there would be corresponding reductions in the other line items.

Gary Enzor

And Kevin, as fuel goes up, fuel surcharge (inaudible) was up, $6.5 million year-over-year the vast majority of that flow has ended up line as well.

Kevin Sterling – BB&T Capital Markets

Okay, thank you. I notice like you talk about the compensation expense decreased. Okay. Talking about the acquisition of the affiliate you made in the quarter, are you seeing a lot more acquisition opportunities out there in the market these days?

Gary Enzor

I don’t know if I’d say a lot more, but there are several opportunities that we normally have on our desk to look at and they’re probably more when the economy was real dire a year, a year and a half ago, but there’re plenty out there.

Kevin Sterling – BB&T Capital Markets

Okay, thank you. That’s all I had. My other question has been answered. Thanks for your time today.

Steve Attwood

Thanks, Kevin.

Operator

Next, we’ll go to John Larkin with Stifel Nicolaus.

John Larkin – Stifel Nicolaus

Good morning, Gary. Good morning, Steve

Steve Attwood

Hey, John.

John Larkin – Stifel Nicolaus

I think, Gary, you had mentioned during your prepared comments that the affiliates were gearing up to invest in additional tractor equipment. And I guess maybe I haven’t been paying close enough attention, but I was under the impression that they usually were very heavily aligned towards owner-operators. So I might have expected you to say they were sort of ramping up efforts to recruit owner-operators. Am I missing something here?

Gary Enzor

I think it’s both, John. The fleets generally two-third owner operator, one-third company truck, but that’s still our affiliate company truck. So that’s still a fair amount of trucks. And just one example. We have some freight in some lanes in the Texas market and the customer worked to those to make that freight compensatory and when they did that that affiliate was willing to go, buy 15 trucks and then he’s looking at buying 10 more. So they’ll invest either way. Company will work on their owner-operator recruiting and it really does vary by affiliate as to their preference of what type of operation they want to manage.

John Larkin – Stifel Nicolaus

I see. Are there still system trucks per se that you’re responsible for handling the recruiting of the drivers and/or the owner-operators?

Steve Attwood

We’ve got system trucks obviously they are dedicated to the remaining company terminals, which, of course, are approximately 5% of the fleet. And now we’ve got a small number of trucks, where we’ve got new ICs, who want to get into the business and are looking on attractive lease opportunity, but we don’t do a lot of that.

John Larkin – Stifel Nicolaus

Okay. So the bulk of the power is aligned with the affiliates?

Gary Enzor

Yes, roughly 95%.

John Larkin – Stifel Nicolaus

Got it. The dry bulk carrier that you affiliated here are about to at least a number of commodities that can be hauled in dry bulk trailers. Some are more cyclical than others. Is this a cement carrier or a plastic pellet carrier? Do they do a little bit of both? What’s their primary focus?

Steve Attwood

It’s primarily cement, but one of the advantages they see in partnering with us is the ability to diversity into, their business tends to be somewhat seasonal, so they’re looking for opportunities to fill in, in the down periods.

John Larkin – Stifel Nicolaus

And what is their geographic focus again?

Steve Attwood

They run the East Coast mostly from Northern Virginia up to Northern Pennsylvania that’s general area.

John Larkin – Stifel Nicolaus

Got it.

Gary Enzor

Near you, John.

John Larkin – Stifel Nicolaus

I understand. I think we sort of danced around the whole issue of pricing. The impression you’re leaving is that there’s an opportunity to begin to get some price increases. Is that a fair read, or is that something that you hope to be able to start to implement a month or two or later this year?

Gary Enzor

I think it’s a fair read that there are opportunities to get pricing and we just want to balance price versus volume versus making sure our operators get enough compensation as well as our affiliates. I do think the market is conducive and we’re just kind of analyzing what the optimal way for us to that right now. Looks like in Q1 of ’10 versus Q1 of ’09 we were up slightly a couple percent on price per mile so that’s probably more mix related but that was up not down in Q1 ’10.

John Larkin – Stifel Nicolaus

That’s without fuel, correct?

Gary Enzor

Correct.

Steve Attwood

Correct.

John Larkin – Stifel Nicolaus

Have you shifted towards more of a spot pricing philosophy or is the bulk of the traffic handle under contract?

Gary Enzor

Bulk of the traffics handled under contract.

John Larkin – Stifel Nicolaus

But no sort of opportunistic use of spot prices here in a tight supply/demand environment?

Gary Enzor

We do have customers that have a campaign need where they may need a couple thousand loads moved or 500 loads moved over a two week or four week or six week window and normally those opportunities are better priced, better margin and we use it figure out how to take those on.

John Larkin – Stifel Nicolaus

Got it. And I think in the last call you’d mentioned something on the order of 1000 trailers that were still owned by the Company that were in storage, some of which you hope to lease to outside parties. Somebody asked a question similar to that. Has that number been drawn down significantly in the last three months?

Steve Attwood

It’s been drawn down; it’s been drawn down by a couple hundred. We’re still in that ballpark. We see now that the demand continues to increase and our affiliate fleets are better utilized that they are going to start adding more our trailers to the mix. Certainly, a larger percentage of it is now road-ready, and ready to be placed in the service, but we’re also in the process of putting up for sale non-standard or old equipment to see that number over time continue to decline.

John Larkin – Stifel Nicolaus

In order to make a trailer that’s been in storage for a while road-ready, what is the average expenditure per trailer?

Steve Attwood

It’s all over the board but its $2,000 to $3,000 probably on average.

John Larkin – Stifel Nicolaus

Do you expense part of that, capitalize part of it, and capitalize all of it? What’s the –

Steve Attwood

It depends on the nature of the expense. Some of those to the extent of that extent it’s used for life and it’ll be capitalized.

Gary Enzor

Generally on those minor repairs, John, it’s probably more expensed.

John Larkin – Stifel Nicolaus

Okay. So that’s been just a minor drag I guess on earnings here in the last couple of quarters.

Steve Attwood

Yes, I think that’s fair, I mean, we’re trying to invest in our fleets and make sure that it does not become a capacity challenge for us.

Gary Enzor

Hey, John I think we had a net loss, as Steve said, we’re just cleaning up and shrinking the idle fleet, probably would have add up $0.01 more of our earnings that we’ve not been cleaning up and it goes a 400 grand loss on that line.

John Larkin – Stifel Nicolaus

That’s very good color. Thank you. You also talked a fair amount about Randy, the new head of Sales and Marketing. Could you just remind us how many national account folks he has responsibility for and then how that sales force interacts with the affiliates, which I guess also have sort of on the ground sales and marketing function?

Gary Enzor

Yes, it’s approximately a dozen on Randy’s team and approximately half a dozen out regionally working on the affiliates’ payroll. And really Randy links up with Shawn Harris, who is our Vice President of Operations and they match all the business opportunities that the sales team is bringing to the table with the affiliates and they sit together and work the economics and build the link over the driver capacity and hire drivers as necessary so it’s gotten a whole lot of easier to manage, John, as we’ve gone from we’ve happy affiliates, we did a couple of years ago, we have a weekly tracking mechanism by affiliate, what their growth rates are, what their driver capacity is and it’s only a handful that aren’t growing right now, the vast majority are growing very well. So wherever that handful is we’re sort of able to surgically go attack the issue and help fix them as well so it’s getting a lot easier to manage growth and manage the business than a few years back when there were twice as many and we’re just trying to manage through a lot of issues, it’s just a lot cleaner, simple process today.

John Larkin – Stifel Nicolaus

Did he come from another tank truck carrier?

Gary Enzor

No, Randy, led sales for Pacer and he also ran a large business for Pacer and his last role he was CEO of a company in the drayage industry and he had done that for about a year and a half and he has also managed large factories for Thomson manufacturer in the past two. So he has got a very disciplined mindset and I am just thrilled to have him on our team.

John Larkin – Stifel Nicolaus

Sounds good. Was Boasso growing faster than the trucking operation during the quarter or not as fast?

Gary Enzor

Boasso grew faster.

John Larkin – Stifel Nicolaus

Would you expect that higher than truck growth to continue through the rest of the year or is that something unique to the first quarter?

Gary Enzor

Q1'10 tends to be their stronger quarter. So I really would have to give that some thought, but I don’t think I’d expect them to dramatically outperform the trucking business over the remainder of the year.

John Larkin – Stifel Nicolaus

You would not?

Gary Enzor

I would not.

John Larkin – Stifel Nicolaus

Okay. And then on the insurance, you talked a little bit about the focus on safety and how you’re down at I think you said 2.1% of revenue on your insurance claims of line, which is terrific by industry standards. Is your self insured retention I seem to remember that was at $5 million, is that still the case or has that changed?

Gary Enzor

No, we’ve reduced that to 2 million about two years ago, John, and we did also get about $17 million of letter of credit reductions in the last 24 months to 36 months as well. Obviously, the work that Bob and his team are doing have proven to help the business not only on the cost side, but on the cash side as well.

John Larkin – Stifel Nicolaus

Got it. That’s extremely good background. I really appreciate you taking the time.

Gary Enzor

Thanks John.

Steve Attwood

Thanks John.

Operator

And with no further questions in the queue I’d turn the conference back over to Mr. Enzor for any additional or closing remarks.

Gary Enzor

Okay, we would just like to thank everyone for joining us on our Q1 call and we will talk to you again soon. Thank you.

Operator

Ladies and gentlemen, that does conclude the conference call. We thank you for your participation.

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