Thank you, operator, and good morning, everyone. Welcome to the second quarter 2026 conference call for Old Dominion Freight Line.

Today's call is being recorded and will be available for replay beginning today through August 5th, 2026, by dialing 1-855-669-9658, access code 8521187. The replay of the webcast may also be accessed for 30 days on our website.

This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements.

Without limiting the foregoing, the words believes, anticipates, plans, expects, and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release.

Consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise.

Finally, before we begin, we welcome your questions today, but ask that you limit yourselves to just one question at a time before returning to the queue. Thank you for your cooperation.

At this time, for opening remarks, I would like to turn the conference over to our President and Chief Executive Officer, Marty Freeman. Marty, please go ahead.

Good morning, and welcome to our second quarter conference call. With me today on the call is Adam Satterfield, our CFO.

After some brief remarks, we will be glad to take your questions. Old Dominion produced strong results in the second quarter, which include a 10.4% increase in revenue and a 450-basis-point improvement in our operating ratio.

In addition, our second quarter earnings per diluted share increased 32.3% to $1.68, which matched our previous company record that we set in the third quarter of 2022. These results reflect both continued improvement in demand trends as well as our ongoing focus on yield management and operational execution.

While the difficult operating environment over the past few years presented us with a number of challenges, including lower network density and inflationary cost pressures, we continued to diligently execute on our fundamental aspects of our long-term strategic plan and invest for the future. The strength of our second quarter results demonstrates the benefits of this strategy.

While I'm proud of these results, I'm even more proud of our OD family of employees and their unwavering commitment to provide our customers with superior service at a fair price. That was the case again in the second quarter when we provided our customers with 99% on-time service and a claims ratio of 0.1%.

In addition, we have made approximately 1,000 lane adjustments this year that have improved our service standard transit times. Our team continues to leverage their experience and new technologies to further improve our service standards and overall value proposition for our customers.

Our customers rely on us to keep their promises to them by picking up and delivering their freight on time and without damages, so that they can keep their commitments to their own customers. Our proven ability to execute on behalf of our customers at all points of the macroeconomic cycle has created an unmatched value proposition in our industry.

That is why it is critical, despite a prolonged period of softness in the domestic economy, to continue to make the key long-term investments in our network, our technology, and our people, so that we can now continue to deliver best-in-class service as the operating environment changes. Consistently providing our customers with superior customer service is the cornerstone of our strategic plan, and doing so supports our yield management initiatives.

Our disciplined approach to pricing, which focuses on individual account-level profitability, is designed to offset our cost inflation over the long term and support reinvestment back into our business. Our ability to take a long-term approach to our investments in our network and our OD family of employees helps ensure that we are always in an unparalleled position to respond to both current market conditions and future growth opportunities.

Our strategic plan has worked through many economic cycles, but that said, our greatest opportunities to win market share often come when industry capacity is generally limited and the domestic economy is strong. The domestic economic environment remains relatively stable, and we are encouraged by the continued improvement in demand that began late last year.

In addition, based on feedback we have received from our customers, we believe that our superior service is increasingly differentiating Old Dominion within our industry and providing opportunities for incremental growth. We reported strong second quarter results that demonstrate the power of our disciplined execution and the strength of our long-term strategic plan.

We returned to revenue growth in the quarter and produced strong operating leverage on our incremental revenue. In addition, because of our consistent investments in our network and our people, we have all the necessary elements of capacity that we need to support our customers and take on additional volume opportunities as the operating environment changes.

As a result, we are confident in our ability to win market share and produce profitable revenue growth, which we believe will generate increased value for our shareholders over the long term. Again, thank you for joining us this morning, and now Adam will discuss our second quarter in greater detail.

Adam?

Thank you, Marty, and good morning. Old Dominion's revenue increased 10.4% to $1.55 billion for the second quarter of 2026, while our operating ratio improved 450 basis points to 70.1%.

The combination of these factors resulted in a 32.3% increase in our earnings per diluted share to $1.68. We were pleased to return to revenue growth in the second quarter, which included an increase in our yield and an improving trend with our volumes.

Our revenue results include a 15.2% increase in LTL revenue per hundredweight, which was partially offset by a 4.1% decrease in our LTL tons per day. Excluding fuel surcharges, our LTL revenue per hundredweight increased 5.5% due to our continued focus on revenue quality during the quarter.

On a sequential basis, our revenue per day for the second quarter increased 14.6% when compared to the first quarter of 2026, with LTL tons per day increasing 4.0% and LTL shipments per day increasing 3.2%. For comparison, the 10-year average sequential change for these metrics includes an increase of 7.1% in revenue per day, an increase of 4.4% in LTL tons per day, and an increase of 5.2% in LTL shipments per day.

The monthly sequential change in LTL tons per day during the second quarter were as follows: April decreased 2.8% as compared to March, May increased 3.0% as compared to April, and June increased 0.9% as compared to May. The comparative 10-year average change for these respective months is a decrease of 0.9% in April, an increase of 2.2% in May, and an increase of 1.7% in June.

While there are still a few workdays remaining in July, our month-to-date revenue per day has increased by approximately 7.5% to 8% when compared to July of 2025. This includes an increase in our LTL revenue per hundredweight that is partially offset by a decrease in our LTL tons per day of approximately 1.0%.

Although our tons per day are slightly lower than July of last year, the sequential change from June of 2026 is significantly better than our normal seasonality. The increase in July's LTL revenue per hundredweight excluding fuel surcharges is currently tracking below the second quarter growth rate of 5.5%, due primarily to changes in the mix of our freight.

As a result, I'm currently anticipating an improvement in this metric for the third quarter of 4% to 4.5%. To be clear, this is a positive trend for our company as it reflects the continued increase in our weight per shipment.

We continue to be as focused as ever on our long-term yield management initiatives, which have helped us become the most profitable carrier in our industry. As usual, we will provide the actual revenue-related details for July in our second quarter Form 10-Q.

Our operating ratio improved 450 basis points to 70.1% for the second quarter of 2026, with improvements in both our direct operating cost and our overhead expenses as a percent of revenue. Within our direct operating cost, improvements in our salaries, wages, and benefits as a percentage of revenue more than offset an increase in our operating supplies and expenses.

This increase in operating supplies and expenses was primarily due to the increase in the cost of diesel fuel and other petroleum-based products. The improvement in our overhead cost as a percent of revenue was partially due to the change in our net miscellaneous income and expense.

This line item included $17.2 million of net gains on the disposal of property and equipment during the current quarter. In addition, we also saw improvements in a number of other overhead expenses due to the leverage gained from the increase in revenue, as well as a continued focus on controlling our discretionary spending.

Old Dominion's cash flow from operations totaled $272.7 million for the second quarter and $646.3 million for the first 6 months of 2026, respectively, while capital expenditures were $77.0 million and $139.6 million for those same periods. As announced in our release this morning, we increased our 2026 capital expenditure plan and now expect aggregate capital expenditures to total approximately $380 million this year.

The $115 million increase from our original plan includes an additional $60 million for tractors and trailers, and an additional $55 million for real estate and service center expansion projects. While we continue to have plenty of service center and equipment capacity to accommodate anticipated growth opportunities, these increases reflect strategic purchase opportunities that fit into our long-term capital expenditure plan.

We utilized $151.6 million and $239.7 million of cash for our share repurchase program during the second quarter and first 6 months of 2026, respectively, while our cash dividends totaled $60.2 million and $120.7 million for those same periods. Our effective tax rate for the second quarter of 2026 was 25.0% as compared to 24.8% in the second quarter of 2025.

We currently expect our effective tax rate to be 25.0% for the third quarter of 2026. This concludes our prepared remarks this morning.

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

Thank you. Good morning.

Adam, a lot of volatility from month to month as we look at seasonality in your 10-year averages. Obviously a lot better in May, maybe a little slower in June.

Can you just speak to the overall demand environment as we think about July trending from here? Also to the extent that you can kind of put a pin on it, we've been hearing a lot about freight shifting from a tight TL market to an LTL market.

Are you seeing that, and kind of where do you think you stand as far as the, quote-unquote, innings of that transition?

I think to start with that first, I still think we're in the early innings. We're hearing some of that from customers, but I haven't really seen the big weight-per-shipment change within certain categories, particularly with 3PL managed business that you would see when there's a major inflection going on with the truckload spillover one way or the other.

I still think that there's probably a lot left to go with that renormalisation there, if you will, but I expect that will continue as the truckload rate environment continues to be really strong. Overall for us, demand continues to improve.

I'm happy with a lot of the trends that we're seeing, and you're right, I think that it's choppy month-to-month when you look at our sequential growth versus our 10-year average trends, but that's not uncommon when you get in periods like this. There have been certain months where we've just significantly outperformed the 10-year average and then the next month might be a little bit softer and so forth, and that's kind of the way the second quarter shaped up.

We had a really strong February and March, and then the April was softer than the 10-year average, but then we kind of climbed out of that and essentially brought the full-quarter sequential trend back to right there at what the normal quarter would be. I've looked at, if you went back to the beginning of this year and normal seasonality, if you just played it out month-by-month, in July, we're handling probably about 3 million pounds more per day than we would if normal seasonality had played out.

To me, I think we're, obviously outperforming at this rate for full seasonality, and I think we're just in the early stages of the economy getting going again, with where ISM has just been in the low 50s, it has not really had a big breakout yet, and I still think there's a lot of room to run when you look at things like some of the inventory-to-sales ratios as low as that is. That somewhat reconciles with feedback we've heard from customers about the need for restocking and so forth.

Really excited about where we are, but more excited about the opportunities that lay ahead to carry some momentum through the balance of this year into '27 as well.

Thanks, Adam.

Hey, thanks. Good morning.

Adam, you've given us sort of revenue ranges, you've given us OR sort of dynamics for the forward quarter in the past. I was wondering if you could help us a little bit with that.

Obviously, the second quarter from an OR perspective does have the gain in it, maybe just some thoughts on how you think about revenue opportunity in the third quarter and also the operating ratio.

I'll just, maybe answer one of those and leave the other for someone else's follow-up. Maybe just to start with the top line, because haven't always given revenue guidance, but I think it's probably appropriate, especially with some of the volatility that we've had with fuel.

I guess to start, the July revenue growth rate of 7.5% to 8%, that includes sequential change in tonnage that's significantly better than the 10-year average, as I mentioned. Just put some context around that, the tons per day right now is sequentially down about 0.5%, the 10-year average is down 3%.

Seeing really strong performance there. I think that if we can carry momentum through the rest of the quarter, and may see some of this choppiness that I just spoke about in either August or September, but I think if we can just carry some of this momentum forward, would think that we can get to a 10% increase in revenue for the full quarter, to bring that growth rate up, and that would put the absolute number at about $1.54, $1.55 billion for the full quarter.

Obviously, we give our mid-quarter updates, we'll be able to track along with that the entire time. Conservatively, if we carry that same 7.5% to 8% growth rate, that'd be about a billion 52 for the full quarter.

Kind of as a baseline what I'm anticipating for fuel is assuming that we're going to see stability. It had stabilized for a bit during the second quarter, re-inflected back positive, but I would like to think that we see some resolution there and have fuel that maybe trims back down and my baseline is $4.95 as an average per gallon for the full quarter, but we'd like to see that come under control, which I think will be a net positive for the overall economy.

That's helpful. Appreciate it.

Hi. Good morning.

I guess I'll follow up on the going from revenue to the sequential OR thoughts. I guess if you could just let us know if that would be off of the reported OR or any adjustments related to that net property gain.

Thank you.

Figured that would be close on the heels, Jordan. Obviously, the 10-year average change for us at least is for the third quarter operating ratio to be flat or up 50 basis points from the second quarter.

I think we can essentially hit our normal seasonality, but you do have to sort of add back some of the items to normalize what that third quarter operating ratio would be, and the biggest of which is obviously the big gain that we had on property sales during the quarter. Kind of with some of those things in mind, I would say a normalized overall increase off the 70.1 would be an increase of about 150 to 200 basis points from the second to the third quarter.

Thank you.

Good morning. Adam or Marty, I wanted to get your thoughts on maybe what's happening with service and capacity in the market.

I think there have been some data points or feedback that there are maybe a couple pretty good-sized carriers that have hit some embargoes in the Midwest and capacity constraints. Have also heard feedback about LTL driver market getting a bit tighter, a little harder to hire drivers.

Maybe more of a connection with truckload than I would have expected. What are you seeing in terms of are you also observing that and is that starting to have an effect on your business in terms of maybe some shipments coming over to you that might even affect July, but that, just kind of if you think that's happening and then how quickly that or how much that might affect you and what you see in your shipments and your pricing.

Thank you.

Good question. We're not having any capacity issues, whether it be with equipment or drivers or real estate.

You are correct, we are hearing some talk about some of our competitors having problems picking up at the end of the month, and we have seen some of that freight move over temporarily. If we get a major inflection in the economy, I think we'll see it daily.

Yes, we are hearing that, and I think some of that, as Adam alluded to earlier, could be coming from the full truckload industry. Some of that freight is starting to spill back over in a small way to the LTL environment, I think that's a double whammy for us.

You think that's maybe boosting July, or was that happening earlier in the quarter?

I think it's been happening. We've heard it earlier in the year, and look, this is a big part of our value proposition is always having capacity, and it's not just the service center capacity, it's having trailing equipment where you can spot trailers at our customers' doors, particularly end of month, end of quarter, but having driver capacity as well.

As Marty said, we've got plenty of capacity across all of those three major elements, and I think when other carriers are operating in the first quarter, the public company average excluding us was a 94, you've got to start managing costs in different ways, and maybe aren't able to keep the amount of excess capacity to respond to growth opportunities as they're coming on a sequential basis. Definitely think that's been a little part of the story, but again, like I said earlier, I think we're just kind of in the early stages of recovering.

It's been nice to see us be tracking at seasonality really going back to November of last year, but it just feels like we're in the early stages of this, and we got a big runway of growth ahead for us, and we're eager to get back to it. We've built up a tremendous amount of capacity over the last few years with the continued investments that we've made, and so we're eager to get freight back into the system.

You look at what we can produce in the second quarter, the control that we've shown over cost, and improvement that we've had in our direct cost in particular, we're still down a long ways from where we were back in 2022. If we can continue to see that inflection like we just saw from the second to third quarter, just a 4% sequential increase in our tonnage, but doing that with the same headcount, look at all the leverage that exists in our business.

A lot of opportunity to grow the top line, but more importantly, to keep improving our operating ratio and produce strong, profitable growth.

Great. Thank you.

Hey, good morning. Thanks for taking the question.

I wanted to ask on pricing, just curious if you could discuss what drove your yield ahead of your initial guidance in the quarter, especially with weight per shipment improving through the quarter. Relatedly, just wondering if you could elaborate a bit on what those mix effects were you referenced that's driving the 3Q yield growth a little bit below 2Q.

Thanks.

It's, the second quarter, I think, just benefited some. There's always mix that's that's going on.

It could be a balance of national account versus your small mom-and-pop, some of our higher-priority services and so forth, and and we were pleased to see the the overall revenue per hundredweight in the second quarter tracking. We our guidance going into to 2Q was thinking that it'd be at about 4% to 4.5%, and so obviously, we were well ahead of that.

Sometimes just looking month to month and so forth, the revenue per hundredweight can move up or down, and, I don't think that there's anything to call out. To me, what we're seeing, with it coming back down, the the rate of growth, that is, it's still sequentially increasing, the revenue per hundredweight, that is, it's very similar to what we saw sequentially back in 2017, where we had weight per shipment that was outperforming normal seasonality through that year, and that was in the early stage.

If you recall, that's when the real inflection was beginning. I'd like to think that that, some of the similarities that that we're seeing in our numbers, particularly with yield, particularly with tonnage and weight per shipment, maybe this is the start of the real inflection like what we saw back then.

That that's why we're wanted to make clear that that this is a positive when you see the, the revenue growth and it coming in the form of of tons and weight per shipment, and our yields continuing to improve. That's what puts profits to the bottom line, and and that's a key driver of what allowed us to operate at a a 70.1, and I realize we had the the real estate gain in there, but even if you back that out, that's one of the strongest operating quarters that we've ever had.

I go back and compare to the second quarter 2022, and, I often talk about that breakdown of of cost, direct operating cost and overhead, our direct operating cost in the second quarter this year were about 200, 250 basis points better than where we were in the second quarter 2022 when we reduced to 69.5 operating ratio. When you think about that increase in our overhead cost there, there's the tremendous amount of leverage that can not only take us down into the 60s, or just hitting right there at at getting to a 69 operating ratio, but it's going to be able to allow us to drive it even much lower.

Thank you.

Great. Thanks.

Good morning, everyone. Adam and Marty, there's been a lot of focus on TL versus LTL conversion on this call, but I think in the downcycle, we've also seen brokers take a bunch of share from asset-based LTLs in the marketplace.

Obviously, the broker relationship right now is under scrutiny post-Montgomery. I'm wondering if you're seeing any shift away from brokers back to asset-heavy as well as we go deeper in the cycle.

Thank you.

Probably a little bit early for that. We saw revenue growth with our 3PL-related customers in the most recent quarter that was similar to the overall growth rate for the company, so that's kind of hanging in there.

That's something that we obviously like to have customers direct with us, and if that's a change that develops, we'll work with them. If customers are using a 3PL, we treat them the same.

We look at the cost, the important thing with business, and about a third of our revenue right now is with 3PLs, is to understand the cost on any customer account, whether it's direct or with a 3PL, and to price it appropriately so that we've got similar account-level profitability across our book of business. That's the way we look at it.

We look at customer-specific costs, and then we provide customer-specific pricing to those 3PLs. We'll take if it comes at us, and be happy to do so.

Sounds good. Thank you.

Hey, great. Good morning.

Thanks for the insight before on some of the struggles at the carriers popping up. That's definitely an issue we've been hearing about also.

If I can just take Ravi's question in maybe a different way, and another upheaval or start is in the brokerage side. Just given the heavy use of brokers that you have, we're seeing a lot of lawsuits go on now that are maybe whether it was from Montgomery and risk that moves up the food chain or last week just the exposure.

Is that impacting discussions with the brokers? Are you seeing any flows that might be changing?

Maybe just talk about what you're seeing from that brokerage follow-through.

Nothing at this point, Ken, that I've heard. We obviously, especially with some of our largest one, several of our top 10 customers are 3PLs, and have not really seen any type of material change there, and obviously, with the revenue growth being pretty consistent with the company average at this point.

I haven't really heard a lot of feedback that there's been a lot of discussion. Obviously, as many of you have written about, it's a potential big change that's coming for the industry.

I'm reading you all report about the increase in insurance cost, and that's something that we've talked about in recent years. It's to be a large, sophisticated LTL, well-capitalized carrier, we have dealt with double-digit premium inflation for many years now, and that's something that goes into our cost model that we've got to continue to account for with our pricing.

It sounds like that's something that they will have to further account for. If a customer is using a 3PL, there's obviously got to be margin for the 3PL to manage.

If we give the same price, then that's a cost. I think that'll be something where they have to prove their value proposition, the 3PL that is, to the shipper.

If more and more shippers choose to use Old Dominion direct, then we'll be here for them and be happy to handle it. There's definitely cost inflation that's coming that may drive some of that cost through 3PL business versus non, and maybe reverse some of the shift that we've seen increased use of 3PLs over the past, say, 10, 15 years.

Thanks, Adam.

Thanks, operator. Gentlemen, good morning.

A lot's been covered and I appreciate it. Wanted to go a little bit of a different direction.

One of your competitors on their call talked about looking at the use of autonomous trucks for some of the linehaul operations, and that they might have gotten to the point where it's a viable option for an LTL carrier. Just wondering what your thoughts on that were and if you've looked into it.

Yeah. Jason, I think that's something that any type of technology, you've got to continue to look at and stay on top of.

I think that one of the things that people have got to consider as well is what's the cost of the technology on a per-mile basis. Some of the things that I've seen and read, I don't know that you've got the value-add.

You think about our fleet of equipment, we dual use a lot of our tractors. They're running P&D during the day, linehaul at night.

If you've got to pay the technology provider, I don't think that autonomous vehicles would be more for linehaul application. You either are buying specific P&D units that's going to drive your unit cost up, or you're paying for a mileage where you're not really using and leveraging the technology.

I think like many things that are like that, you got to stay on top of. We don't want to be on the bleeding edge of that technology and development and so forth.

It's just like any other investment when it comes to technology. There are a lot of opportunities that we take a look at where the cost of the technology doesn't really provide an appropriate return.

Investment in autonomous would be a similar type of analysis that we would go through. To me, it's something, too, that I don't know.

It's hard to imagine a world where you've got 80,000-pound trucks driving up and down the highways without someone sitting in the cab to deal with those one-off scenarios, to deal with cargo theft that is already a problem when you've got a driver sitting in the cab. There's a lot of other incremental challenges that would present and would have to be dealt with from a regulatory standpoint before this girl goes worldwide.

Obviously, it's been dealt with and utilized in certain lanes and so forth, but to scale and be nationwide, I still have some reservations about.

It sounds like it's more than just the total cost of it all. There's other factors in terms of you guys taking advantage of something like this as it comes available.

I think so, yeah. Look, our business is pretty simple.

At the end of the day, it's how do we manage the revenue per shipment and the cost per shipment and give the very best service in our industry to be able to support the value and our yields. Like I said, it's no different.

Everything we look at is how can we minimize the inflation in our cost per shipment, and continue to get yields to support the value proposition. We'll continue to look at it, but like I said, I don't think we'll be on the bleeding edge with adoption there.

Appreciate the time and color as always.

Thanks for taking my questions. If we look back, I think this is the first time the capital envelope has gone up since the beginning of '24.

I'd just be curious both, big-picture thinking on where this is going. Is it the tightness at capacity at some of your peers that's bringing freight your way, or is it what you're hearing from customers on sort of macroeconomic expectations that's driving you back into a period of growth investment, albeit gradually?

If you could just give us a quick update, you talked about having a lot of capacity now, any sort of sense of where you stand on people and equipment in the network today? Thank you.

The increase that we had, keep in mind, the total $380 million is still well below our normal range is 10% to 15% of revenue. Like we said, both the increase in the real estate side and the equipment really are strategic purchase opportunities.

From a real estate standpoint, you've also got some timing of projects that we've continued to spend on our network because of the confidence we have in our long-term market share opportunities. We've got a couple unique opportunities where it could be something that fit in the long-term plan in a market that's hard to find real estate, to not get into too many specifics.

Then you've also got some lease-to-own conversions, timing of projects that we may get started in the balance of this year that may have been in '27 initially. We're always fine-tuning that model and that drove some of that increase there.

There's one or two kind of strategic purchase opportunities that are in there that just sort of fit when we think about our 5- and 10-year plan. Then on the equipment side, that's a little different.

Some of that spend would have been allocated to 2027, we're kind of pulling some of those purchases into the fourth quarter of this year. Again, just through conversation, discussions, our op team felt like it would be better to go ahead and pull some of that equipment into this year.

Overall, to kind of answer your question, it's not necessarily a need to increase the capacity of our service center network. We've still got north of 35% excess capacity there.

We've got plenty of power and trailing equipment capacity at this point. Really when we get into the fall of this year is when we'll be forecasting for next year's volumes to think about what our replacement needs would be and then any growth needs.

I think given kind of where our fleet is versus some prior years when we've had similar growth numbers, it still probably lean more towards replacement just to kind of grow into the fleet that we have, but probably add some trailing equipment to make sure we've got plenty of capacity there. On the people side, like we talked about on the last call, we were able to accommodate this 4% sequential increase in tonnage that we just had with essentially the same workforce.

Through the balance of the third, fourth quarter, probably not a lot of material change in our headcount overall there. If we can take another sequential increase through 3Q, I think that presents some good opportunities there from a cost and margin standpoint.

Then we really, again, kind of getting into forecasting for next year, have got to think about when's the right time to start some of our truck driving schools again and to start getting more drivers in to accommodate what we think our growth expectations for '27 might be.

Thank you for all the detail.

Hey, thanks for the time, all. I guess first, a quick housekeeping one.

Adam, that OR sequential change you cited for 3Q, flat to up 50 bps, I would suspect that's on GAAP, but wanted to make sure. Then I guess just bigger picture, tonnage came in line with normal seasonality this past quarter and you meaningfully beat your OR outlook for the quarter, even ex that real estate gain.

Looking into Q3, you're calling for pretty optimistic scenario both around maybe macro demand picking up and OD-specific demand as your peers face some challenges. I guess what's driving that tempered enthusiasm considering that you're thinking you could just be in line with historical trends in OR?

Then back to complimenting you on the strong performance in 2Q, the incremental margin we calculated in the quarter was really good, 60%. Curious if that influences your outlook for OR longer-term or if you'd caution us from using that optimistic of an outlook given fuel likely created some of that positive operating leverage.

A lot in there, but I'll let you take it how you want it. Thanks.

I don't know if I can track everything that was in there, but I'd say a lot of the second quarter outperformance, if you will, the volumes just came in stronger than where we were 3 months ago talking about the call, and where April was. We just came back a lot stronger with volumes, and, obviously, we were able to put a lot of that incremental revenue growth to the bottom line, and a lot of that flowed through with the sequential change in salaries, wages, and benefits.

I think I'd pointed everyone to the second quarter 2022 as sort of a reference point when you had a similar type of change with fuel prices and so forth. We probably did a little bit better with our salaries, wages, and benefits change, but also there was some benefit and some of our other op supplies and expenses and G&A-type cost, and some of those are partly what I mentioned would be in that normalization of trending into the third quarter.

I tell you, if we didn't have the fringe headwind, we'd be talking about the summer of '69 here. We did have a big headwind from the first to second quarter with our fringe benefits, which we talked about at the end of the call, but, boy, it sure would have been nice to have had a 69 operating ratio.

We've been there before and we'll get back there again. Looking into the third quarter, you've got some of that.

The guidelines that I gave is still 45%, 50% incremental margins on that type of revenue growth. That's stronger than a longer-term trend, and a lot of that will be based on what I mentioned earlier about our direct versus overhead cost.

With our direct cost now at 50% to 51% in the second quarter, that's something that, obviously, you keep leveraging tonnage growth at the right price and you can put a lot of that to the bottom line. There's a lot of opportunity there when you think from a bigger-picture and longer-term standpoint to further improve that direct operating cost percentage threshold, and then we've got to keep getting leverage on the overhead cost and controlling that discretionary spending.

We're not seeing the same type of increase in depreciation this year because the CapEx program is lower than it's been in recent years, so that's helped with some of our cost inflation. A lot of those different variables that when you think kind of over a multi-year through-the-cycle type of operating ratio change, our goal is obviously to get, we've stated multiple times, to get to a sub-70, but when you think about growth within those expense thresholds that I just laid out, I don't want to say that 45% to 50% is the new way to think about it, but when you think about it in that context, getting to the sub-70 annual operating ratio is pretty easy to map out.

We're going to achieve our goal that's a immediate goal before we set a new one, but I think it's clear to see why we've changed our operating ratio goal by 500 basis points at a time, and you can kind of map out and prove pretty easily a pathway that would get us to our next 500-basis-point goal.

Thanks, Adam. Then just if you could quickly clarify the OR sequential change for Q3 from Q2, that's based off GAAP OR, right?

It is, yeah.

Okay.

We like to operate on GAAP and talk about GAAP-type numbers, and we'll give you adjustments like the real estate gain, but I don't know that you'll ever hear me talk about non-GAAP numbers and adjusted EBITDA. I think GAAP makes more sense for an easier comparison.

Yep. All right.

Thank you so much.

Hey, good morning. Thanks for taking the question.

Maybe, Adam, if you can just give a little bit more context on the headcount and the labor side. Obviously, the fringe benefit was a pretty big increase, I would assume, in the comp per employee.

Does that continue to increase a little bit with the annual wage increase? You said you're going to keep the labor essentially flat, but just wanted to hear a little bit more about the cadence that you kind of visibility to.

Then some commentary on the truck driver schools and bringing those back, and sort of your view on capacity towards the end of this year and into next year as you start to think through that and what the next cycle could bring or require from a labor perspective. Thanks.

Sure. That's good perspective, Brian.

We will give a wage increase the 1st of September, and we haven't announced that to our employees yet, I don't want to announce it here. Obviously, we continue to do well as an organization and we believe in sharing that benefit with our employees.

That's something that we'll be working through and announcing here pretty soon. I think that like I had said, we've got the people capacity.

People are able to start working more hours on average than they were before, and our drivers and platform employees have been eager to do that and see their take-home pay increasing as a result. We can continue to step up and meet the needs of our customers through the third, fourth quarters of this year.

The thought in terms of starting our truck driving schools and so forth, we've had our truck driving schools going, and part of what we do in our strategy is to take our employees that are interested in being a driver and train them to get their CDL. When demand and volumes are there, we're able to put them into a truck pretty quickly, and we've got someone that's been with us that believes in the OD family spirit and our culture, and we know they're going to do things right for our customers and continue to deliver service that no one else is even close to in our industry.

I think it's all about making sure we've got people that are prepared, that if we start seeing the sequential increase that typically happens in kind of March of next year, and who knows what volumes will be like through the balance of the third, fourth quarter, but just generally thinking about seasonality, you want to make sure that you got people that are ready to step in. The worst thing you can do is have volume opportunities coming at you and to not be able to take advantage of those.

I think when you look at our history, we've proven out time and time again that we're able to rise to that challenge. That's what gives me the confidence to talk about some of these numbers that we've had or have today.

When I look back, it's these high-growth years where we really separate ourselves from our competition, and you think about the 2014, 2015, and '17 and '18, '21, '22, those high-growth years where demand is incredibly strong, we've had the change in our tons per day that's outperformed our competition 800 to 1,000 basis points. I think that that's what we're looking forward to.

I think that there continue to be capacity challenges in our industry, to where when the industry really starts growing again, we're going to see the majority of that market share growth coming our way. We just want to make sure that we're prepared, and we know that we are.

You got to stay ahead of the growth curve in this industry, and I think we've proven time and time again that we can do so.

Great. Thanks very much for that, Adam.

Hey, team. Good morning.

This is Matt on for Bruce. A couple quick ones here.

With respect to the stronger volume you highlighted in the super-seasonal trends, curious if you're seeing this uptick sort of broad-based across the book or is it still concentrated in a handful of end markets?

No, it's pretty consistent across our regions, which is nice. That keeps the network in balance for us.

As we're pretty much 100% insourced from a linehaul standpoint, we're not facing any purchase transportation challenges that maybe some of our competitors are, and certainly not dealing with the cost inflation that'd go along with that dynamic with the truckload price increases that we're seeing right now. That's a benefit to us as well.

Everything's staying in balance and pretty consistent. You've got a little bit of change, and like I mentioned earlier, when we're talking about yields, with growth with national accounts, larger national accounts, growth with small mom-and-pop, but seeing pretty consistent performance, I'd say across those two major components of our revenue, and the same thing with the 3PL managed business as well.

Great. Super helpful.

Lastly, I know you mentioned hearing that some peers are having some trouble making pickups due to the tighter labor market conditions. I guess, how would you characterize the financial health of smaller regional providers at this point and maybe whether you're seeing any changes there in their pricing or competitive behaviors as the market sort of improves or maybe what's likely to be a increasingly higher inflationary cost environment with this year's insurance?

Thanks.

Our industry has got a lot of very high-quality small regional carriers that they're private mainly, we don't know their operating ratios. More the feedback that we hear in bids and so forth, as you can imagine, it's the larger accounts, with widespread operations and some of the larger national non-union carriers that we compete more with on a national basis just because they're larger accounts and those are the ones that you hear more feedback on.

Don't have anything to offer on what some of the smaller carriers are doing right now and what their financials look like.

Fair enough. Thanks.

Hey, good morning. Adam, I wanted to stay on the volume piece of things and just kind of the macro environment.

Maybe a little bit more color there on some of the optimism or what's underlying some of the optimism. Cuz if we look back historically, as you had mentioned, right, it's not uncommon for OD to grow tonnage at that rate of mid-single digits, maybe even high single digits on a year-over-year basis.

Is this macro environment or some of the things you're seeing in the macro, could it support that over the next couple of quarters, or would we need to see an acceleration in the macro to get there? Then just a point of clarification, if I could, the gain on sale, could you just give us a little bit of color on what that was from and if there's anything more to expect or more to come there?

Thanks.

The gain on the sales, we've mentioned over the last few years that we've finished construction on some projects and have just kind of kept them in ready reserve. We've been depreciating those projects as we finished them and they were available for operations, but we just didn't turn those points on in the network.

A few of those were service center moves, our service center count in total stayed the same, and, basically, we moved into different facilities, sold the old ones, and I think there were three of those in the quarter that resulted in that $17 million net gain. I wouldn't expect any more this year.

There's still a few more out there, meaning service centers that are in ready reserve still, and we may have a few more dispositions this year, but that's something that, as it happens, if it's material, we'll talk about it. We don't have anything, I don't think, with the same type of material gain that would be there if it does happen this year.

That's just something that our ops team is constantly looking at the network balance and where it makes the most sense from a cost standpoint to turn points on. Hopefully, we'll be turning some of those on because of the volume, kind of bridging into your next question.

As the volumes come in, similar to what we did through 2019, 2020, and through that '22 period, we'll be turning on some of these new service centers, finishing construction of some others to continue to improve our network overall. Again, that's part of the value proposition.

Hey, look, we're winning market share right now, and as I mentioned, we're already, if you just sort of go month by month, tons per day is above what normal seasonality would have suggested from the beginning of this year. I'd say the economy's in a good spot.

Obviously ISM has been positive, but it's not like we've had ISM knocking on the door of 60 or being above 55. I still think there's opportunity out there on the retail side, and I believe, looking at inventory-to-sales ratio, that's a precursor, when you look back in history, it's as low as it's been maybe going back to '21, so that should kick off some volume and market share opportunities.

I think the domestic economy as a whole has just got the inflation concerns and world events that have probably been keeping a little bit of a lid on things. It's positive, but it's not red hot, to speak.

We're not in the type of environment yet that's, say, a 2018 or 2021, but I feel like some of the metrics makes it seem like that inflection point is coming. That's partly why we want to be ready for it.

We're not going to get out over our skis, if you will, in terms of getting too far ahead of the growth curve, but we're far enough ahead to keep going through the balance of this year. We definitely got plenty of service center and equipment capacity, and continuing to look at the headcount is just something that we'll manage more closely.

That's great. Thanks for the time.

Hey, thanks. Good morning.

Adam, just want to clarify one thing on the 10% revenue growth for Q3. Does that assume sort of normal tonnage seasonality in August, September, or anything better, worse?

Then just sort of maybe longer term, you tend to be very sort of measured in your comments, and you talked about pretty easy to map out a sub-70, I think you said at one point you can get a good amount better than a sub-69. I'm obviously really optimistic around the margin front.

What's the timeline or line of sight to how quickly you can get to these sorts of numbers?

Scott, we've never put a timeline on any of our goals just for the sake that you don't want to make decisions that are trying to achieve an arbitrary goal. I think that, if we did that, right now, we've got the sub-70 operating ratio goal and that's been hanging out there.

We probably wouldn't have invested $2 billion over the last 3 years in capital expenditures because of all the costs that created. I can tell you, we're better positioned than any other carrier because of those investments.

All the things that we've done, and when I look at our cost structure now, like I mentioned, for the second quarter of this year, for our direct operating cost to be at 50% versus the 52%, in some change in both periods going back to that second quarter '22, a lot of that with a significant decrease in volumes between those two periods compared, I think it shows the strength of our team. It shows the commitment that we've had to getting good yield increases throughout this whole freight recession.

To be 200 basis points, 250 basis points better now than we were then with maybe 10,000 less shipments per day just speaks to the strength of our team. It also speaks to investments that we made in technologies to help our team be more efficient.

I think that now that we're on the precipice of tonnage turning back positive, and if we keep having this positive tonnage and shipment growth sequentially coming into our system, there's a tremendous amount of leverage there for further improvement in our direct operating cost. Then, it's mapping out just taking the revenue up.

Some of our overhead costs are variable in nature, the overhead cost dollars will likely continue to grow as well. That's when you can start swinging that pendulum back the other way.

If we were at 16% to 17% overhead cost as a percent of revenue in the second quarter '22, and kind of where we've been trending in the, just saying in recent periods and kind of the 22%, 23%, we were right at 20% in the second quarter. We already made a little headway, but there's 300, 400 basis points of incremental opportunity there.

I think we continue to do the right thing and managing our cost, controlling our discretionary spending, but first and foremost, is making sure that service is first and foremost in the minds of our people. We've made all those cost changes while we've improved our service, and that's why it was important what Marty said in his prepared remarks.

We're continuing to improve transit times, anything our customers are asking us for, we're delivering. We've done all that in a low-volume environment.

It's pretty easy to kind of pencil out where things can get to. We don't want to people to expect that it's coming next quarter or even at the beginning of next year.

It's going to be a consistent, methodical approach, which is what we've always done. You look back over history and it tends to rhyme in our industry.

When you get into that first big year of revenue growth, those are the types of years where we've been able to produce 300, 400 basis points of year-over-year improvement in our operating ratio. If we can get a big year, there's no reason why we can't produce some similar-type of numbers like we've done in the past.

Very helpful. Thank you, Adam.

Thank you all today for your participation. We appreciate all your questions, and please feel free to give us a call if you have anything further.

Thanks, and I hope you have a great day.