USA Truck, Inc.
Q4 2019 Earnings Call Transcript

Published: 31 Jan 2020

[Operator:]

Good day, and welcome to the USA Truck Fourth Quarter 2019 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded.I would now like to turn the conference over to Chad Lane, Assistant Treasurer and Investor Relations Officer. Please go ahead.

[Chad Lane:]

Thank you, Jason. Good morning, and welcome to USAT Capacity Solutions fourth quarter earnings conference call. Joining us this morning from the Company are James Reed, President and CEO; and Jason Bates, Executive Vice President and CFO.We thank you for joining us today. In order to help you better understand USAT Capacity Solutions and its results, some forward-looking statements could be made during the call. As we all know, forward-looking statements, by their very nature, are subject to uncertainties and risks. For a more complete discussion of factors that could affect the Company's future results, please refer to the Forward-Looking Statements section of the Company's earnings press release and the Company's most recent SEC public filings.In order to provide more meaningful comparisons, certain information discussed in the conference call includes non-GAAP financial measures as outlined and described in the tables in our earnings press release.I'll now turn the call over to Jason.

[Jason Bates:]

Great. Thanks, Chad.We want to thank everyone for joining us on the call today and we appreciate your interest in and support of our Company. We hope you all had an opportunity to review our earnings release from last night. As we stated in the release, the fourth quarter of 2019 marked the continuation of the challenging 2019 freight environment. The freight market has been soft, allowing shippers the opportunity and motivation to move a larger portion of their freight at reduced prices. This phenomenon weighed on several of our operational metrics in the quarter and was a meaningful factor in our core financial performance.Having said that, our team remains focused on the long-term plan we laid out more than two years ago. In keeping with that plan, we made several key changes in investments in 2019, in spite of the difficult market, which will position us to benefit when the market pendulum swings back in favor of the carriers. We will talk about several of those changes in investments throughout the call today.We remain committed to the turnaround efforts here at USAT Capacity Solutions and are pleased with the progress we are yielding on many of the structural systemic issues we inherited when we embarked on this journey. We knew there would be tough markets along the way, but it's not about making short-sighted decisions to prop us up in the downturn, rather make the right decisions to ensure success in the long run.If you please turn with me to slide number three, we'll do a brief review of our financial results.Consolidated operating revenues came in at $124.1 million for the quarter, which represents a 12% decrease year-over-year. Consolidated adjusted operating ratio for the quarter was 102.8%, primarily driven by the weaker freight environment mentioned previously and affected both of our operating segments. Our adjusted loss per diluted share was $0.52.Turning to slide number four. Trucking operating revenue before intersegment eliminations decreased $7.8 million or 7.8% to $92.1 million for the fourth quarter of 2019. Our Trucking segment generated a $2.2 million loss in adjusted operating income and 102.7% adjusted operating ratio for the fourth quarter of 2019. The primary driver of these results was a $0.215 reduction in base revenue per loaded mile when compared to the fourth quarter of 2018. The rate reduction also negatively affected base revenue per available tractor per week, which decreased $284 or 8.2% year-over-year for the fourth quarter. The offset to the rate reduction was an improvement to utilization of 14 miles per truck per week, or approximately 1% when compared to the fourth quarter of 2018.The aforementioned base rate per loaded mile reduction was a result of increased year-over-year pressure and required participation in the spot market combined with lower margins in our normal seasonal surge opportunities typically operated in the fourth quarter. Our spot market participation in the fourth quarter of 2019 was approximately 9%, up from approximately 6% for the comparable period of 2018 but down sequentially from approximately 15% figure we disclosed in the third quarter. As previously mentioned, loaded miles per available tractor per week increased 14 miles or 1% year-over-year, and our deadhead percentage for the fourth quarter of 2019 improved to 120 basis points year-over-year as well.Our average available unseated tractor count was 6.9%, up nominally from the fourth quarter of 2018. The average available tractor count for the fourth quarter of 2019 was 1,949, which is a 3.5% increase when compared to the fourth quarter of 2018, due in large part of the Davis Transfer acquisition completed during the fourth quarter of 2018, as well as the year-over-year growth in our owner operator fleet.Turning to slide number six, we will review the results of our USAT Logistics segment. Revenue before intersegment eliminations decreased $10.8 million or 24.4% to $33.6 million for the fourth quarter of 2019. Our Logistics segment generated a $932,000 loss in adjusted operating income and had 103.1% adjusted operating ratio for the fourth quarter of 2019. The primary driver of these results was a lower revenue per load as a result of deterioration in the brokerage market when compared to a robust comparable quarter in 2018.Revenue per load decreased 20% or $326 per load year-over-year. Gross margin dollar decreased $2.6 million or 40.7% to $3.9 million for the fourth quarter of 2019. Gross margin percentage for the fourth quarter of 2019 was 11.5% versus 14.6% for the comparable quarter of 2018. Load count decreased by 5.5%, or approximately 1,500 loads year-over-year to roughly 25,800 loads in the quarter.If you'll turn with me to slide number seven, we will highlight some key balance sheet and liquidity measures. As of December 31, 2019, total debt and lease liabilities were $190.6 million and total stockholders’ equity was $78.2 million. Net debt was $190.5 million, and our net debt to adjusted EBITDAR for the trailing 12 months ended December 31, 2019 was 3.7 times. The Company had approximately $55.1 million available to borrow under its credit facility as of December 31, 2019.I want to take this moment to point out a couple of items and briefly highlight some trends over the past several years. I think, it is helpful to look back at the progress that has been realized by this team since we came together in early 2017. As you can see from the charts on slide six, the entire USAT Capacity Solutions team has done a pretty good job over the past three years at increasing EBITDA, which is a proxy for cash flow, as well as increasing liquidity, while at the same time investing in the fleet. We all know that 2018 was unusually strong and 2019 was unusually weak. But in spite of that fact, we are currently -- but in spite of the fact that we are currently in a weak point of the cycle, the trends in each of these categories are all much improved from where they were when we started this journey. Additionally, during this time, we've invested in our technology and information systems and have expanded our terminal presence.Finally, I want to remind people that we amended and extended our revolving credit facility in the first part of 2019, further enhancing what was already one of the better facilities in the industry, as it has minimal restricted covenants with FCCR and liquidity being the only key measures.So, in summary, in spite of the significant headwinds our industry and our Company have experienced in 2019, we feel the team has made the right long-term decisions along the way to place USAT Capacity Solutions on firm footing, so that we are positioned to accelerate profitable growth when the market turns, which most of us are expecting to happen at some point in 2020. In the meantime, we remain focused on improving the operational levers we can control, focusing on cost discipline and ensuring we preserve liquidity, keeping in mind that should the downturn take longer than expected, we can always temporarily pull back on CapEx, an option afforded to us as a result of the prudent investments we have made over the last two years.So, with that, I'll now turn the call over to James for a discussion of the business and go-forward strategies.

[James Reed:]

Great. Thanks, Jason. And thanks to everyone that's on the call with us today.Our intent is to be a little more detailed in adding color to the results, giving insights of the corrective measures we took during the quarter, and to outline our next step in the self-help story that we continue to work through.As I stated in our release, our results were meaningfully impacted by the difficult freight market during the fourth quarter of 2019. The soft spot market and supply-demand imbalance affected both, our contract and spot market opportunities during the quarter. Market rates remained pressured during the quarter and shippers allocated large portions of their freight spend to the lowest cost alternative. Adding to the near-term pressures, for organizational changes we expect we’ll enhance our business in the long-term, but that resulted in our experiencing the effect of a tough market even more severely than some of our peers. I will give you additional color on each of those items later in this call.Before we get into the quarter, we always like to give you some indication of the current market conditions. Just as we have all seen in the readily available market data, the abundance of tracking capacity is reflected in seasonally softer rates. And rate recovery related to capacity rationalization will be an important theme to watch throughout the balance of 2020. Demand has inflicted positively from our own expectations and there seems to be encouraging signals of returning demand in the marketplace. One critical measure, EDI turndown has been very low over the last 10 days, which is generally a sign of weaker demand dynamic.Bid activity was quite heavy in the fourth quarter as we believe shippers were trying to reset rates on a lower base. But, we now see the big cadence normalizing back somewhat. Just under one-third of our annual truckload bids are setting up to be completed in the first quarter, which is only slightly higher than a “normal year”, looking back over the last decade.So, now, I'd like to get into the results a bit. On the Trucking side, our segment results are really the story of a market-wide reduction in rate and the flow-through of expense headwinds that Jason addressed a little bit earlier. As we noted in the release, our Trucking segment rate per loaded mile was down 9.1% year-over-year or $0.215 per mile. The rate impact alone accounted for roughly an $8 million reduction in trucking revenue and operating income in the fourth quarter of 2019. The reduction in rate was partially driven by continued disproportionate reliance on spot rates. Historically, we have kept that percentage out -- excuse me, we have kept that percentage of our freight mix to less than 5%. And in the fourth quarter of 2019, we had approximately 9% of our freight sourced via the spot market. And while that is not ideal, because in this environment, spot rates are about 25% lower than contract rate, it is an improvement over the last couple of quarters where we had 10% and 15%, respectively of our freight sourced in that manner.This challenge was mostly created in two ways, both of which we discussed at length throughout 2019 and which we have addressed through our team's good work and focus. The first way is customer freight award realization. This is partially in our control. We have a lot to do with winning business every single day, but customers had choices throughout 2019. And the realization of freight that was tendered as a percentage of what was awarded hovered between 60% and 65% all year long. When we don't get freight tendered that we won in our bid process, it hurts the model.To mitigate this challenge, 2019 was a year where we at USAT Capacity Solutions, focused intensely on developing a service culture with our team and especially with our customers. We added team members in our sales organization to help create contact points and sustain engagement with our customers. Our executive team saw more customers in person than ever and our internal business cadence shifted to a daily customer level accountability for service performance.The second issue with respect to spot rates and the way that we combated that need for spot rate freight and low realization is by heightening our bid participation and intensity. In 2019, we doubled the amount of freight we competitively bid when compared to 2018. For some perspective, that was an increase from 6.6 million loads bid in 2018 to 13.9 million loads bid in 2019; that's 110% increase. And to be clear, we are targeted in the bid activity to lanes that comport with our network design imperatives. We never bid freight for fun. It's always with the expressed intent of improving the network. The remainder of the rate per loaded mile reduction was driven by broad reaching market moves that impacted the entire industry. But, as a reminder, when our team took on the opportunity at USAT Capacity Solutions, the Company's rate was perennially the lowest in the public peer set. We now have a rate result that reflects one of the top price positions in the industry. Our rates therefore will tend to move with the industry peers now more than ever. The year-over-year revenue decrease was partially offset by the improvement we had in utilization that Jason discussed earlier. We want to be clear that we are not in the mode of expanding capacity by adding trucks. That is not our plan in the current environment.While we are pleased that utilization improves, we know there is more opportunity ahead in utilization, and look forward to further improvement. We also improved our deadhead percentage 120 basis points, again, showing our discipline to keep trucks in our network despite almost 9% of our loads coming from the spot market.Some highlights in the quarter in the trucking segment include the Davis Transfer performance and our dedicated business performance. These are both included in the Trucking segment results as we have interdependency in our tractor, driver and trailer resources, but these businesses both performed despite the challenging market at near best-in-class performance levels. This ray of light provides two important points. The first is that the dedicated business provides insulation in volatile times and consistently earns acceptable returns. This business performed almost exactly as well as it did in 2018. And second that regionalization, which we consider Davis to be a near perfect proxy for, creates the visibility, ownership, and focus that can produce accessible returns and profits, even in the toughest environments. All-in-all, as rates improve and our execution continues to gain traction, so will segment results.Now, turning to logistics. The fourth quarter was particularly tough for our logistics business, which experienced lower volumes and margins that are indicative of broader market challenges in the industry. The challenges Jason mentioned were broad-based as revenue per load was down 20% over the period and gross margin was down 310 basis points year-over-year. In plain terms, price was down and the spread between price and capacity costs was the tightest we have ever seen. Faced with that environment, we made an intentional choice to eliminate loss leader freight. We just couldn't justify losing more money to support freight that was being moved in the market at negative contribution margin. This choice had a direct impact on our volume in the quarter and frankly in the year. We are not convinced that gaining a critical mass of unprofitable freight is the right strategy for us in this market where customers move quickly between lower cost options.We have studied this market closely and have come to believe that typical down markets in the brokerage space have generally been supply side issues. And while there is no doubt that there is excess supply, i.e. capacity in the market today, we have also come to realize that what we are seeing is exacerbated by the number of brokers competing in the market and a demand side issue as well. By our estimates, the number of licensed brokers has grown 40% to over 18,000 licensed brokers since 2009, which creates a hypercompetitive, and in some cases irrational competitor set. And there are many outside sources that have documented the soft demand measured in load count or loads per available tractor.Think about what that means? We have oversupply, low demand and more competitors than ever in this low-margin environment. And so, with that backdrop, we see two really distinct approaches to this market. One, gain critical mass at any cost; the second is hold fast to develop margin opportunities where they exist, preserve relationships and lower transaction costs to remain relevant until the supply-demand equation balances out.The first option to us is a bit like the time-honored question of why don't you wrestle with a pig? And of course, the answer is because you both get dirty and the pig likes it. We don't have the profit headroom or funding to pursue that path. So, we're taking the latter path, which is to say we're focused on increasing efficiency, lowering execution costs, improving capacity networks and mining profitable freight. We believe we'll be able to leverage those competencies going forward with our existing relationships to garner profitable freight as logistics market improves from this current cold front.Some of the things we're doing to execute on this strategy include, first, partnering with outside technology firms. These firms use tech to automatically match freight to carriers and use artificial intelligence and continuous learning models to optimize the experience for third-party capacity providers. That lowers the transaction cost. The second thing we're focused on is improving capacity networks. This is code for creating efficiency and network options for third party carriers. We're bringing meaningful insights to the carrier base, so they can be more effective and profitable. When they are making money, so are we.And finally, increase presence in high-touch freight. I don’t want to say too much here, other than low intensity freight isn't so profitable. We're really good at adding value to supply chains where there are higher touch needs, we intend to focus some of our efforts here. As I mentioned earlier, enterprise cost headwinds are part of our fourth quarter results story too. Insurance premiums alone resulted in approximately $1 million of additional cost in the quarter. Add to that the impact of the used equipment market, which continues to deteriorate. Our impairment loss on sale and accelerated depreciation combined cost us more than $500,000. Those two items alone accounted for $1.5 million in the quarter.Now, I want to talk about some of the internal improvement investments that we made during the quarter and throughout the year. As we noted in our release, we effected some organizational changes in the quarter that we expect will enhance our business in the long term. These are the right decisions that amplify the effect of the tough market on USAT Capacity Solutions. We believe wholeheartedly in our self-help turnaround approach to the business, and that this requires ongoing investment in people, time, and resources, even in down markets to ensure we are fit for the race, when the market returns. Here are some of the things we're doing. The first is regionalization. We continue our conversion to a regionalized network. We believe over the next 18 to 36 months, each of our regional centers can become accretive contributors to our business.During the fourth quarter, we onboarded all four of our regional leaders. You might recall in the third quarter release that we had a goal of adding one of those regional leaders. We added all four of them. And they're focused on building out our regional teams, training our people and improving operational processes. The second thing we are doing is in technology.As we mentioned in our release, we invested in upgrading our TMS, deploying a best-in-class ELD system that integrates with our existing tech platform, and we joined forces with strategic partners to enhance our operational capabilities in both in tracking and USAT Logistics.Third is cost control. We had a reduction in force of approximately 8% of our non-driver support staff in the quarter to help offset the significant market headwind. Cost control is an essential part of our operating plan in 2020.Additionally, our financial team maintains one of the best DSOs in the industry, converting our receivables into cash, quicker than most of our peers. We shy away from sharing the number exactly, other than to say it's less than 35 days. We also reduced the average ages of our tractors from 3.3 years to 2.6 years over the last 24 months, which as Jason indicated, gives us some flexibility.Next, operational process improvement. Our Trucking segment is in the midst of an all-encompassing process improvement project that will fundamentally change the way we operate. This is integrated in our regionalization in a sense that this effort will institutionalize the USA Truck way, which in effect, is franchised out to our regional centers. We have made immense progress defining, documenting, training, providing governance and managing this change. It is tedious but rewarding and value creating work.And finally, driver retention. We deployed a team in the quarter, which is focused 100% on driver retention. We're managing our interactions through cadence and intentional outbound calling of all drivers in the first six months. This team has become the advocate of the driver community, and the result in the quarter was improved turnover, which we expect to continue.So, as we look ahead and consider the state of this market, the most meaningful gap between our performance, competitors and our aspirations is revenue per tractor per week. And while our pricing is market competitive, our utilization is not. And so, the question becomes, why, and what are we doing about it? Historically, we have been a solo dry van carrier. And we have not been able to get appropriate revenue per tractor even for solo drivers. And so, everything we've done over the last three years has been toward getting this Company ready for its future. I always say that we're getting fit for the race. Many of the things we've discussed before and on this call have gotten us to a point where we are intent on now accelerating our utilization and thus revenue per truck. It will help a ton if the market recovers, but we can create our own path too.In that spirit, all of the foregoing items have had exciting implications on our truck business. The fourth quarter was the first full quarter under the leadership of our new trucking leader. And while we had a small but meaningful impact on utilization in the quarter, month-to-date in January of 2020, our utilization is at more than 100 miles per available tractor per week, when compared to January of 2019.Our plan in 2020 will focus on ways we can increase utilization, revenue per available tractor and profitable logistics load count growth. We won't provide guidance per se here, but specific areas of focus for 2020, which we will report back on in subsequent quarters, are as follows. And I believe you can find this on slide eight in the presentation. The first is increasing utilization on our existing fleet. We believe we can create an addition of $300 in revenue per available tractor per week by the end of the year on a run rate basis through managing the processes I talked about earlier, improving load velocity, standardized training and governance.The second thing is we are increasing our team presence and utilization. We believe we can create an additional $100 in revenue per available truck across the fleet per week by the end of the year. We've had a small team operation for many years, but now we're growing that fleet in size and expected revenue. It will be achieved through industry competitive performance and key metrics on those trucks.The third thing is network optimization. Our network has improved in density over 60% since we began the self-help journey here at USAT Capacity Solutions.We now are at the phase of our network improvements where targeted power lanes and market hub, which we have already targeted in our robust 2019 bid cycle and discussed extensively last quarter in the earnings call, will provide an additional $50 in revenue per tractor per week by the end of the year.Next, we intend to grow our dedicated business. We will report back on percentage growth terms, not absolutes because this is part of the trucking segment. We expect to grow this business at least 10% in 2020, given the virtues we discussed earlier and the insulation it provides in up and down markets.Next, driver retention. This is a big cost savings and opportunity cost initiative that we expect could add as much as $750,000 in savings, so already improving results. And finally, drive logistics load count. We will continue to grow load count while driving gross margin percentage performance back toward the mid teens. So, now, I'd just like to talk a bit about the outlook and conclude my remarks here.As we have said all along, closing the performance gap with the competition has been a high priority for us. And despite all the challenges of 2019, we made progress toward that goal. During the last freight downturn from 2015 to 2016, USAT Capacity Solutions adjusted trucking OR degraded by a full 800 basis points. During this cycle, our adjusted trucking OR has degraded but only by 350 basis points. We're not happy about that, but as we said repeatedly, we are getting fit for the race, and it's definitely an improvement in trends. We believe that doing what we said we would do should lend credibility to our thesis that the USAT Capacity Solutions’ self-help story is working to improve results and that our opportunity to improve remains in place more now than ever. This is a unique story in transportation. And as we outlined, we have real room to improve asset utilization, reduce operating costs, and a drive to make service our identity that should materially improve our future outlook.As we said last quarter, we still anticipate the first half of 2020 to look somewhat like the second half of 2019 from an earnings perspective, the market notwithstanding 2020 is the year in our plan as it always has been that several elements of our strategic plan gain their traction. Network improvement and our heightened bid activity will manifest themselves in the first half of 2020. 41% of the freight that we bid in 2019 will go into effect in the first quarter. We should have a better read on the year once these implement and we begin to see firsthand what customer tender dynamics look like. Regionalization will gain full voice in the year. And while it will take some time to fully reach its potential, we are excited to finally be at this point in the journey. We've done exactly what we said we would do. We opened three new facilities in the last 12 months and are very close on a fourth facility right in the heart of our network. We believe the actions outlined here today lead us to higher base revenue for available tractor per week, improve trucking and logistics OR, higher utilization, lower out-of-route and consistent cost control. So, much of this will have to be judged relative to the market though, because it's not clear what will happen in terms of capacity and rate pressure and the timing of that. One thing we are clear about is that we expect to improve our relative performance no matter what the market does, just as we have done thus far since our team arrived in 2017.January 29th marks three years since I was appointed CEO here at USAT Capacity Solutions, and I'm so proud of what our team has accomplished in that time and are about to accomplish. We outlined a lot of it here today, but this Company is well ahead of where it was by almost any relative measure. And yet, the most important part of our work is not done. We must take the opportunity in 2022 to create more sustained profitability and results for our stakeholders.The world lost Clay Christensen last week. I was honored to know Clay. He was merely an acquaintance to me, but an impactful one at that. But early in my career, I was able to be near him when he advised our Company. He once wrote “If you defer investing your time and energy until you see that you need to, chances are it will already be too late”. I hope that what we are portraying is that we are making the right investments now in areas that will yield rewards later in the right areas with the highest return. We're not deferring, we're advancing. And the early indications are clear that this team has made and expects to make great progress over 2020 and years beyond.Just as a quick FYI, Jason will be attending to sell side conferences in South Florida the week of the 10th. If you're there, we'd invite you to schedule time with him. Otherwise, for further questions that you might have after the Q&A session, please feel free to contact Chad Lane or Jason, to schedule a call.So, Jason, with that, I'll turn it back to you for questions.

[Operator:]

We will now begin the question-and-answer session. [Operator Instructions] The first question comes from Jason Seidl from Cowen & Company. Please go ahead.

[AdamKramer:]

Hey, guys. This is Adam on for Jason. I just wanted to ask first of all, you guys talked about the different initiatives this year. And so, I just wanted to double check, between the $300, $100 and then $50 per week, that’s a -- it would be a $450 run rate by the end of the year or are some of those overlapping initiatives and it won't total up to a 450 per truck per week?

[James Reed:]

Now, you got it right the first time. So, these are all separate initiatives. And in calculating the impact to our revenue per tractor per week, they're isolated. And so, you can add those up. It's -- obviously you're not asking this and we're not here to talk about our peers. But, when we look at our peers, one of the main distinctive factors is that many of them have operations that are able to put more miles on the trucks and therefore more revenue. And we just know that that's where we've got to go next. And so we are.

[Adam Kramer:]

Got it. Got it. That's really helpful. I guess, my second question, I wanted to ask a little bit about the sequential change 4Q to 1Q. Obviously, market has been tough in 2019, and I'm not the first person to say that. But the 1Q OR -- 1Q 2019 OR versus the 4Q 2018 OR is about a 600 basis points worse. So, I just wanted to ask what your expectations are for that sequential move going into 1Q 2020. Obviously market is still soft, but what -- with some of the initiatives you guys are doing, what that sequential change may look like?

[James Reed:]

Do you want to answer that one?

[Jason Bates:]

Yes. So, I mean, I think, a lot of it depends on some of the things that James talked about, right? He indicated that a significant portion of the bids that we engaged in over the last 3 or 4 months will be coming to roost here in the first quarter. And so, our ability to accelerate our improvement on the OR front is in part a function of what we realized through that bid process. And so, that's something that is a little bit of an unknown right now. We are cautiously optimistic about what it might mean. But, I want to be cautious to not over commit and under deliver either. And so, I would tell you right now, some of the cost headwinds that we experienced during the fourth quarter, those don't go away, right? Those are still going to be there, specifically on the insurance front that headwind, and dealing with some of the assets that we've been talking about.And so, while I think we might see some favorable movement on our trucking side, as James alluded to, we're already up more than 100 miles per truck per week, year-over-year in January. The rate environment has been tough. We're having to haul a little bit more broker freight than we would be like. But, the other area that we're a little concerned about right now is logistics, and that market, and you've probably heard several people that have already reported, talked about how brutal that market is right now. And so, when you look at the all-in OR, the change, the sequential change or the year-over-year change, however you want to look at it, logistics is probably going to be a hard one to forecast.And so, in his prepared remarks, James talked about the first half of 2020, probably looking similar to the back half of 2019. And I would say that if you probably -- if you flip those on themselves, that trajectory is probably the right way to think about it. I'm not giving earnings guidance per se, but that's kind of -- based on the all the unknowns and all the qualifiers I just put out there, that’s kind of how we're thinking about it right now.

[Adam Kramer:]

Got it. Now, that makes a lot of sense. And just a final one for me and then I'll pass. In terms of some of those contracts that you mentioned, would you be able to give kind of a figure, or directional figure, where these recent contracts that you’ve signed, the percent rate increase or decrease on those? And then, what your kind of view is for full year 2020 contract freight increase?

[James Reed:]

Yes. So, I was just looking at this today. I believe -- do you have our blended rate there? I think, it was 2 for the year.

[Jason Bates:]

For the full year?

[James Reed:]

Yes. So, I was just looking at this, this morning. So, I appreciate you asking the question. Yes. So, our blended rate per loaded mile was $2.156 [ph] in ‘19. And as we look ahead, there is kind of too elements to this, right? The first one -- and we are not trying to dodge your question. I’m trying to be as transparent as I possibly can. On the contract side, we expect rates to be -- and what we're seeing frankly is, reasonably decent rates looking forward into the year. So, kind of down to -- between flat and down, just very low single-digits on the contract side. Our challenge in ‘19 was we just took way more broker freight than we ever intended to. And so, as I mentioned in the call, we more than doubled our bid activity in 2019, as compared to 2018. And we talked about that in every one of our earnings calls for 2019.

[Jason Bates:]

That was where we tripped up 2019.

[James Reed:]

Absolutely. That was a short pause, a mistake by management, and we rectified it quite heartily. That said, as that flows through, and as I also said on the call, 41% of that freight goes into effect frankly between this Monday and the next 45 days. So, we expect, given the win rates that we see and a conservative realization rate like we saw last year, that we have a significant uptick in contract freight coming. That's at zero to down 1.5%. Now that said, if we get the freight we think we're going to get, and by so doing, don't have to rely so heavily on brokerage freight, like we did in 2019, you will see a weighted average impact that could in fact see our rate go up year-over-year…

[Jason Bates:]

On the year

[James Reed:]

On the year. So, I would think about it kind of relying on two things, pressure on contract rates, but a mix that's more tilted toward contract rate because we want to get back to having less than 5% of our freight in the spot market. Is that helpful?

[Jason Bates:]

Yes. No, that's extremely helpful. Yes. And really appreciate the time, guys. Thank you.

[Operator:]

The next question comes from Jack Atkins from Stephens Incorporated. Please go ahead.

[Jack Atkins:]

So, I guess, could we just go back for a moment, James, to the commentary on January? I was a little bit confused just listening to the prepared comments, because at one hand, it sounds like you're seeing things kind of tick up and you referenced just a moment ago, miles per tractor per week are improving. But then, you referenced in the last 10 days maybe things kind of falling off some. So, could you maybe just kind of talk for a moment about what's happening in January from a market perspective, what you're seeing there?

[James Reed:]

Yes, really great question. And it's so dynamic. I mean -- and I'm going to add in some data points here that even Jason hasn't heard yet. So, everything we said there is absolutely true. We've seen an uptick in freight in the month, especially compared to prior January. In fact, in our trucking segment -- and we don't want to get in the spot where we're reporting financials by month. We're never going to do that. But, just on a revenue basis in our Trucking segment, this January is the highest revenue we've had in the Trucking segment in the last five years. So, it's setting up pretty good that way.When we wrote these comments, the EDI turndowns had bottomed out. It was an indicator that freight was kind of softening. But just this morning, we have a daily operations meeting every morning at 7

[Jason Bates:]

Yes. And if I could add, I think we need to be careful that we don't mix the market with kind of some of the unique specific activity that the USAT Capacity Solutions teams are focusing on. So, for example, we're up 100 plus miles per truck per week this month, but some of that is just these guys, birddog and things and going in and finding freight that they've got to find. And sometimes it's not the highest rated freight out there, which even though our revenues are up, we are seeing some rate pressures here in January because sometimes we want to move trucks, we want to get drivers where they need to be, position them for that next head haul load. And so, we're being aggressive about not laying over trucks and not letting guys stay at the house. And kudos to the ops team for doing that. But, it is a little bit of a headwind from a rate perspective, relative to what we would like to see now.Our earlier comments about all these bids coming on, hopefully that will help, so that we're not having to go to the spot market or broker market and take that freight and we can instead replace it with contract freight that's going to be more ideal and better rated. But, those are some of the unique things that are going on here in January. Better miles, but pressure on the rate front, which is why my earlier comments about what do we think the overall trajectory is going to look like for the quarter? I mean, every January for the last five years, this Company has lost money. So, I think, even though we're better today on a revenue front, we've got the cost headwinds, and we're comparing to an unprofitable comp.

[Jack Atkins:]

Okay. Got you, got you. And then, I guess, as we sort of think about the trajectory of the year here, it's been pretty tough as we sort of watch results, kind of really have a lot of pressure on them as we move through the course of 2019. And obviously, it’s seasonally very challenging here, especially in the first quarter. But, when I hear your comments about the effort you're taking to improve the profitability of the business, and the hope is that should show up in the first half of the year. There seems to be a little bit of, I don't know, some caution in your voice. And I don't know if that's a function of what happened in 2019. But, if these initiatives don't materialize, I guess, what's the contingency plan? And then, secondly, I guess, why wouldn't it work? I guess, I'm just trying to understand why wouldn't you see a significant improvement in profitability, beginning in the first quarter as these bids go effective?

[James Reed:]

Yes. So…

[Jack Atkins:]

Sequentially…

[James Reed:]

I totally know what you mean, I think, I'm going to try to address it. And then, if we miss the mark, just put us back on track. We got a couple of things. We have the best operator that we've had in the recent history of this Company. He's a great teammate, he's humble, he interacts better with our support functions than anyone that we've ever had. And so, we're really pleased with what he's done and the leadership team that he's brought together. And, as you noted, in this tough market to beat up over 100 miles per tractor year-over-year, and to have asset utilization at the highest point it's been in the last three years in January, compared to prior January, is a really good indicator that we're already on track for some of these things.Some nuance, maybe things they don't talk about a lot, but you can find this by getting on our website or posing as a driver. We just introduced and it's starting this week, industry competitive team pay. It sounds ridiculous, but we've never had that before. And we didn't focus on it because we were trying to fix our team operation. We also had a pay anomaly where trained drivers basically stayed on a training payscale for a year and we were losing them at 90 days because they leave us to go to competitors where they got paid as experienced drivers. We changed that this week too. And so, all of these things combined, we've got the ops team already proving that they're adding miles at a pretty good clip. We've got the regionalization coming down the pike, which naturally adds more miles because you just got more scrutiny, you got a smaller fleet shepherded by a single leader. We're adding team trucks. We've got trainer fleet that we already have that we need to get more miles out of, so we’re managing those more diligently. All of those things combined, we don't have a contingency plan for that, because that's just what good operators do. None of those are unnatural acts. They're things that our competition does today, and we just had to get right and get our regionalization pattern ready to go, so that we could deploy it. And now is the time.

[Jason Bates:]

Yes. And so, just to add to that, I guess, from my perspective, I agree with everything James said about, but we talked about the operational levers that irrespective of the market we’re going to go after and we're going to pull this year. The difficult thing is -- I mean, if you look year-over-year, we were down $0.2150 in our rate per mile. And that's tough. James has been kind of banging this drum around our building. I am going to beat them too before he says. But I mean, if you just take that $0.2150 and apply it to the miles, ifs -- what's the phrase that?

[James Reed:]

If ifs and buts were candy and nuts.

[Jason Bates:]

If ifs and buts were candy and nuts, it’d be Christmas all year along. But, if the rates were the same, I mean, we are looking at a wildly different profitability. Because again, just to reiterate, I know you know this, but for all those that maybe listening on the call, we’ve only got 8.5 million shares outstanding. So, your EPS number swings drastically when you lose $0.215 of rate on a year-over-year basis. And so, I guess, if there's a caution or a sense of caution that you're feeling from our tone, if you will, it's not that we have concerns about the fact that the team is going to go after all the levers we can pull. It’s the concern about when this market does turn and what the contract realization does end up looking like and what those rates end up being and how much spot rate we have to continue to call and what is that spot market going to look like. And I guess it’s just -- we've been burned with our fuzzy crystal balls over the last 9 months. And so, I guess we’re just being a little cautious on that front.

[James Reed:]

Yes. Jack, just one other thing I'd like to add to that, I'm really glad that, Jason alluded to it, the main theme that I hope you got from our prepared comments should be that even though we face just like everybody else, an incredibly tough market, we got our process improvement in place, we got our leaders in place, we developed our regionalization model. We moved forward, we're investing with our time and resources, even in the face of the headwinds. And we will do the same thing in the first half of this year. And as Jason kind of alluded, the hesitation is -- and when and if the market turns, because it always does, that’s just the part that we don't know. We don't know when that's going to happen. I know everybody is saying that it’s second half. I don't know who their staff economists are to figure these things out. I'm being specious, nobody has that. They’re just guessing. But, it could be June, it could be produce season, which we really didn’t have any to speak of last year, or it could be nine months from now. It doesn't matter. We're just going to keep improving and beating our cadence. So that, when we're in tough markets, if we have more revenue per tractor at the rate that we currently have today, we should be able to get this thing. So, we're still operating at a profitable kind of mid to high 90s OR in pretty short fashion, I'd say within a year or so. So, that's where our head is.

[Jack Atkins:]

Okay. Got you. And then, last question and I will turn it over, but within the logistics business, it sounds like there's opportunity for higher levels of utilization per employee. And, is there a chance to maybe do some restructuring there so that you can gain better efficiency? Because just, it's unusual to see a logistics operation where you typically think about high amounts of variable costs in terms of the operating model, lose money. I guess, what's the plan there to get that back to profitability?

[James Reed:]

Yes. So, it's kind of a -- I went through this in the bullets, and when you actually see the transcript, I think it'll jump off the page and you'll be able to kind of tell what we're doing. But, the first thing is we need to get more load count and we are working through our compensation programs to incentivize that and through our management cadence to incentivize that as well. And so, we've recently, within the last couple of weeks, really stepped up our management intensity just in terms of the return and report and the daily accountability with sales and our logistics team members to get more loads. So, we have a scorecard that every one of the offices looks at and manages. It includes a margin goal, which I'm not going to tell you and a load count per day per employee goal, which I'm also not going to tell you, but we're just maniacally focused on that.One of the things I did not say in the prepared remarks is that we are looking as well at ways to reduce the transaction costs. I actually did say that, and we're doing it through some partnering with outside firms, but we're also looking at taking some of our expense structure for more of the clerical type portions of the job, to lower cost geographies, offshore type geographies, and up scaling the jobs for our value added people who are doing capacity matching, so that instead of fishing for capacity, they get proposed capacity solutions and then they optimize for the right most profitable ones.So, your question I think alludes to learn some things to reduce transaction costs and what are some things to increase throughput. Those are the things we're doing. It just comes down to blocking and tackling. And as I said, our logistics team, if every person had booked one more load per day in the quarter, they would have at least broke even. And so, that was a mistake where we didn't go get gross margin on a high enough load count, and that's something that we're pursuing. I won't say, we'll have it totally rectified in the quarter, but we will have it rectified by the end of the quarter.

[Jack Atkins:]

Okay, great. Thank you for the time.

[Jason Bates:]

Thanks, Jack.

[Operator:]

The next question comes from Jeff Kauffman from Loop Capital Markets. Please go ahead.

[Jeff Kauffman:]

So, we're going to go down the candy and nuts path here. It's easy to throw stones after the fact, but if you look back to the analyst day we had back in the spring last year, and the plan today seems a little different from the plan then and how you're executing. What did we not catch in time? And was that a systems issue where your numbers weren't giving you the right data? Was that just not recognizing the market? And I guess, looking at kind of what you're doing, what makes USA Truck unique in the market? What special thing do you have going for yourself? And I've heard the plan on how we get back to where we need to be, but how should we have gone about this differently and kind of how do we get back to where we are outside of these fixes that you have on the table right now?

[James Reed:]

Yes. So, look, it's a commoditized -- it's a highly commoditized market. And in the truckload space in particular, the differentiation that anybody has is the service and offerings that they provide. On the straight truckload space, honestly, the best advantage we have is our customer base. We have loyal and long lasting customer relationships that we value and that they value. And from a kind of commoditized market, I'll just go back to what we said all 2019. And I feel we finally rectified, and we admitted it was a management mistake. And that was, we just didn't build enough freight in ‘18 going into ‘19. I think I presented a case and fact set that quite readily addresses that issue.The second thing is dedicated. We have -- we missed a year of dedicated. I won't go into all the reasons for that. But during 2019, we refocused our efforts on dedicated. We've got a robust pipeline, as I talked about in the third quarter. And we've actually got some recent wins, which we very kind of casually alluded to in our comments, but we've got some nice, significant dedicated wins that are ramping up here in the first quarter. So, that's kind of a portion of the strategy that we maybe didn't talk about before.And then, on the logistics front, I’ll just lean back on what I said earlier. We lost some momentum in a really tough market. I won't quote per se that the analysts, one of the sells side folks, who's not on this call, in a recent piece -- and actually, was the CFO of another public company, said that it was a bloodbath in their logistics market. And they were projecting, multiple quarter losses. That's not our approach.Now, I just take a little bit of issue with representing that as being a change in the strategy that we presented. We still have the same strategy that we said before. We're a self-help business. And the way that we're going to do that is by improving our metrics and managing our costs. That was the theme in May of last year, and I don't think that's changed.

[Jason Bates:]

Yes. And that's where I was going to chime in as well. I think, when you ask well, what changed, Jeff. Well, there was something that changed. The bottom fell out of the market? I mean, that's what changed. And so, I don't think that we -- nobody anticipated that coming off of the highs that we were in 2018 that it was going to flip as quick as it did. And so, if there was a mistake that we made, it was probably having the investor day when we did. But who would have known that we were having that investor day right at the point when the market was about to fall out. And so, understandably, the trajectory has to be reset. But everything we talked about in the investor day was based on five-year outlook. And we knew at some point there was going to be a slowdown in the market and the turn down. We just didn't know it was going to happen so fast and so quickly down. But, we still believe in everything we talked about in that investor day. And all the data points we gave in the investor day about how much money can be saved through different initiatives and what the upside opportunity is by putting this much more revenue per truck per week. Those numbers all still hold true. It's just as James alluded to, we're in a commodity market. And the ifs and buts comment, when you lose $0.215 of rate, you got to reset the -- it's a step function down and then you got to build from there. And that's where we're at right now. Does that answer your question?

[Jeff Kauffman:]

And it's a fair point, you're right. The analyst day was about utilization and increasing rep per tractor and some of those other initiatives. You highlighted that you renegotiated the credit line. You have the credit support and the liquidity that you need for the environment. Do you have the fleet that you need? Do you have the technology that you need? And kind of how should I think about capital spending? You mentioned you can always pull a lever and scale back. But, where are you on fleet? Where are you on technology and how should I be thinking about cash requirements for the next year or two?

[Jason Bates:]

Yes. So, I'll hit real quick the fleet. So, we have been making investments. You saw in our prepared comments, we talked about taking the average age of the fleet down from 3.3 years to 2.6, 2.7 as of the end of the year. So, in two years, we made that kind of an improvement. We've made a lot of investment on that front on safety, technology and all those kind of things. We have also made investments in -- I think, James may touch on this in a minute. This year, we spent a lot of time making investments in our operating systems to try to help us -- help our operators to be able to be more efficient, so that we can realize some of those utilization improvements that we talked about. So, that was places that we made investments this year.And we talked about the terminals. We haven't gone out and spent millions and millions of dollars on buying terminals, but we are acquiring different -- whether it's property or leasing facilities that are available out there to get ourselves a presence in the markets so we can start pulling some of the over-the-road spent in house. Those are all investments that we made this year. So, back to your question about CapEx, we are -- this is very preliminary. It hasn't been final blessed by the Board yet. But we're thinking we're probably going to be in the 20 to $30 million range for net CapEx in 2020.Now, I will tell you, we have a lot of flexibility in that number, given where the average age of our fleet is and some of the investments we've already made. If we need to pull back on that this year, if the market takes longer to recover than we would like, we will absolutely do that. And we have the flexibility to do that. But, sticking with the theme of, hey, we're trying to make the right long-term decisions, we don't want to make shortsighted decisions just to prop up the current period when we’re really looking at what's the best long-term decision. But we do have to be mindful of liquidity, mindful of investors, mindful of earnings. And so, those are all things that come into that decision metrics. James, anything you want to add to that?

[James Reed:]

No. That was great actually. Just one thing on the technology front, kind of unintended but supercool byproduct of the ELD changes. We were on AOBRD grandfather. And so, we changed over to ELDs last year. And it was interesting. And again, I won’t name names. So, one of the technology providers who was in our trucks, did not have a robust roadmap, and in fact, had no way to upgrade the unit that we had in our truck. So, when they came to us and said, hey, it’s time for ELDs, we said, hey, if we are going to have to replace your unit, that to us makes us product agnostic. And we're going to do an RFP to the market. And so, we went out -- and I would argue, and the reason I argue this is we talked to customers. We have to talked to some vendors who are really excited about working with us. We came up with a unique solution. So, we use an in-cab tablet that's connected to a puck device that's under the truck and has our own customized kind of ELD application that runs on the tablet. It's incredibly cool, it’s incredibly flexible. It meets all the compliance standards. It's been certified, and yet it allows us some flexibility in working with outside technology partners that I think our competition, at least based on the interactions I have had, don't have.And so, no news to report today on that, but it's just an example of us being -- having some foresight and thinking few years down the road and ways that we can use technology that's required from a regulatory standpoint to give us an advantage in the marketplace. So, a lot more to come on that in the future.

[Jason Bates:]

Yes. And I would say, just so that everyone -- nobody gets the wrong impression. We were very cost conscious as we went through that implementation. So, I don't want anyone to think that we're out spending gobs of money because we want to have tons of cool tech. We made sure that there was an ROI there and that we were getting the best...

[James Reed:]

And it was appropriate price in the marketplace. So, good point.

[Jeff Kauffman:]

All right, guys. Just one detailed question and pass it on. Thank you for your answers. Jason, you went through a lot of numbers quickly and I heard a $1.5 million number. Did you discuss kind of one time or short term oddity items? I know you've talked about $1 million increase in insurance. And it was amazing that you held insurance costs flat, I guess on a year-over-year basis with that. But was there severance, what are their impairments? Were there write downs? Was there anything kind of non-operating or unusual that was in the numbers this quarter?

[Jason Bates:]

Yes. Good question, Jeff. I'll hit some of those real quick. So, we did, as James alluded to, we had an 8% reduction of our non-driving staff in the quarter, which resulted in $122,000 of severance. We did -- we have our normal customer amortization of acquisition related intangible such with Davis at 340,000, but we call that out every quarter. We did have an impairment on some let's just say assets that are depreciated in the market's eyes in value relative to some of their peers’ assets.

[James Reed:]

By assets you mean truck?

[Jason Bates:]

Yes, trucks specifically. Yes. Thank you. And so there was a decision that was made before any of us were here to buy that particular truck and the market for that truck has been abysmal. And so those trucks were being pulled out of service to be able to be disposed of here in this month actually. And so, there was an impairment on those assets that we recorded that was $418,000. And then, $1 million that you talked about on the insurance side. And then, the other one is the accelerated depreciation. And James -- that's where you got the 1.5 million. We recorded in addition to the $418,000 of impairment on some of those assets that I just alluded to, there was an additional a hundred -- I won't get -- my Controller will literally wring my neck if I give an exact number, but there's a hundred plus thousand dollars in the quarter of accelerated depreciation that we took just because we want to make sure that we're doing the best job that we can to match expected asset values at the end of useful life to what the market is going to be. And so, we're doing a comprehensive deep dive on what some of our -- how our peers are looking at things and we're looking at auctions, we're looking at used truck values, and we're trying to be not overly conservative, but we don't want to be aggressive on that either. And so, we have accelerated the depreciation and that is a headwind that we will probably continue to have here at least in the first half of next year as well. So, thank you for bringing that up. Those are all important points.

[Jeff Kauffman:]

Okay, thanks. That's all I have.

[James Reed:]

Thanks, Jeff.

[Operator:]

[Operator Instructions] The next question comes from Barry Haimes from Sage Management. Please go ahead.

[Barry Haimes:]

Thanks, guys. Thanks for hanging in and taking my question or two. The first one is, I wanted to go to the tender versus award statistic, which I think you said you only got 60% to 65% of the freight, was tendered versus what was awarded. And I'm wondering what if anything you can do to try to mitigate that. Obviously it was a function of these contracts not really being firm contracts and you had a stock market that has very cheap rates. And so, customers were diverting freight. But, in terms of future contracts or -- and you know, I have to kind of contrast that behavior with -- James, you talked about loyal and long lasting customers. Well, a loyal customer wouldn't give you only two thirds of the freight that had been promised. I wonder if you could sort of address that issue. I know it's a tough one. And is there anything you can do to incent their behavior on the part of your shippers? Thanks.

[James Reed:]

Yes. It's a really excellent question. So, you're right. We only have a handful of customers that we really consider strategic partners who come to the table in a price environment like this and work together with us to ensure that we receive via tenders, the freight that we were awarded. We have other customers that I would say are pretty loyal. They've been customers for a very long time, but are very price sensitive and they pull freight. But, that's not the entirety of the dynamic. And I don't mean -- such a wonderful question Barry, and I don't mean to go too far in detail, but I think it's illustrative and helpful for this audience. The way that this works is, customers have multiple ship or carriers in their routing guide. And historically, when customers tender freight to carriers, carriers reject a portion of that freight. And when it's rejected, it moves down the routing guide to the next carrier and the next carrier and the next carrier.So, for example, in 2018, we received throughout the year, depending on the quarter, between 80% and 90%, realization on our freight. And so, that's what happens in a really tight year when people are playing in the spot market, they're declining first tender. It's called first tenders acceptance. And they're trying -- they, the carriers, are trying to get better prices in the open market. And that creates an environment where you get higher realization.This last year, because of the market, tender acceptance rates were at all time highs. When we would go to customers, we have customers tell us that anywhere between 95% and 98% of their first tenders that they send out to carriers were accepted. And so, there's none of that kind of waterfall effect of that freight moving to the next carrier in the routing guide. So, that's kind of the dynamic there.The really insightful part of your question is, well, is there anything you can do about it? Yes, there's absolutely something we can do about it. The number one thing that we can do is be the absolute best service provider that we can be with our customers. We are focused on that. We have five corporate objectives each year. I'll share them in our next quarterly update with each of you. But, one of them this year is to make service our identity. As we provide high levels of service, you naturally get higher realization. That's one. Two is, we stick to our network strategy, as we get denser and denser and denser freight. I've always said that densification of freight is critical to this business. You start to frankly develop economies of scale in lanes where the customers are more naturally suited to tender you the freight.And finally, and this one might sound a little capitalistic. But finally, when we do get freight from customers that was rejected by another carrier, and I said this to the sales team just this morning, because we have a lot of freight that's coming on, frankly, I think because of Super Bowl Sunday. We're getting a bunch of customer freight. I said, go accept the freight, go service the freight and then make sure no one else ever hauls that freight, because we want it to be ours permanently. And so, it's kind of a three headed monster but that's how I think about it. Is that helpful, Barry?

[Barry Haimes:]

Yes. That's great. And then, one other question. When we talk about the new bids that are coming on in the first quarter, I think you said maybe 40% of this would come on in the first quarter. Could you characterize how much of that is new customers versus existing customers? Because I know a thrust has been to bring in some new freight to satisfy all of the objectives we have been talking about on the call. So, any kind of feel for that? Thanks.

[James Reed:]

Yes. So, to be totally fair, I'm going to add to your question, because we lost some customers too. So, as we get into 2020 -- and it’s easiest to talk about what we did in ‘19, as far as bids go. We added over 280 new customers last year. We also lost a portion of those. So, net-net, and I'm not going to give you the exact number, but round numbers, net-net of new customers, lost customers, we added north of 225 customers.And so, as the freight is coming on, there are some big shippers, shippers that you or your families probably shop at that this company has never held freight for. We signed contracts with them last year and we’re in the final parts of the bid process and we're going to start carrying freight for them. We had a customer that I'll just tell you, it’s a beverage customer with whom we did $0.5 million last year. We got a bid award from them yesterday, it's $2.5 million. So, the complexion is we've growing dynamics with some customers. We've lost some customers and we brought on a ton of new customers. And part of bringing on the new customers is you've got to fill in the gaps in your network. It's just being smart about regional freight. And so, it’s a critical element of completing kind of the aspirational regionalization dynamics that we expect. I mean, I say this internally. And I don't need to give much credit to one of our competitors who is such a great operator, but I told the team, if I told you we're going to run Bill Belichick’s offense tomorrow, you probably shouldn't ask us why you're running Bill Belichick’s offense. That’s self-evident. All we're doing is copying what the best of the best have done, and that's how we're approaching it. So, I hope that addresses your question.

[Barry Haimes:]

Yes. That's very helpful. Thanks. Good luck, guys.

[James Reed:]

Thanks, Barry.

[Operator:]

This concludes our question-and-answer session and the conference. Thank you for attending today's presentation. You may now disconnect.