Ladies and gentlemen, thank you for your patience and holding. We now have your speakers in conference. Please be aware each of your lines is in a listen-only mode. At the conclusion of today’s presentation, we will open the floor for questions and at that time instructions will be given as the procedure to follow if you would like to ask a question. It is now my pleasure to turn today’s conference over to Richard Cribbs. Sir, you may begin.

Thank you, Brandon. Good morning. Welcome to our Fourth Quarter Conference Call. Joining me this morning are David Parker and Joey Hogan. This conference call will contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements. Please review our disclosures and filings with the SEC including without limitation the Risk Factors section in our most recent Form 10-K and Form 10-Q. We undertake no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. As a reminder, a copy of our prepared comment and additional financial information is available on our website at ctgcompanies.com under the Investor Relations tab. Our prepared comments will be brief and then we will open up the call for questions. In summary, the key highlights for the quarter were: our asset-based division’s revenue, excluding fuel, decreased 2% to $144.8 million due primarily to a 1.1% decrease in average freight revenue per tractor. Versus the year-ago period, average freight revenue per total mile was up $0.06 per mile or 3.3% and our miles per tractor per week were down 4.2%. Freight revenue per tractor at our Covenant Transport subsidiary experienced a decrease of 1.8% versus the prior year quarter and our Star subsidiary experienced a decrease of 5.4% while our refrigerated subsidiary, SRT, experienced an increase of 4.8%. The asset-based division’s operating cost per mile, net of surcharge revenue, were up approximately $1.03 per mile compared to the year-ago period. This was mainly attributable to higher employee wages and purchased transportation expense. These increases were partially offset by lower net fuel and insurance cost. We recognized a loss on disposal of equipment of $0.8…

[Operator Instructions] The first question will come from Jason Seidl with Cowen. Please go ahead.

Thank you, operator. Hey David, hey Richard, hey Joey. A couple of quick ones from me this morning. If you look back at peak season, obviously you’ve been trying to get it right, especially with your one big customer who likes to try to take a lot of capacity. Where would you have pushed rates to in June versus where you did? What would be that differential in terms of having an acceptable return for all the work you guys put in?

Well, that’s a good question. We got, we probably, Jason, got about one third of our business committed, I think, in the part of the second quarter call. Anyway, back in May-ish time frame, we had probably 30% to 40% of it committed that time. Keep in mind, we all didn’t know that the freight environment was getting better until that July, August time frame when we said, maybe something is happening out here. And so we were able to take about 30% or 40% and get it done in the second quarter. And we didn’t get the other, let’s just say, 60%. We didn’t get the other 60% down. We had the load volume committed an idea of what capacity was going to be needed. The pricing came about and committed around the end of October, the 1 of November. So it wasn’t like that we were waiting until June, July to determine what the rates were going to be. We were able to get the rate. And quite honestly, as we look at August, we felt like things were picking up. September, the hurricane hit and capacity tightened very, very deeply at that time. And then we went to October with the hurricane, still the aftermath of the hurricane. And at that time, even though the last billing we have was that August, we think something sitting in August got, I think we can go out and the opportunities about a 3% rate increase in the month of August. So that was the radar that we went on, thinking that we could get that. And then the hurricane hit and who knows. Outside capacity went to acts and things continue to get tightened. At the same time we were still committing the volume and the pricing to our…

I think Jason, this is Joey, I think the rates, if we would have weighted the price closer to the season, we could have. And that’s a big question. If we could have, I think our rates would have been 5% to 10% higher.

5% to 10%? Okay. Well, listen, David, that was great color and, Joey, thanks for adding that in. I guess my next question is going to be you called out I think a bunch of some ongoing costs, right? So you increased your team peak season compensation. Is that going to carry over into 1Q? And then you said that there’s going to be some additional carryover expenses into 1Q as well. And then you just had a new bonus sign-on. So I’m trying to think how we should look at the year as it progresses. Is this going to be a first quarter where it’s positive, but in terms of the year-over-year growth, that it’s most likely is, if the market stays like it is, not going to have anywhere near the growth of, say, like the second half of the year that should have because you’re not going to really grab some of those contractual rate increases until afterwards and you’re seeing some upfront expense in the first half of the year?

Jason, on – this is Richard. On the peak cost kind of trailing into the first quarter, what we do for teams in that time period is we do a special bonus for keeping them – basically keeping them on the road during the heaviest time periods that we needed them for the peak season. So that’s something we do each and every year. That cost doesn’t really trial into the first quarter, the costs that do trail or some of the operational headcount increases that we do for the peak season that usually doesn’t find its way completely out of the system until late January. Also trailer – the additional trailers that we have in place for our customers during that time period, it takes us a little while to get them transitioned out of our system. Especially when freight is as strong as it is right now, it’s even harder to move the trailers and get them in position to trade or sell or what have you or turn back into companies that we lease them from. And so that’s the kind of trailing costs that flow into the first quarter that we were talking about there. As it relates to the driver pay increases, you have already seen the Teaming Bonus that we announced. That goes into effect February 1. And so there is some additional driver wage increases that will take effect really before we get all the contractual rate increase that we expect to get as those get put in place in the second quarter. However, we also announced today there’s a release out this morning, you probably haven’t seen it yet, that we increased driver pay at SRT, the largest driver pay increase we’ve had in its history. And we’re excited about that and excited what that will do for our driver force there. But that cost will again hit us a little before some of the contractual rate increases that we expect to see in the second quarter. So there is a bigger expectation for improvement as the back half of the year comes along. We also noted that we expected some margin deterioration at our Solutions brokerage business. That’s especially true in the first half of the year, again before we can pass those costs onto the customers as well as we expect to do in the back half of the year. So all those things said, it is lining up for a stronger back half than it is for the first half. But we still expect improvement in the first half of the year beyond what we made last year and to a pretty heavy degree, even without taking into account the impact of the Tax Cuts and Jobs Act.

Okay. I want to drill down on two things and then I’ll turn it over to somebody else here. You said the SRT pay increase was the largest in its history. Percentage-wise, what was it?

Well, I don’t have a percent, but it will be up to $0.06 a mile for the drivers but not $0.06 a mile across the board.

Okay.

This is David, regional and OTR dedicated, et cetera.

Okay. And did you – you increased team, you increase SRT. Did you increase of any of your non-team, non-SRT drivers or no?

There will be an increase as the year goes along. There’s other things that we’re looking at for all the fleets, so there’ll be additional changes to the ones not affected in these first. A couple other things, Jason, to keep in mind, as we know, the driver market is moving rapidly, and so typically, what most carriers do is they address the issue with your customers, ascertain what your increase is going to be and then you make changes to your compensation. Very rarely in the industry do the carriers go out ahead of that. This is one of those times where you’re seeing carriers do that. The reason is; A, the market is moving and so you’ve got to respond and decide what you’re going to do; but B, I think that what it’s telling you is the market is doing very good about being able to cover that. I would say our customers have been very receptive to what we’re trying to accomplish. And so I think obviously we’re on the 30 of January and here’s green. But as we start out the year, we’re very encouraged by how our customers are responding to that initiative for all our companies. And I think that we’re going to be able to, at least, get those increases covered, plus some, as we move throughout the year. So again, this is rare, what’s happening right now as far as the driver market, and it’s only happened twice in 20 years for us. So it’s rare that we’re doing this. But I think somehow that is twofold; A, you need to because the market’s moving; and B, I think we feel very good about the prospects to be able to "cover that cost".

Well, I think your customers are starting to realize that the asset you provide is actually the driver and not the truck itself, at least in this market. Richard, on the Solutions side, could you remind us what percent you guys are contractual versus transactional?

Well, yes, part of our business that we do there is – probably about 40% or so of that is actually we call it throwing it over the wall from our asset-based businesses. And its freight that already has a contractual price and then they work to find the best price they can to run that freight. So there’s a large piece of it that’s that. So I’d say probably 40% to 50% ends up being contractual and the rest is not.

Okay. All right, that’s great. I’ll turn it to over somebody else. Gentlemen, thank you so much for the time. I appreciate it.

Thanks, Jason.

Thank you. The next question will come from Scott Group with Wolfe Research. Please go ahead with your question.

Hey, thanks. Good morning, guys.

Hey, Scott.

Good morning.

So if we just take everything that you just went through with Jason, what do you think all-in sort of driver pay is up in 2018? And then what do you think your rate per mile is up in 2018?

Jason, I mean, Scott, I think driver wages are going to be up 6% to 8% in total. If you kind of think about on a per mile basis what it is and what were our estimates are and what we’ve just quoted and what I think will happen. And so it’s large as far as how it impacts it. Truckers thinking per mile. But if you think about what it is relative to what your base cost is, it’s going to be I think on the low side 5% and it could get as high as 7% or 8%. I think we need three or four years of that in a row to "make an impact for the future." But we’ll see if we’re able to continue to do that. We participate on surveys as far as the truckload contractual pricing for this year. I think I agree with – personally with what you’re starting to read. I think you’re going to see high single digits on the contractual side. And I think it’s going to – the key was going to be how the first of the year starts out. And everything kind of builds sequentially off of that, again, excluding any major changes in the market throughout the year. And so I think how we’re starting out the year is encouraging, and I think it gives us some confidence that we’re going to push the higher end of that. And I tend to believe that rates are going to be up in that 6% – I’m going to put a wide range around it, 6% to 10% range for the year. It remains to be higher and it gives us some ample room to continue to move it forward and adjust wages as we need to adjust it and still improve our margins.

So if we get 6% to 10% pricing cut, we get 8% price and we get 6% to 8% driver pay. What do you think is a realistic margin improvement for 2018? And then you’ve got some headwinds on the brokerage side that you talk about. So what do you think are realistic kind of full year margin improvement?

Yes. I think on the asset-based side, we’re -- we have a good shot of 250 basis point to 350 basis point improvement, a little contraction on the brokerage side. So probably gets us to 200 to 300 kind of numbers.

And do you expect to grow the fleet at all this year?

Very small.

If at all, very small, and just because we were seeing some opportunities on the dedicated side especially. And then we hope to get our team count back up to where it was earlier in 2017.

I mean, where the growth is going to come, I think, if we just sit here today practically speaking, is the dedicated opportunity is just falling out of the sky. So how fast we grow and which ones and what’s a good long-term opportunity. So I think that we’re going to keep -- or continue to keep our pedal down because it addresses two issues, volatility of earnings, number one; and driver needs, number two. So that’s a sweet spot and we’re going to find the capital if we have a good long-term piece of business that makes sense for us. So that’s going to continue to grow. As Richard said, we’d like to grow our team fleet some more, kind of get back to where we were, and 2016 would be a good goal. So if we’re able to do that, let’s call 100 trucks. If we’re able to do that, we’ll find the capital. Other than that, you’ll see us moving capital around inside the fleets to achieve those first two.

We are seeing some good positive results from -- in our class sizes for our recruiting. So early in the year, probably too early to make a call on whether or not that has to do with what’s going on with ELD regulations. But so far, the class size had been good.

Okay. And then just last thing real quick. Where in your -- in the press release talked about January much stronger than normal? How would you guys characterize January?

Yes, I agree with that. I’m very, very happy with what I’m seeing out there, Scott. January is a good month. We got a lot of great things that are happening out there. And I couldn’t be any more excited than I am for 2018.

And can you tell if it’s weather, if it’s demand, if it’s ELD? Do you have any view on that?

No, I don’t. I mean, I don’t. It’s not whether. The weather had one week, a couple of weeks ago of a negative effect as we all know. But other than that, I really believe it’s just the economy is doing extremely well. And as I’ve said before, there’s a lot of freight in a 3% GDP versus 1.5%. And I think we’ve all found that out the last couple of three quarters is that there is a lot of freight. And then -- so we got an uptick in GDP, which I think is going to get greater in GDP as we go forward. And on top of that, we’ve got a reduction of miles on whatever it is, whether it’s 2% or 15% of ELD reduction of miles. And those two things are going to keep a tight capacity. I was out in the road last week and I think I saw 15 customers, from gigantic customers to small customers, and I’m going to tell you that you couldn’t get five minutes into the meeting where they are just absolutely concerned and deeply -- I don’t want to use the word begging, but deeply wanting capacity. And so it’s just very, very interesting what is happening out there, but that is really the mood. I never like to say the word never, but I don’t know, there’s been many years since I sensed what I sensed last week from a lot of customers.

Perfect. All right. Thank you, guys. Appreciate the time.

Great.

Thank you for the question. The next question will come from Brad Delco with Stephens. [Operator Instructions] Please go ahead with your question sir.

Hi, David. Hi, Joey. Hi, Richard.

Hi, Brad.

Hi, Brad.

Maybe the first question, a lot of questions have been answered. But Richard, for you. You mentioned a little bit of reduction or less optimistic capital budget plan. Assuming you said optimistic, but it should give you an opportunity to pay down debt. Can you quantify what kind of debt paydown you would like to accomplish this year?

I think we have good shot, barring any outside additional investments or anything that can come up, I think we have a good shot to pay $40 million to $60 million of debt down in the 2018 year.

And all on balance sheet?

Well, some of it could be off balance sheet. So we just kind of look at that altogether. And I think in 2019, that’s about – that will all be on balance sheet anyway. So we just got to look at it as one.

And then when you think about your fuel hedging program, 2018 relative to 2017, how much of a tailwind should that be for you from an EBIT perspective?

Yes, it should be about $2 million across the year and that’s pretty evenly distributed across each of the quarters. So it’s about $0.08 a share of positive impact to it. We reduced – we only have about 17% – 16% to 17% of our fuel purchases hedged in 2018 versus the 27%, 28% that we had in the previous years, probably for the last five to six years. But we still get a nice benefit on the cost that we have those hedged at.

Okay. And then, David, in terms of the strength we’ve seen in January, how do you think relative to how the calendar falls with Chinese New Year, how is that impacting first quarter? And would you expect things to lighten up a little bit here before we see spring activity start to pick up? And based on I guess that travel that you’ve had with customers lately, when do you think we start seeing lawn and garden and then beverage and then produce season really pick up this year versus maybe what we saw last year?

Yes, that’s a good question. This year, there’s no doubt that Chinese New Year, it’s either the 16th or 17th, I think it’s the 17th of February. And so I do think that, that – here about another week or so that, that will start putting a little damper out of a steady California does every year. And then when Chinese New Year is over with, it takes about 10 days for that. So to me, here in about a week, California will start sensing pressure out there and on the freight coming out of there. And that will last until about the first of March. And I do believe that – I don’t think it’s going to – based on what I see out there today and based upon our freight flows out there today, I don’t think that the Chinese New Year is going to have a major effect on us this year as it had in the past predominantly because of some of the refrigerated side of the business that has grown for us out of there as well as some retail freight that we’ve got coming out of there more so than we did 12 months ago. So even though it’s going to affect us, I don’t think that it will be as bad. There’s no doubt that Chinese New Year, whether typically in the month of February is going to be the worst time of the quarter, it will be February. So I expect some major snowstorms that will come into play there. The lawn and garden top freight starts coming out around the 20th of February and goes throughout the month of March. And beverage, though, is usually about the end of the – not the end of the second quarter but about the…

I appreciate that color, David. That – oh, I guess, the one other follow-up I had was for Richard. Richard, you made a comment before to Scott’s question about potentially 200 to 300 basis points of OR improvement this year. I just want to make sure we understand the right base. I have a $95.4 million OR ex fuel surcharge for 2017. What are you using?

Yes. For the whole year, $95.4 million, same thing.

Okay, great. All right, guys, that’s all for me. I get back in the queue. Thank you.

Thank you.

Thank you. [Operator Instructions] The next question will come from Kevin Sterling with Seaport Global Securities. Please go ahead.

Thank you. Good morning, gentleman and thanks for your time today.

Okay.

You guys have done a fabulous job kind of describing the freight environment and what you’re seeing out there. I could definitely tell the enthusiasm in your voice, so I won’t dwell on that. But maybe outside of driver pay and bonuses, what are some of the other triggers you can pull to really help attract drivers? I know your – it sounds like the average age of your equipment is just around two years, I’m sure that helps. But are there some other triggers that you can look to activate maybe to help attract drivers as well in addition to pay and bonuses?

Well, Kevin, if we – if I could rattle off two, three, I’ll be doing something else than trucking beside this job. I think that there’s a whole bunch of things. If you asked, I was at a conference last week and there were six or seven leaders of different trucking companies having breakfast together, and we were talking about this issue. And each of us have different things that we’re working on. And each culture is different, each model is a little different. A regional guy to a regional guy does different things. And so I’m not trying not to answer your question, but to say, we’re all trying to do whatever we could do to lower – to improve your retention and increase your quality hours. And we’ve got some folks externally that are in as we speak, kind of helping us kind of look at our situation and helping us look at it maybe a little bit differently. And we’ll see how that goes. It’s really early in the process. But the common thing – here’s the things that we know that are changing. Pay is important but it’s not as high as it used to be. I’m not saying it’s number 10, it’s still in the top three or four. And so there are other things that are extremely important that we’re all focused on. There’s a generational changes. There’s freight changes. So we know respect is a huge issue, fleet manager relationship is a huge issue, we know getting home is much more important than it used to be. And so quality of life balance is critical. So Kevin, I can’t tell you any one thing. Specs, equipment have always been important, especially in team operation. I think trying to make the conveniences at home more home because they are away from home more. And so trying to bringing home to them is very important, balancing cost and convenience is something that you do. So Kevin, it’s a whole bunch of things. I wish I knew every single one of them. I think we’re encouraged what we’ve seen in the last couple of weeks, some of the announcements we’ve made. As Richard has already said, our – we’ve seated probably across the enterprise about 50 trucks in the last two weeks. So I’m encouraged by that. I won’t say it’s a trend yet, but I’ll take it, the time when we need some more to proceed with the trucks. And so I think it’s a combination of several things.

And to add onto that, I think if I had to pick this one item besides driver pay, which in my mind I agree with Joey that it’s top three kind of deals, not necessarily number one. But we got to continue to making strides in the driver pay. But I think what we’ve done in the last – in the fourth quarter and so far in January on automatics, I think that, that’s a major, a major deal. And I would – I’d say that’s number one for us. And I think that we’re probably, with the latest trucks that we’ve brought in, Joey, somebody, 50%? Are we at

By June we’ll be 50%

By June we’ll be at about 50% of our fleet will be automatics. And we are seeing weekly hires on a weekly basis in the name of – only in the name of automatics. So we’re very pleased. That would be the number one thing that I would say.

Okay. No, that’s great. Really appreciate that. It just sounds like – sounds like you guys are leaving no stone unturned to get drivers in the door, which is kind of a big part of the secret sauce that may be solving this problem.

Kevin. You tripped over a soapbox. It’s more important – to get folks in the door. You need to do both, but your cheapest cost is to keep the one you have. And so, by far, it’s not even close. And so I think if we all can get better on the retention side, it saves us a lot of money and helps us service the freight that we need to service. So if you’re trying to play the recruiting game, it’s extremely expensive and you don’t know what you’re getting. And so if you can keep – and that’s common sense not only the driver but nondrivers. It’s much, much, much cheaper. Keep the one you got than to try to sign a new one.

Yes, makes sense. Kind of shifting gears here, my second question. Sounds like you guys had a small loss on disposal of equipment. How would you characterize the used truck market today? It seems like it’s still challenged to me with maybe a little excess supply out there. And do you anticipate the used truck market improving throughout 2018, particularly if the freight environment continues to improve?

Yes. I think the used equipment market, I mean, I wish I could give you some answers but right now we’re pretty pleased with what we’re seeing in that market. The folks that help us with that for us "feels good" now than they’ve ever felt. So that’s a little concerning as far as what that means. But as far as moving equipment, we’re in pretty good shape. Our capital costs are calming. We don’t anticipate huge increases and, in fact, some decreases for 2018. So we’ve been over the hump and hopefully we’re not going to go back to where we were in 2016 – or 2015, I should say. But I think it’s stabilized and we’ve got a good shot to reduce it this year because the market is improving, a, and as we continue to rationalize our trailer fleet, we’ve been carrying a little extra over the last two, three years, so we’re very hopeful to kind of get that rationalized throughout 2018. So – and then I would say, as far as the trailer market, one of the things that we are seeing and feeling ourselves when we sell a lot of our own trailing equipment, I think the reefers side has figured it out, because what David just mentioned as far as time, you’re going to need a whole lot more trailers to operate in that market. And so if you have reefers to sell in the marketplace, they top it. And I think those that are in it, regardless of who they’re trying to serve – and we’ve seen it ourselves over the last couple of years. We’ve increased our refrigerated trailer ratio as the used market for reefers is really improving rapidly. And it’s probably just because of that issue. Time is now getting emphasized, not that it ever has, but it’s getting extra emphasized by the smaller carriers. And they – now they need more trailers to operate their business. So the trailer side is looking very strong right now. I’m pleasantly – cautiously optimistic about the truck side right now.

Okay, great. That’s, all I had. Really appreciate your time this morning. Have a good one.

Thanks, Kevin.

Thank you for the question. The next question will come from Brad Delco with Stephens. Please go ahead.

Hi, guys. Thanks for taking my follow-up. Just came to mind with some of those last comments, Joey. But you’ve talked high level about kind of rate expectation. Contractural rate expectation is up 6% to 10%. I assume that was for your entire book of business. But I imagine there’s quite a big difference between the expectations for rates on the refrigerated side versus dry van. So can you just elaborate on maybe the differences in the markets and what you think is driving that?

Yes, this is David. I agree with that statement you just said. You’re exactly correct. The refrigerated side is – it has got some very good double- digit numbers of increase there. And I think there’s some great opportunity because, as we all know, the refrigerated side is predominantly, a, very fragmented; b, a lot of a small carriers are in that market; I would say, c, that the refrigerated side is being impacted by ELD much greater than the dry van side. So we are absolutely out there seeing some double- digit increases, and that’s what I expect. I expect that, and I think that we will be successful in doing that. I think on your standard long-term, committed good business that have been partners with you, I personally think that 7%, 8% kind of number is the low bar. I think that the rest of the customers after depending upon their operating ratio and the characteristics of their freight, I think that, that is from 9% to low double-digit numbers, whether it’s 9% to 11%. And I think that equates to – in my mind, Brad, I think that equates to somewhere in that 8.5%, 9% to 11% kind of numbers. And I think that that’s what we can be successful in getting

Gotcha. Great, thanks for that follow-up, David.

Thank you. There are no further questions in the queue at this time. [Operator Instructions]

We’ll go and wrap up the call. Thank you, everyone for being on our quarterly call this quarter. And we’ll talk to you again next quarter.