ArcBest - Q4 2014
February 4, 2015
Transcript
Operator (participant)
Welcome to the ArcBest Corporation fourth quarter earnings conference call. During the presentation, all participants will be in a listen-only mode. Afterwards, we will conduct a question-and-answer session. At that time, if you have a question, please press the one followed by the phone on your telephone. If at any time during the conference you need to reach an operator, please press star zero. As a reminder, this conference is being recorded Wednesday, 4th February, 2015. I would now like to turn the conference over to Mr. David Humphrey, Vice President of Investor Relations. Please go ahead, sir.
David Humphrey (Head of Investor Relations)
Welcome to the ArcBest Corporation fourth quarter 2014 earnings conference call. We'll have a short discussion in the fourth quarter and full-year results, then we'll open up for a question-and-answer period. Our presentation this morning will be done by Ms. Judy R. McReynolds, President and Chief Executive Officer of ArcBest Corporation, and Mr. David R. Cobb, Vice President, Chief Financial Officer of ArcBest Corporation. We thank you for joining us today. In order to help you better understand ArcBest Corporation and its results, some forward-looking statements could be made during this call. As we all know, forward-looking statements, by their very nature, are subject to uncertainties and risk. 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 meaningful comparisons, certain information discussed in this conference call includes non-GAAP financial measures as outlined in the tables in our earnings press release. We will now begin with Ms. McReynolds.
Judy R. McReynolds (CEO)
Thank you, David, and good morning, everyone. We have a lot to talk about today as we wrap up another important year for our company. As most of you know, since May 1st, we've been known as ArcBest Corporation, launching a new era as we look to provide the holistic transportation and logistics solutions our customers expect. But first, I want to welcome David Cobb as ArcBest's new Chief Financial Officer. David joined our company in 2006 as ArcBest Controller. I've worked closely with David, and he has done a great job for our company. I look forward to David in his new role as he applies his business, finance, and acquisition experiences for the benefit of our company and our shareholders.
I also want to say how pleased I am that our former CFO, Michael Newcity, will be leading our information technology group and guiding our company in the exploration and improved understanding of new technologies and business innovation. I thank Michael for his service as our CFO. I would characterize 2014 as change for the better. Following closely on the success of 2013, this was another pivotal year in the history of our company as we adopted the ArcBest name, a new stock trading symbol, a unified logo system across all of our companies, updated brand positioning, and so much more. ABF Freight continued on its path to better profitability and increased market share through improved service levels in the second half of the year.
ABF Freight won the coveted ATA's President's Trophy for Safety an unprecedented seventh time, and three of our drivers were once again selected as ATA's America's Road Team Captains. Simultaneous with those successes and improvements at ABF Freight, we also worked hard to give our customers more of the services they expect from a forward-thinking transportation and logistics partner through our emerging businesses: ABF Logistics, Panther Premium Logistics, and FleetNet America. We are better equipped to offer more easily accessible solutions through a single point of contact at our Enterprise Customer Solutions Group, and our ability to provide the options for logistics services, including the certainty of an asset-backed solution, is resonating well with our customers. I'll talk more about this in a bit, and now David Cobb will cover the details of our results for the fourth quarter and the full year of 2014.
David R. Cobb (CFO)
Thank you, Judy, and good morning, everyone. ArcBest's fourth quarter 2014 revenues increased 15% to $665 million. Earnings per share were $0.53 for the quarter, compared to $0.38 or $0.31 in the prior year on an adjusted basis. Our effective tax rate for the quarter was 26%. This is below the expected rate of around 37%-38%. Tax legislation signed in late December of 2014 extended the tax credits related to alternative fuels that previously expired at the end of 2013. As the new tax legislation that was enacted in December included a retroactive tax credit for all of 2014, this year's fourth quarter includes the full-year tax benefit of $1.2 million. The tax credit actually earned in the fourth quarter, which is comparable to the prior year quarter, approximates $300,000, with the remaining $900,000 associated with the first nine months of 2014.
During the fourth quarter of 2014, we also benefited from our life insurance program, including market returns on the assets. This is reported below the operating income line in other income and increased earnings by about $1 million versus last year's fourth quarter. For the full year, the income related to this program was the same as 2013. In summary, including the non-GAAP items in the table in the press release, earnings per share for the fourth quarter include the negative impact of the pension settlement charge, of $0.03, and benefits of approximately $0.11 due to the favorable tax rate and increased non-taxable insurance income. The positive impact on earnings per share netted to approximately $0.08 due to these items. For the full year of 2014, consolidated revenues totaled $2.6 billion compared to $2.3 billion in 2013, an increase of 14%.
Full-year earnings per share were $1.69 compared to $0.59 in 2013. Adjusted for the non-operational items identified in the release, 2014 earnings more than tripled to $1.82 per share compared to $0.55 per share in 2013. Our effective tax rate for 2014 was 34.6%. This year's tax rate was also favorably affected by the items that impacted the quarter rate, as well as net reductions in valuation allowances on deferred tax assets, which for the full year equaled $700,000. Including the earnings release is a tax rate reconciliation table. We expect our 2015 tax rate to be in the range of 37%-40%. Our results were also affected by the Two-Class Method used for calculating earnings per share, which requires the allocation of a portion of dividends and net income to the invested restricted shares in determining the per-share amounts.
For the fourth quarter, the impact of this method was about $0.03 per share. For all of 2014, this equaled $0.09 per share. As a result of recent changes in our restricted stock program, we will return to the traditional Treasury Stock Method of calculating diluted earnings per share beginning in 2015. Under this method, there is not an allocation of income to unvested restricted shares. However, shares used in the calculation will increase at approximately 3% for the potential diluted securities. This will generally result in a higher calculated earnings per share compared to the Two-Class Method used in recent quarters. Full details of our GAAP cash flow are included in our earnings press release. We closed 2014 with unrestricted cash and short-term investments of $203 million.
Combined with available resources under our accounts receivable securitization agreement, our total liquidity under these agreements equaled $258 million at the end of the year. Our total debt at year-end of $128 million, including the remaining $70 million balance on our five-year term loan associated with the Panther acquisition. In early January of this year, we refinanced the outstanding $70 million balance on the term loan into a new five-year $150 million revolving credit facility. This revolver facility has an accordion feature that allows for an additional $75 million in funded amounts. In addition, we executed an interest rate swap beginning January 2nd, resulting in an effective fixed rate of about 3.1% on $50 million of borrowings for five years. Finally, at the beginning of this year, we amended our receivable securitization to extend the previous June 2015 maturity date to January 2018.
Earlier this week, we added Panther and other subsidiaries as participants on the agreement, and increased the facility to $100 million from the previous $75 million. This agreement also has an accordion feature allowing for an additional $25 million. With the changes in these agreements, we have increased the amount and availability of our liquidity, added flexible borrowing and payment options, and have extended the maturity dates. ABF Freight reported fourth quarter revenue of $486 million, an 11% increase compared to last year. ABF Freight's quarterly tonnage per day increased 9.4% compared to last year's fourth quarter, with monthly year-over-year tonnage increases of 11.4% in October, 8.8% in November, and 8% in December. On an adjusted basis, ABF Freight's fourth quarter operating ratio was 96.8% compared to 98.2% in the prior year.
ABF Freight's fourth quarter total billed revenue per hundredweight was $29.34, an increase of 3.1% versus the fourth quarter of last year. Because of decreases in diesel fuel prices, the range of ABF Freight's fourth quarter fuel surcharge percentages this year was below that of last year's fourth quarter. This impacts the year-over-year comparisons of revenue per hundredweight changes. ABF Freight's total weight per shipment was 1,312 pounds, 1.1% below that of last year's fourth quarter. This was primarily the result of steps taken to reduce the number of full truckload shipments handled in the ABF Freight network. The average shipment size in the core LTL business increased over last year. ABF Freight's average length of haul was 1,026 miles compared to 1,011 miles in last year's fourth quarter, an increase of 1.5%.
ABF Freight results for the month of January 2015 versus January 2014 are as follows: Preliminary daily revenues increased approximately 8%. Preliminary total tonnage per day increased approximately 4%. Total revenue per hundredweight increased approximately 4%. As a reminder, the recent historical sequential change in ABF Freight's operating ratio has been an average increase in the first quarter operating ratio over the fourth quarter ratio of approximately four percentage points. Effective today, 4th February, ABF Freight revised its standard fuel surcharge program. We believe this revision will better align fuel surcharges to our fuel and energy-related expenses and provide more stability to account profitability as fuel prices change. The revised program will impact approximately 40% of our shipments and will primarily affect non-contractual customers. For the full year of 2014, ABF Freight reported revenue of $1.9 billion versus $1.8 billion in 2013.
ABF Freight's 2014 total tonnage per day increased 6.6% versus the previous year. On an adjusted basis, ABF Freight's full-year operating ratio was 97.1% compared to 99.3% in 2013. Our emerging businesses generated strong revenue growth versus last year's fourth quarter, increasing 25% to $187 million. Fourth quarter EBITDA for these businesses totaled $9.4 million compared to $8.2 million in the prior year quarter. In spite of comparisons to strong results in last year's fourth quarter, Panther completed 2014 with good performance in the fourth quarter. Revenue was $80 million, an increase of 19% over the prior year quarter. Panther's fourth quarter EBITDA was $6.7 million, an increase of 13% compared to the fourth quarter of 2013. For the full year of 2014, ArcBest's emerging non-asset-based businesses accounted for 27% of total consolidated revenue, increasing from 25% of total revenue in 2013.
Five years ago, the non-asset-based businesses accounted for only 7% of total consolidated revenue. I'll conclude with some details about our CapEx. In 2014, ArcBest's net capital expenditures totaled $86 million, including approximately $65 million of revenue equipment for Freight and Panther. Depreciation and amortization costs on fixed assets equaled to $82 million. For 2015, net capital expenditures are estimated to be approximately $200 million. This includes revenue equipment purchases of $110 million for ABF Freight and Panther. The majority of the revenue equipment purchases are for road and city tractors and trailers at ABF Freight to replace both existing equipment and local rentals. ABF Freight is increasing the number of tractor and trailer replacements in 2015 to take advantage of improved fuel economy with the new equipment, to more rapidly replace used equipment, and reduce maintenance costs.
Panther will be replacing some dry vans and adding some life science trailers. Expected real estate expenditures totaling approximately $55 million are for previously disclosed growth initiatives at ArcBest and its operating subsidiaries. These include freight service center construction, call center facilities, and needed office buildings, a portion of which replaces leased office space. ArcBest's depreciation and amortization costs on fixed assets in 2015 are expected to be in a range of $95 million-$100 million. Now, I'll turn it back over to Judy.
Judy R. McReynolds (CEO)
Thank you, David. ABF Freight experienced increased demand for LTL services from both existing and new customers in a marketplace with tight capacity during the holiday shipping season. As a result, ABF Freight increased fourth quarter revenues and improved its operating results versus the fourth quarter of 2013. While maintaining a high level of service, progress was made during the quarter to improve system efficiencies and productivity. ABF Freight's operational team has worked diligently to respond to the challenges of servicing our customers in the midst of significant business growth. During the quarter, customer pricing at ABF Freight was enhanced by the early November implementation of a general rate increase impacting one-third of ABF Freight's total business. We also successfully concluded negotiations on contract deferred and profit improvement business opportunities during the quarter.
These increases averaged 5.8%, which equaled the highest fourth quarter increase of these types of accounts in the last 15 years. The growth and improvement in ABF Freight's full year 2014 results reflected a healthier economic environment, necessary reductions in costs and enhancements to operational flexibilities associated with the current union labor contract, network modifications implemented during the year, and improved pricing that reflected marketplace constraints on available transportation capacity. As you know, through carefully planned investment, we have expanded far beyond our core LTL services offered by ABF Freight to include complementary services like truckload brokerage, rail, warehousing, and global ocean shipping from ABF Logistics and Panther Premium Logistics through Panther. Panther had another outstanding year in 2014. During a period of capacity constraints in the marketplace, continued demand for Panther's specialized services was evident across all the markets it serves.
Shipment growth was realized from existing shipper relationships and significant new customers added throughout the year. Panther's ability to effectively respond to the demanding requirements of its customers was enhanced by growth of its owner-operator fleet and of its agent network. Throughout the quarter, Panther also had success in offering its services in conjunction with other subsidiaries across the ArcBest enterprise. As demand for truck brokerage services continued to be strong, ABF Logistics added new customers and effectively developed existing shipper relationships. Increased success in offering its services to customers at other ArcBest subsidiaries was another positive factor in their revenue growth during the quarter. Fourth quarter operating income was slightly below last year due to lower gross margins and continued personnel investments for the future.
We believe the ongoing investments in people and IT systems ABF Logistics has made throughout the year will contribute to successfully achieving our strategic growth initiatives for the future. With the strong growth ABF Logistics has experienced in this last year, we've added a lot of new folks who have very little experience with our company or in their jobs. Productivity improvement, sales growth, and margin increases have a direct correlation to employee tenure. As ABF Logistics employees gain experience and the IT systems available to them are enhanced and expanded, we expect to realize greater benefits in the future. In early January, ABF Logistics announced its acquisition of the Smart Lines Transportation Group, a truckload brokerage company located in Oklahoma City.
This acquisition expands ABF Logistics' footprint outside of Fort Smith to a location that offers many opportunities for business growth and the addition of new employees needed for that growth. I've talked about our plan to grow the emerging businesses both organically and through acquisition of companies that make sense for us based on the services they offer and the corporate culture they display. We believe the Smart Lines purchase is a perfect fit for the ABF Logistics team on all these fronts. While FleetNet America experienced revenue growth during the fourth quarter, it was limited by changes in event levels with certain roadside customers and milder than expected weather, especially compared to the significant weather events that benefited FleetNet in December of 2013. Fourth quarter growth of Fleet Maintenance business was the result of additional business with both new and existing customers.
Operating income declined because of labor inefficiencies resulting from the addition of personnel for new account activity, as well as the impact of higher than expected medical expenses. ABF Moving experienced strong growth in the fourth quarter versus the same period last year, primarily related to its consumer moving business. Its slight fourth quarter profit reflects a significant improvement over 2013 and was positively influenced by better cost controls and ABF Moving's improved ability to source equipment capacity. As I mentioned earlier, in January, three ABF drivers were named as captains of the American Trucking Associations' 2015-2016 America's Road Team. The recognition of drivers Kirk Weiss, Bill West, and Chad Miller gave ABF three persons on this year's prestigious industry safety team. Kirk, Bill, and Chad have each driven professionally for over 30 years with more than 3 million accident-free miles.
They continue a proud tradition at ABF Freight as we've been represented on every America's Road Team since 1991. This is the third consecutive team to include three ABF Freight drivers. Safety is of utmost importance and a focus at ABF Freight. We are the only seven-time winner of ATA's President's Trophy for Safety, the most prestigious safety award in the transportation industry. We are pleased to have Kirk, Bill, and Chad representing ABF Freight and our industry in this manner. These kinds of achievements throughout our company strengthen the current services offered to our customers and allow us to focus our resources on developing new ways of enhancing our products. Also, last month, ABF Freight President Tim Thorne joined representatives from the Teamsters and the U.S. Army in announcing a joint training program to help soldiers transition from the military service to civilian careers as professional truck drivers.
This program will allow qualifying soldiers to receive training to earn a commercial driver's license. Both classroom instruction and hands-on driver training are offered during the soldier's final weeks of enlistment. This helps pave the way for a career path as a professional driver with ABF Freight. Because Tim Thorne is a former veteran and part of his family's three generations of military service, he's committed to the success of the new ABF Freight partnership. We are proud of Tim's service on behalf of our country and the service of former military personnel throughout our company. Hiring military veterans at ABF Freight is a win-win. Earlier, David Cobb provided the details on several financial actions we've taken since the first of the year that put us in a better position to meet our growth objectives for the future.
We've increased our credit line and improved our liquidity and borrowing capacity, all by lowering our pricing and relaxing our covenants. Our ability to make these changes reflects ArcBest's improved risk profile and our positive outlook for the future. These recent changes are consistent with last October's increase of our quarterly dividend to six cents a share, twice the previous level. Our updated banking agreements give us total maximum borrowing availability of $350 million. The dividend increase improves the return our shareholders receive. We are now even better equipped to organically grow our companies and to act on acquisition opportunities that broaden the logistics services we offer, all while enhancing shareholder value.
In summary, all of our efforts to better serve our customers have borne fruit as ArcBest's revenue has risen to about $2.6 billion at the end of 2014 from $1.5 billion just five years ago at the end of 2009. More customers are now buying two or more services from the ArcBest companies, and as I mentioned earlier, 27% of our revenue is now generated by the emerging businesses. Together, in 2014, the emerging businesses generated EBITDA of over $40 million, a 45% increase over 2013. Overall, while we still have more work to do, we're now doing a much better job connecting the dots for our customers about the breadth of our services that we offer in the supply chain spectrum.
A new tagline called "The Skill & The Will" and the accompanying website, theskillandthewill.com, devoted to customers and employee success stories, help us articulate what we do every day to go above and beyond for customers. I feel confident that this focus on exceptional customer experiences will help drive future improvements for shareholders as well. And now I think we're ready to take some questions.
David R. Cobb (CFO)
Thaddeus, I think we're ready to do some questions.
Operator (participant)
Perfect. Ladies and gentlemen, if you would like to register a question, please press the one followed by the phone on your telephone. You will hear a three-tone prompt to acknowledge your request. If your question has been answered and you would like to withdraw your registration, please press the one followed by the three. Again, it is one-four to register. One moment for the first question. The first question is from the line of William Greene with Morgan Stanley. Please go ahead.
William Greene (Analyst)
Yeah, hi there. Good morning.
Judy R. McReynolds (CEO)
Good morning, Bill.
David R. Cobb (CFO)
Hi, Bill.
William Greene (Analyst)
Judy, I wanted to ask you for some thoughts on first quarter trends. Maybe you could talk a little bit about what you've seen in tonnage, but also given the fact that we'll have the two GRIs, we've got some productivity improvements going on. I'm curious how you think this might affect sort of the sequential change in the OR. I know you don't give guidance, but I'm typically it would deteriorate, and we'd think if you follow history, we could actually have an OR above 100, but it doesn't feel like that's the right call here. So maybe you can give some thoughts on color around that too.
Judy R. McReynolds (CEO)
Well, I'll start with your first question, which is related to trends, you know, that we're seeing so far. In David's commentary, he gave an update on the tonnage improvement that we experienced in January for ABF Freight, which is about 4% of an increase. Also, that coupled with 4% price increase for total increase of revenue, about 8%. So that, I think, gives you a good read on where ABF Freight is in January. With respect to the other emerging businesses and just the overall environment, I would characterize January as a little softer. If you remember, there was some severe weather activity in last year's January, and that would benefit both the FleetNet business and our Panther business. So we're going to be comparing back to a more significant, I think, weather disruption scenario last year than we have this year so far.
You know, if you look at some of the demand indicators in the brokerage business or in the spot business in general, just a little bit softer there, but we feel like January is a month that is difficult to really read into what 2015 will be like, and we're waiting for more to come. So, you know, I think that may answer your question why we don't give guidance, when you look at the sequential history for ABF Freight. We would have about a 4% increase in the operating ratio, which, as you point out, would indicate a slight loss, I think, for ABF Freight. You do have the factors that you mentioned, which we had a GRI late in the year, which is not normal when you look back at history.
We also have, you know, the pricing results that we've seen on our contract and deferred increases, which are good. I think it was 5.8% in the fourth quarter, and in January, that figure is close to 5%. I think it's 4.8%. So we're seeing some good indications on the pricing side.
David R. Cobb (CFO)
On the cost.
William Greene (Analyst)
On the movement.
David R. Cobb (CFO)
Go ahead.
William Greene (Analyst)
Okay. I was just going to ask, just on the cost side, is it still kind of going in the right direction? Is there still momentum behind that as we want to think about the OR for a few.
Judy R. McReynolds (CEO)
Yeah.
William Greene (Analyst)
Okay.
Judy R. McReynolds (CEO)
Yeah. We have continued to see modest improvements in productivity. If you look at our hiring patterns, we're hiring fewer new people, so the percentage of people that are with us, you know, less than a year has declined. And we're also seeing some better trends in terms of transportation that we purchase, as well as we're returning rented equipment and lower cartage costs. And so those are all good signs for improvements on the cost side.
William Greene (Analyst)
That's great. Thank you so much for the time.
David R. Cobb (CFO)
Thanks, Bill.
Operator (participant)
The next question is from the line of Chris Wetherbee with Citi. Please go ahead.
Christian Wetherbee (Analyst)
Hey, thanks. Good morning, guys.
Judy R. McReynolds (CEO)
Good morning, Chris.
Christian Wetherbee (Analyst)
Wanted to ask a question on fuel. Just sort of curious, as we think and it sounds like you've made some adjustments to the fuel surcharge mechanism earlier in February. As we think about 2015 with lower fuel prices, how does that play through the P&L for freight? Is it a modest net positive, negative, or is it more neutral? Just kind of get an understanding how we're thinking about that these days.
Judy R. McReynolds (CEO)
Well, when you looked at the impact of lower fuel prices on our account profitability, as these fuel prices were low, there was a negative effect. And so with the adjustment of this rate structure, we feel like those will be addressed. We'll have fewer account-related issues that would be driven by some sort of fuel result. And so, you know, we feel like that this rate structure change is really appropriate for the progression of fuel prices and the impact on our business.
Christian Wetherbee (Analyst)
Okay. So it offsets some of that negative impact you were feeling or potentially feeling, I guess.
Judy R. McReynolds (CEO)
I mean, certainly, it addresses that impact.
Christian Wetherbee (Analyst)
Okay. Then just one sort of bigger picture question. You mentioned some of the things you've been doing financially to, you know, increase liquidity, bring down interest expense. As you think about sort of the business a year or two out and the mix, I mean, sort of where are you going to where can you take it, I guess, from a non-asset perspective? I'm guessing that's going to be the focus of potential acquisitions, down the road. Just want to get a rough sense of maybe how you envision it and how you kind of put to work that additional financial flexibility that you've gained.
Judy R. McReynolds (CEO)
Well, we've set out a goal for our company to be a $3 billion company by the end of 2015. We'd like for our emerging businesses to be $1 billion of that total. We made significant progress on that this year. The revenue total is above $700 million for those businesses as we close out 2014. We really believe as we go beyond 2015 that there's even more room for the emerging business growth as a percentage of the total business, although there is tremendous growth opportunity for ABF Freight as well. We've seen, you know, much better trends on the LTL side. I think in this environment, LTL or asset-based networks are valued more. We're seeing some great combinations of services that we can offer to our customers that have non-asset and asset combinations where there is a need for some kind of guaranteed service.
And so we're really pleased with how things are coming together. We have our enterprise group formed and working, and that that's all for the benefit of our customers. And we really, again, are pleased with the progress that we made on that in 2014, and we're really looking forward to seeing the benefits of it as we go into the next few years.
Christian Wetherbee (Analyst)
Great. Thanks for the time, guys. Appreciate it.
David R. Cobb (CFO)
Thank you.
Judy R. McReynolds (CEO)
Thank you.
Operator (participant)
The next question is from the line of Brad Delco with Stephens Inc. Please go ahead, sir.
Brad Delco (Analyst)
Good morning, Judy. Good morning, guys.
Judy R. McReynolds (CEO)
Hi, Brad.
David R. Cobb (CFO)
Hey. Good morning.
Brad Delco (Analyst)
Judy, I wanted just to ask you a question thinking about the balance of growth in Arkansas Best Freight. Good top-line tonnage, good yields, but do you think it makes sense to kind of curb some of that tonnage growth and focus more on yields? Maybe just comment on that and your thoughts there.
Judy R. McReynolds (CEO)
Well, Brad, as you look at our results, you know, we've talked about the GRI that we implemented in November, the contract-deferred pricing increases that we experienced in fourth quarter and what we've experienced so far in January. I would suggest to you, as we always have, we're focused on yield. You can see that very clearly, I think, in the numbers. And so, when we look at tonnage growth in our business, we want to be sure that that growth is good for us. It's effective for our LTL customers and customers that are regular for us that do business with us, you know, quarter in and quarter out. And we have managed the tonnage levels of the spot business down, or our tonnage increases could have been greater.
But we enjoy both growth in tonnage and in pricing, and we want that to continue. And so, you know, I think our team is very focused on the right kind of business and making sure that we're bringing that profit to the bottom line. And we've really begun, I think, to see some improvements there, particularly toward the end of the year.
Brad Delco (Analyst)
Gotcha. Maybe just a quick follow-up. So you don't tend to think about, you know, where the margins are in LTL and whether or not it makes sense to grow tonnage, with where the margins are relative to, you know, the growth, I guess, you're seeing in emerging asset business?
Judy R. McReynolds (CEO)
Well, you know, I think we have a focus on how to spend the investment dollars we have available to us in the best way. But I can tell you that what's interesting is as you're growing the emerging businesses, you also get better business opportunities on the asset side as well. And so, you know, you wouldn't want to do one, and you know, kind of be siloed in your thinking relative to the other because what's so good about our approach is that it actually results in better business opportunities for all of our business units. And I'm talking particularly in the transportation part. I mean, obviously, that wouldn't affect FleetNet. But, you know, we really, when you look at the profitability of our accounts at ABF, we say this all the time, it's on an account-by-account basis.
I mean, so you're making the decision, an incremental decision, about what's best for you each time you make an evaluation of that account. And so we're continuing to do that. And then as we have investment dollars, you've seen us spend those dollars to add some scale to these emerging businesses. We feel like that gives us an even better opportunity to grow our entire company.
Brad Delco (Analyst)
Gotcha. Well, thanks, thanks for the time. Appreciate it.
Judy R. McReynolds (CEO)
Thanks.
David R. Cobb (CFO)
Thanks, Brad.
Operator (participant)
The next question is from the line of Todd Fowler with KeyBanc Capital Markets. Please go ahead.
Todd Fowler (Analyst)
Great. Thanks. Good morning, everyone.
Judy R. McReynolds (CEO)
Hi, Todd.
Todd Fowler (Analyst)
Judy, hey, Judy. Good morning. Can you give us some thoughts about how you think about returning to kind of a normalized margin level within the freight business? Obviously, you saw a nice margin improvement in 2014, but I also think that there were probably some things that worked against you if it was, you know, purchased transportation or the efficiencies of the employees. You know, how do we think about the level of margin improvement that you can see over the next couple of years, kind of what sort of rate of improvement we should be expecting?
Judy R. McReynolds (CEO)
Well, we are focused on returning ABF Freight to historic profitability levels, but that's a multi-year effort. We've made some progress this year. Honestly, I would have liked to seen even more progress made this year. As we go into 2015, we've got many additional opportunities for improvements. Obviously, the productivity of our newer employees, we're gaining ground on that all the time, but we still have work to do there. Our newer employees tend to have or create more issues in the cargo care area. Again, we're seeing improvements on that, but we still have some work and ways to go there. We have some work to do as we're doing this year with our capital program, to improve the age of our fleet for the best total cost of ownership outcome for our company.
So we expect to see improvements in maintenance cost trends, in fuel efficiency, and that sort of thing. And then, our investments that we're making in our service times is really going to benefit us in bringing additional market share to us to the extent that we improve things there. So, you know, I could give you two or three more, but I think those are, you know, significant enough.
Todd Fowler (Analyst)
Okay. No, that, that helps. And so basically, the message is that, you know, there's things that you can still continue to do outside of just the, the market, factors, the volume, and the pricing to, to continue to move the margins in the right direction.
Judy R. McReynolds (CEO)
Absolutely.
Todd Fowler (Analyst)
Okay. Good. And then just for my follow-up, you know, to your point on the investment in the fleet, you know, it feels like that there is going to be a pretty big step up in depreciation expense into 2015 versus where it had been in 2014. You know, how, how should we think about that? I mean, is that going to be a drag on the overall margins of the company, or do you have enough visibility where you're going to see, if it's on the non-asset side, increased revenue and on the asset-based side, some improvement in maintenance and those sorts of things where, you know, you're able to offset that, you're basically able to absorb the higher depreciation expense, from a margin standpoint?
David R. Cobb (CFO)
Hey, Todd. This is David. Yeah, you're exactly right. With the improvements in both fuel efficiency, maintenance, we believe that that'll, that'll offset largely the depreciation impact that you're talking about. You're spot on.
Todd Fowler (Analyst)
Okay. And then what about on the non-asset side, David?
David R. Cobb (CFO)
In terms of the Panther CapEx?
Todd Fowler (Analyst)
Right.
David R. Cobb (CFO)
That is incremental business primarily for Panther's life sciences trailers, for instance, and in some cases, replacing rental trailers. You know, they are the only one that has. They're sort of asset light on the trailers.
Todd Fowler (Analyst)
Mm-hmm.
David R. Cobb (CFO)
So, replacing those leased trailers that they had legacy from the acquisition will improve costs there too.
Todd Fowler (Analyst)
Okay. Thanks a lot for the time, and congratulations on a good quarter and good year.
Judy R. McReynolds (CEO)
Thank you, Todd.
Todd Fowler (Analyst)
Thanks.
Operator (participant)
The next question is from the line of David Ross with Stifel. Please go ahead.
David Ross (Analyst)
Yes. Good morning, Judy. Good morning, gentlemen.
Judy R. McReynolds (CEO)
Hey.
David R. Cobb (CFO)
Hey, David.
David Ross (Analyst)
On the LTL savings, if you look at ABF Freight, Judy, we talked in the past about, you know, the new labor agreement that you guys got over a year ago is having, you know, $55 million-$65 million in annual savings, and then the network changes that were talked about in the first quarter of last year, you know, we're in the $10 million-$12 million savings range. The operating income at ABF Freight only rose about $40 million year-over-year in 2014, and I know there was, you know, some issues in 1Q, with the weather, you know, holding that back. But given the strong tonnage and pricing environment, I would have expected to see more of those, you know, what I would call $65 million-$77 million in savings come through.
So can you talk about kind of what, you know, may be holding that back or, or where that stands in terms of, you know, are we really going to get those savings, not get those savings?
Judy R. McReynolds (CEO)
Well, if you to back up, and I think you've articulated, you know, those numbers and details well. But when you look at 2014, really, what we're missing in the discussion, as you lay it out, is the fact that we did have a significant productivity improvement. I mean, excuse me, inefficiencies. We needed significant productivity improvement. And you know, that is the issue. And so when you look at the contract savings, what we got from the wage, you know, and other vacation reduced costs, if you look at the network savings, as you mentioned, you know, those things were offset by productivity declines. And that's when we talk about the opportunity in 2015, it is significant. And we have gotten the contract savings that we believe that we would get.
The network redesign savings are somewhat less than what we felt like they would be in the beginning, and that's because we have grown. And as you grow, those savings tend to be a little bit less. And so, you know, again, as I look at it, we close out 2014. I think I mentioned a little bit ago that I would like to have seen a better result, and I would have. We certainly have the opportunity for improvement in 2015, in that productivity area and also, as I mentioned, with our cargo care and, you know, our equipment management and many other things.
David Ross (Analyst)
And then just to follow up on the productivity, you know, comment with the inefficiency, was that due to, you know, higher volumes, that, you know, came on board in 2014, not, you know, being handled as smoothly because you had to bring the new people on board, or was, you know, there's some issue with the unions, you know, kind of slowing down their work as a payback for the concessions they just had to take?
Judy R. McReynolds (CEO)
Actually, you know, Dave, yeah, that's a natural thought that you could have about our situation. But as we looked at it and as we've had the ability to reflect on the improvements that people are making, you can clearly see that it was it was from the business. We hired the people. It was just the newness of the people to our business, something that was interesting. And we talked about this, you know, a couple of quarters ago. We are adding dock workers, you know, to our company that have never driven a forklift before. And so you're in an environment where you don't have access to as many experienced people from the industry to hire. And so that created more of a significant issue than what we'd seen in the past.
But I think we also mentioned that this was the greatest sequential growth in 15 years for our company. And so when you're when you're experiencing that, you're bringing on a significant number of new people. You're also doing things like renting equipment, using contractors, and other expensive ways to deal with, with that growth. You'd certainly have an opportunity for some better results as that settles down.
David Ross (Analyst)
It sounds like a good.
Judy R. McReynolds (CEO)
We're doing all of that, you know, in the spirit of best serving our customers. So, you know, again, as we look to 2015, we've got a lot of possibilities for improvement.
David Ross (Analyst)
Well, it sounds like 2015 is a good year for yield management. Thanks.
Judy R. McReynolds (CEO)
Yes. Yeah, we agree with you.
David R. Cobb (CFO)
Yeah. Thanks, Dave.
Operator (participant)
The next question is from the line of Arthur Hatfield with Raymond James. Please go ahead.
Arthur Hatfield (Analyst)
Hey, morning, everyone. Hey, Judy, if I could just kind of continue to follow up on Dave's question. Based on what you said, it would lead me to believe that the potential headwinds you saw could be in the $25 million-$30 million range on an annualized basis. One, is that kind of am I in the ballpark there thinking about that? And two, could you talk about kind of where you are, kind of what inning, I guess, for lack of better words, where in recapturing some of that stuff? And if so, where you're at today, what, if any, headwinds may you have in 2015 as you work to, to get back to where you want to be from a from an efficiency standpoint?
Judy R. McReynolds (CEO)
Well, you know, the number that you mentioned, Art, is a material number, and what I'd agree with you on is this is a material effect. And so we, you know, we don't get into giving the dollar values attached to some of those details because we, you know, we know you have your model and your way of calculating those. But it certainly is a material effect. When you think about the inning that we're in, I think the figures are right. Maybe the two Davids that are sitting here can verify this. But I think the percentage of employees that we have that are under a year in the fourth quarter is maybe 27% versus 15% or something like that last year, something like that. I mean, we.
David R. Cobb (CFO)
Yeah, that's no, that's correct.
Judy R. McReynolds (CEO)
We have still a higher number of people that are new with us, but that percentage, you know, if you compared it to earlier in 2014, you know, it's, you know, the early part of 2014 is certainly greater, but as we moved into the second and third quarter, those percentages were higher. So we're kind of, you know, coming down maybe so maybe we're, we're in the, you know, fourth or so inning on this process. We still have a lot of improvement to do, and it will depend on how our growth trends are occurring, you know, in 2015 as we see this unfold. But understand that we have a huge amount of emphasis, you know, in this area.
Our operational team has made significant progress, but the management of the details in this area is great, and there's a keen understanding of the opportunity that is here. And so, again, some of what we've experienced is, you know, just better serving customers and gaining opportunities from existing accounts. And so, you know, we've heard this, "Well, you know, why don't you increase prices so that you'll have less of that?" Well, you know, this is about serving existing customers, and so we want to be sure that we satisfy our long-term customers.
Arthur Hatfield (Analyst)
Great. That's very helpful, Judy. Thank you.
Judy R. McReynolds (CEO)
Thank you, Art.
David R. Cobb (CFO)
Thanks, Art.
Operator (participant)
The next question is from the line of Jason Seidl with Cowen & Co. Please go ahead.
Jason Seidl (Analyst)
Thank you. Good morning, Judy. Good morning, gentlemen. Two quick things. One, could you talk a little bit about your expected pension expense for 2015? And then I have a clarification question on something Judy said earlier.
Judy R. McReynolds (CEO)
Well, are you talking, Jason, about union pension expense or otherwise?
Jason Seidl (Analyst)
the union pension expense.
Judy R. McReynolds (CEO)
The union pension expense.
Jason Seidl (Analyst)
You can talk about both, actually. I'd love to hear both.
Judy R. McReynolds (CEO)
Well, well, you know that we have terminated our non-union pension plan. So the cost that we see there, the settlement charge that you see there, I'll let David speak to that, and then we can talk more about the union pension side.
David R. Cobb (CFO)
Yeah, yeah, Jason. On the non-union side, it's, you know, as Judy mentioned, we curtailed that plan, but, along with that, we have periodic settlement charges as we've had in this past year. And we expect that to probably continue in the roughly $1 million range per quarter. So that would be the charge. The underlying really cost of that plan is basically zero at this point.
Jason Seidl (Analyst)
Will those costs go away after 2015?
Judy R. McReynolds (CEO)
Well, we, you know, yeah, David, David. I'm going to let David speak to the defined contribution replacement of that plan.
David R. Cobb (CFO)
That's right. In replacement of the non-union pension plan, we implemented the defined contribution plan, which is a discretionary plan, but it also has, you know, an increased cost to it. But it was fully implemented in 2014, so we would expect that to be comparable in going forward.
Jason Seidl (Analyst)
Okay. Fair enough.
Judy R. McReynolds (CEO)
Then on the union side, you know, we have the plan that has—I mean, the contract that's in place. We make the contributions to it. You know, the contribution increase will be in August, you know, for that plan. And so, you know, David, I'll let David give you the figures that may be offline, you know, that we have in terms of the total dollars for that plan for 2014, but we'll have an increase that's maybe 3%-4% with.
David R. Cobb (CFO)
3-3.5.
Judy R. McReynolds (CEO)
Help with our health, welfare, and pension on August 1st.
David R. Cobb (CFO)
Yeah. And Jason, as you know, that's just paid out on an hourly basis based on the number of hours worked by our employees. So, you know, as we grow, as we work more hours, that number would grow potentially based on that.
Jason Seidl (Analyst)
Okay. All right. Perfect. And my clarification question, you, you mentioned 5.8% on the contractual pricing in 4Q. And Judy, did I hear you right saying that thus far in January, you're tracking at 4.8%, or did I hear that wrong?
Judy R. McReynolds (CEO)
Right. That's right.
Jason Seidl (Analyst)
That's correct? Okay. Fantastic. Thank you for the time as always.
Judy R. McReynolds (CEO)
Thanks.
David R. Cobb (CFO)
Thanks, Jason.
Operator (participant)
The next question is from the line of Matt Young with Morningstar. Please go ahead.
Matthew Young (Analyst)
Good morning, guys. Thanks for taking my question. On the, ABF Logistics side, I know it's still small, but what's the current mix of the highway brokerage in that segment? And, I think I might have missed it, but could you provide some color on what you're seeing in terms of gross profit margin trends in brokerage?
Judy R. McReynolds (CEO)
Well, you know, the in the logistics business, that's almost entirely the brokerage business when you look at the totals that are in the press release. The margins on that business were slightly softer, I think, in the fourth quarter. That is primarily driven by growth with larger accounts that, you know, are when you're quoting a larger account, there's, you know, more, I guess you're closer to the market typically on that business. And so we've seen some compression there, but nothing significant. We feel good about our opportunities for growth in that business, although as we bring on more business, it would typically be oriented toward larger accounts and perhaps have a slightly lower gross margin.
But we feel like that over time, the operating margin opportunity in that business for improvement is really good as we have more of our employees gain experience. There is a significant difference between an account manager that has over a year of experience with us versus someone that's brand new. And so we have some opportunities for margin expansion there over time.
Matthew Young (Analyst)
So is the sales force dedicated on that front, or are you overlapping with other divisions on that?
Judy R. McReynolds (CEO)
Well, we do have a certain actually a pretty small number of sales directors that work in that business, specifically for that business. But we also utilize the contacts and the customer accounts and the sales force at ABF Freight because, you know, the customers that we have connections with in that business tend to have a lot of needs, particularly in the truckload arena and the ocean shipping arena. And so what we're trying to do there is better satisfy customers with the services that we have. And so we make those customers aware through their contacts, perhaps on the LTL side, of the other services that we offer. And we're also seeing more interaction with Panther in that mix as well.
Matthew Young (Analyst)
Great. That's good color. Thank you.
Judy R. McReynolds (CEO)
Yeah.
David R. Cobb (CFO)
Appreciate it, Matt.
Operator (participant)
Our next question comes from the line of John Barnes with RBC Capital Markets. Please go ahead.
John Barnes (Analyst)
Hey, good morning. Thanks for taking my call.
David R. Cobb (CFO)
Hey, John.
John Barnes (Analyst)
Hey. Just real quick on, we've talked about this before, but just the network as it exists today, you know, where did you kind of finish the year in terms of, of how utilized the network is? And I think this goes back to a question somebody was asking earlier just about, you know, I know it's gotten tighter. I know you've used up more of the network, and you can handle less volume, you know, I guess, you know, in the peak times. You know, what do you think you have to do? Is this going to require additional investment in the network going forward, maybe larger than expected, or is this the point where you start to get maybe even more selective about the type of freight you want in the system?
Judy R. McReynolds (CEO)
Well, we're continuing to look at the effectiveness of our network, with the customer business that we have, which that's a little bit of a moving target because the customer business you have is always changing. But, we do, as you close out 2014 and you look back, I mean, we had capacity issues that, you know, obviously, we were having to address those, perhaps through some inefficient, you know, cost answers. But by and large, you know, we feel good about the network, you know, that we have in place. We do constantly evaluate that, and I would anticipate over the next few years that we, as we always have, will have changes to that. But we don't think, you know, that there's a necessarily any large, you know, expansion, you know, that is beyond where we are today.
But we do see that things could change over time. And, you know, I think that we are focused on the yield side of our equation. As I mentioned, we, you know, had the GRI in November. We had good results on our contract and deferred price increases, you know, for the fourth quarter in January. And, you know, with the change that we made, on the fuel surcharge side to address, you know, the fuel impacts. So, you know, we feel good about the actions that we've taken there, and we feel like we can manage some growth. You know, we're seeing in January a lesser growth rate than we experienced in the fourth quarter.
So, you know, I think that presents, obviously, an opportunity for things to settle down, but we want to be sure that everyone understands that we have customers that have needs, and we're not afraid of more of a balance of between growth and yield as we go forward.
David R. Cobb (CFO)
Hey, John, I'm going to try to move on. We got a couple more. I'm going to try to get in.
John Barnes (Analyst)
No worries. I'll follow up. Thank you.
David R. Cobb (CFO)
Thanks, man.
Operator (participant)
The next question comes from the line of Rob Salmon with Deutsche Bank. Please go ahead.
Robert Salmon (Analyst)
Hey, thanks. Good morning, everyone. You know, Judy or David, as a follow-up to John's question, how should we be thinking about kind of CapEx as we look forward from here, given, you know, that the network's a bit tighter, you're investing more certainly in 2015 regarding your rolling stock? Should we think about it kind of maintaining it at these levels looking forward, or should it, you know, naturally come down as we look out to 2016 and beyond?
Judy R. McReynolds (CEO)
Well, I think the large dollars on the CapEx side are really in the kind of in the equipment area. I mean, you're not really seeing large dollars there for anything related to terminal facilities, although there are some dollars there. But, you know, Rob, it's very difficult for us to say out in 2016, you know, where our CapEx dollars will land. We are wanting to reduce the age of our equipment, so we'll probably have more dollars over the next few years to try to address that. But it'll really be in the equipment area is what we would anticipate.
Robert Salmon (Analyst)
Okay. And then as my follow-up in terms of kind of bringing in the puts and takes for 2015, you're expecting to see some continued margin expansion in terms of the strong yield environment. But, you know, from a cash generation perspective or from a free cash flow perspective, can that improve in 2015, or is the net CapEx going to make that challenging?
Judy R. McReynolds (CEO)
Well, I think the additional investments that we're making in cash CapEx will create a more balanced situation than what you've seen from us. You know, we have, I probably in 2014, you know, a build of cash or resources, where in 2015, you won't necessarily see that as much, although our opportunities for financing on the equipment side are good and at low rates. You know, the investments that we're making in equipment, I just want to pause and say, you know, we really feel good about those. We feel like it's going to bring us some much-needed savings on the maintenance side. We think that the fuel efficiency attached to those units makes for a good decision as well.
So, you know, in my opinion, if you're going to, you know, have a more balanced sort of free cash flow situation, it's always good to be able to look at that and say that that's absolutely the right decision. We feel good about the decision.
David R. Cobb (CFO)
Hey, Rob. We'll move along.
Robert Salmon (Analyst)
Thanks, guys. Much of the time.
David R. Cobb (CFO)
Thanks a lot.
Operator (participant)
The next question is from Ariel Rosa with Bank of America Merrill Lynch. Please go ahead.
Ariel Rosa (Analyst)
Hey there, everybody. Congratulations on a solid quarter. Just,
David R. Cobb (CFO)
Thanks, John.
Ariel Rosa (Analyst)
Wanted to understand a little bit better. I was hoping you guys could talk about the M&A environment, and just if you're seeing more opportunities than usual and, kind of where that lies on your priority spectrum.
Judy R. McReynolds (CEO)
Well, it's a high priority for us to find good candidates, I mean, much like we did with Smart Lines. It's a very small acquisition, but it's one that we made recently. We have a team of people that is looking constantly, you know, for those opportunities. We're primarily focused in our logistics businesses for those opportunities because it could add scale to the businesses. But we, you know, we're looking for those acquisitions that can best fold in to the existing infrastructure that we have. We immediately folded in the Smart Lines acquisition to be an ABF Logistics branch location. The systems and all that are integrated at this point, and so we're glad for that. But that's what our intention would be. And, you know, we feel decent about the prospects that are out there.
I don't want to be overly encouraging because it really is difficult to get the right candidate, and the right situation, in order to bring that on board. And so, you know, we're patient, but at the same time, we are very active in looking for the right answers there.
David R. Cobb (CFO)
Hey, Ari. We're going to move along. We're trying to close out. We got a couple more. We're going to try to squeeze in. Appreciate you.
Judy R. McReynolds (CEO)
Thank you.
Ariel Rosa (Analyst)
Okay. No problem. Thank you.
Operator (participant)
The next question's from the line of Matt Brooklier with Longbow. Please go ahead.
Matthew Brooklier (Analyst)
Hey, thanks. Good morning. I'll make it quick. Your fourth quarter purchased transportation costs, have things kind of normalized at this point? I know in 3Q, we saw some inefficiencies. I think rail was part of that equation. But just trying to figure out if your PT costs in 4Q, if that's a good run kind of run rate number to use in 2015.
Judy R. McReynolds (CEO)
Yeah. I mean, we had a higher percentage of purchased transportation in other quarters. I think we were down to about 3% utilization of purchased transportation. And I'm talking about truck transportation.
Matthew Brooklier (Analyst)
Yeah.
Judy R. McReynolds (CEO)
Our rail percentages, if you look at the fourth quarter, were 13.4% of our miles were on the rail. That compares to 15.5% last year and really just speaks to our inability to use some rail lanes because of service.
Matthew Brooklier (Analyst)
Okay. I guess my question being, you know, has the network kind of balanced at this point in time, and do you expect this to be, you know, kind of the run rate of your PT costs moving forward, or do you think things could actually get a little bit better next year, you know, given rail comes back or maybe the truckload market loosens a little bit? I'm just trying to get a feel.
Judy R. McReynolds (CEO)
I would hope that things could get a little bit better in 2015, but it is hard to predict because that's just, you know, you're dealing when you're dealing in those areas, particularly on the truck side, you're doing it for a reason, you know, typically because you're balancing empties or because you're trying to deal with a customer service need. But I do feel I'll say this. It may be because we're in January. I feel better about it right now than I did at earlier points in 2014 about the balance of that and the options that we'll have in 2015. But as you know, that could change rapidly depending on the conditions, from a capacity standpoint.
David R. Cobb (CFO)
I think, Matt, to your point there, though, that this is a focus area for us, and the operations team is highly focused on making the best use of purchased transportation. Okay. We got one more. We're going to try to get in, and that'll be it. But I appreciate you, Matt.
Operator (participant)
The final question's from the line of Willard Milby with BB&T Capital Markets. Please go ahead.
Willard Milby (Analyst)
Hey, everybody. Thanks for the time. Charlie, real quick.
Judy R. McReynolds (CEO)
Hey, good morning.
Willard Milby (Analyst)
Judy, did I hear you right the truck PT at 3% this quarter?
Judy R. McReynolds (CEO)
Yes.
Willard Milby (Analyst)
3%.
David R. Cobb (CFO)
3%.
Willard Milby (Analyst)
Great. Got it. And, if I could just ask a question around fuel, I think around 11%-ish of your as a percentage of revenue in 2013 was fuel taxes, oil, and lubricants. Can, what's that level dropped to in Q4 if you have that number, you know, given the precipitous drop in fuel prices?
Judy R. McReynolds (CEO)
You know, I don't, I'm not sure where your number came from there, but we don't typically break that out of the line item that's on our earnings release, which includes fuel supplies and expenses.
Willard Milby (Analyst)
Mm-hmm.
David R. Cobb (CFO)
That was running at 17.6% of freight revenue.
Judy R. McReynolds (CEO)
Yeah.
Willard Milby (Analyst)
For the quarter. Rob, I was just looking at, I guess, the annual 10-K from 2013 had about 11.4%.
David R. Cobb (CFO)
Oh, okay. That's a little bit of a different breakout that they do.
Judy R. McReynolds (CEO)
Well, perhaps we could follow up with you offline.
David R. Cobb (CFO)
Yeah. I can follow up with you.
Judy R. McReynolds (CEO)
We don't have that in front of us.
David R. Cobb (CFO)
Yeah. I didn't know what your source was on that.
Willard Milby (Analyst)
Okay. Yeah. Offline would be great. Yeah. That, that's all I had.
David Humphrey (Head of Investor Relations)
Okay.
Judy R. McReynolds (CEO)
Okay. Thank you so much.
Willard Milby (Analyst)
Thanks for the time.
David Humphrey (Head of Investor Relations)
Appreciate it. All right. Well, listen, we appreciate everybody's participation, and this concludes our earnings conference call. Thank you very much.
Operator (participant)
Ladies and gentlemen, that does conclude the conference call for today. We thank you for your participation, and ask that you please disconnect your line.