Good morning, and welcome to the Old Dominion Freight Line Third Quarter 2025 Earnings Call. Please note, this event is being recorded. I would now like to turn the conference over to Jack Atkins. Please go ahead.

Thank you, Jason, and good morning, everyone. Welcome to the Third Quarter 2025 Conference Call for Old Dominion Freight Line. Today's call is being recorded and will be available for replay beginning today through November 5, 2025, by dialing 1 (877) 344-7529, access code 1478106. The replay of the webcast may also be accessed for 30 days at the company's website. This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including statements, among others, regarding Old Dominion's expected financial and operating performance. For this purpose, any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words believes, anticipates, plans, expects and similar expressions are intended to identify forward-looking statements. You are hereby cautioned that these statements may be affected by the important factors, among others, set forth in Old Dominion's filings with the Securities and Exchange Commission and in this morning's news release. And consequently, actual operations and results may differ materially from the results discussed in the forward-looking statements. The company undertakes no obligation to publicly update any forward-looking statements, whether as a result of new information, future events or otherwise. As a final note before we begin, we welcome your questions today, but ask in fairness to all that you limit yourself to just one question at a time before returning to the queue. At this time, for opening remarks, I'd like to turn the call over to Marty Freeman, our President and Chief Executive Officer. Marty, please go ahead, sir.

Good morning, and welcome to our third quarter conference call. With me on the call today is Adam Satterfield, our CFO. And after some brief remarks, we will be glad to take your questions. Old Dominion's third quarter financial results reflect continued softness in the domestic economy. Our revenue declined 4.3% compared to the third quarter of 2024 due primarily to a 9% decrease in our LTL tons per day, which was partially offset by ongoing improvement in our yields. We continue to operate efficiently during the quarter and were able to manage our direct variable costs as a result. The deleveraging effect from the decrease in revenue, however, drove an increase in our overhead expenses that resulted in the increase in our operating ratio to 74.3%. As we navigate through the challenging macro environment, we remain focused on what we can control. I'm proud of how our team continues to execute the core elements of our long-term strategic plan as we work to ensure that Old Dominion is the best positioned carrier in our industry to respond to an inflection in the operating environment when it does materialize. Our long-term strategic plan includes an ongoing focus on delivering superior service at a fair price. The key elements of our strategy include investing in new service centers, equipment, technologies and most importantly, our people. Our past financial results have showed that investing in our sales through the economic cycle can pay dividends over the long term. An example of how this is happening is we've been able to control our direct variable costs this year despite the lack of network density associated with the decrease in our volumes. In fact, our direct variable costs are relatively consistent as a percent of revenue compared to when we produced company record operating results back in 2022. While there are many factors influencing these costs, we have implemented new workforce planning and dockyard management tools as well as P&D and line-haul route optimization software, which have helped drive improvements in our productivity even as we have faced headwinds from lower density. Importantly, we have done this while maintaining the highest standard of service for our customers, and I'm pleased to report that we once again provided our customers with 99% on-time service and a cargo claims ratio of 0.1% during the third quarter. That said, we also know that providing our customers with superior service is more than simply picking up and delivering the freight on time without damages. Mastio & Company measures 28 different service and value-related attributes during its annual survey of shipper and logistics professionals. We were honored earlier this month to be named the number one national LTL provider for the 16th consecutive year. In addition, Old Dominion maintained a sizable advantage over our competition, finishing first in 23 of the 28 categories evaluated by Mastio. I would like to congratulate the OD family of employees on this accomplishment. Every member of the OD family is incredibly proud of this recognition, and we also remain highly motivated to continue providing our customers with best-in-class service every single day. We know that consistency of our service creates value for our customers. It also differentiates us from the competition. Our customers know that they can count on us to help keep promises through the ups and downs of the economic cycle, which means they can keep their commitments to their own customers. Importantly, our consistent service also supports our disciplined approach to yield management. Over the years, we have built a unique culture centered on core elements of our strategic plan, which is providing our customers superior service at a fair price. This has created an unmatched value proposition for our customers and allowed us to win more market share over the past decade than any other LTL carrier. We will continue to focus on delivering best-in-class service to our customers while also operating efficiently and maintaining our disciplined approach to managing our yields. As a result, we are confident in our ability to win profitable market share and increase shareholder value over the long term. Again, thank you for joining us this morning, and now Adam will discuss our third quarter in greater detail.

Thank you, Marty, and good morning. Old Dominion's revenue totaled $1.41 billion for the third quarter of 2025, which was a 4.3% decrease from the prior year. Our revenue results reflect a 9.0% decrease in LTL tons per day that was partially offset by a 4.7% increase in LTL revenue per hundredweight. On a sequential basis, our revenue per day for the third quarter decreased 0.1% when compared to the second quarter of 2025, with LTL tons per day decreasing 2.9% and LTL shipments per day decreasing 1.6%. For comparison, the 10-year average sequential change for these metrics includes an increase of 2.9% in revenue per day, an increase of 0.5% in the LTL tons per day and an increase of 1.9% in LTL shipments per day. The monthly sequential changes in LTL tons per day during the third quarter were as follows: July decreased 1.9% as compared to June; August decreased 1.8% as compared to July; and September increased 1.3% as compared to August. The 10-year average change for these respective months is a decrease of 2.9% in July, an increase of 0.4% in August and an increase of 3.3% in September. For October, our current month-to-date revenue per day is down approximately 6.5% to 7% when compared to October 2024, with a decrease of 11.6% in our LTL tons per day. As usual, we will provide actual revenue related details for October in our third quarter Form 10-Q. Our operating ratio increased 160 basis points to 74.3% for the third quarter of 2025 as the decrease in revenue had a deleveraging effect on many of our operating expenses. Our overhead costs, which are primarily fixed in nature, increased 160 basis points as a percent of revenue due to this effect and the ongoing execution of our capital expenditure plan. These factors contributed to the 70 basis point increase in our depreciation costs as a percent of revenue. Miscellaneous expenses as a percent of revenue also increased 40 basis points due primarily to changes in gains and losses on the disposal of property and equipment between the periods compared. While our remaining overhead costs increased as a percent of revenue, these expenses in aggregate were lower than the third quarter of 2024 as we continued to exercise excellent control over our discretionary spending. Our direct costs as a percent of revenue were flat compared to the third quarter of 2024 due to the improvement in yield and continued focus on operating efficiencies. We were pleased that our team was able to effectively match our variable costs with current revenue trends during the quarter. I also believe that we will be able to improve these direct costs even further when we return to a growth environment and benefit from the improvement in network density. Old Dominion's cash flow from operations totaled $437.5 million for the third quarter and $1.1 billion for the first 9 months of 2025, respectively, while capital expenditures were $94 million and $369.3 million for those same periods. We utilized $180.8 million and $605.4 million of cash for our share repurchase program during the third quarter and first 9 months of 2025, respectively, while our cash dividends totaled $58.7 million and $177.2 million for those same periods. Our effective tax rate for the third quarter of 2025 was 24.8% as compared to 23.4% in the third quarter of 2024. We currently expect our effective tax rate to be 24.8% for the fourth quarter of 2025. This concludes our prepared remarks this morning. Operator, we'll be happy to open the floor for questions at this time.

And the first question comes from Chris Wetherbee from Wells Fargo.

Maybe Adam, we could start on sort of the October environment. You mentioned tonnage down. I think 11.6% is what you said. Kind of curious what you're seeing from a demand perspective. Obviously, it seems like there's some softness in the first part of October. And then I think you typically give us some help in terms of both top line as well as operating ratio for the forward quarter. So any kind of comments you have just given the context of what we're seeing so far in October around the fourth quarter would be very helpful.

Yes. I'll begin by noting that the operating ratio will be affected by revenue trends. The average change in our operating ratio from the third to the fourth quarter is expected to be an increase of 200 to 250 basis points, excluding any variations in the insurance and claims line, which is influenced by our annual actuarial study done in the fourth quarter. Currently, our tonnage is slightly below seasonal expectations. However, our revenue per day is showing a consistent decline of about 6.5% to 7%. This underperformance is similar to what we've experienced in the first three quarters of the year. If this trend continues throughout the full quarter, we anticipate a sequential increase in the operating ratio of approximately 300 basis points. Given the uncertainty around revenue, we should consider a range of 250 to 350 basis points. If we see a revenue rebound, we might reach the low end of this range at 250 basis points, which would be close to the upper limit of normalcy. However, considering ongoing revenue uncertainty, if conditions were to worsen—which we are not currently observing—this could allow for some upward flexibility. Fortunately, after a strong third quarter performance, we are starting the fourth quarter on solid ground.

And our next question comes from Jonathan Chappell from Evercore ISI.

Adam, as it relates to salaries, wages, and benefits down sequentially as a percentage of revenue, I'm pretty sure you still put in your annual wage increase on September 1. So was this a function of headcount numbers coming down in any type of material manner? And also, as we think about the 3Q to the 4Q transition there, if the wage increase did go into effect on September 1, would we expect the usual kind of uplift on that line item as it relates to the OR?

Yes, we implemented a wage increase at the start of September as we typically do. Given our consistent performance in the mid-70s, we believe it's important to reward our employees for their exceptional efforts, not only in terms of operating ratio but also in service metrics that benefit our customers, which is reflected in our 16th consecutive win with Mastio. That wage increase was part of the equation. However, we did notice a slight decline in headcount throughout the third quarter. Overall, our total full-time employee count decreased by about 6% compared to the same period last year, coinciding with nearly an 8% drop in shipments. We anticipate that normal attrition will continue into the fourth quarter, and the headcount may decline further. This factor significantly impacts changes in the average operating ratio from the third to fourth quarters. When I look at salaries, wages, benefits, and our total operating supplies and expenses, these two main components typically rise by about 170 basis points on average. Therefore, we are still facing upward pressure there. Given the ongoing revenue challenges, maintaining our high levels of service while managing costs is increasingly difficult. This contributes to our expectation that the operating ratio will be somewhat higher than our typical sequential change. Additionally, we've been averaging around $310 million in overhead costs per quarter. I expect this may decrease slightly to the $305 million to $310 million range in the fourth quarter, still exerting about 150 to 170 basis points of pressure. To clarify, when we indicated a range of 250 to 350 for the operating ratio, it likely leans toward 300 to 350, but I am confident we can continue to perform well. If we experience any revenue acceleration, we have already surpassed the usual sequential change from the second to third quarter despite revenue pressures. We remain committed to managing costs carefully in this lower revenue context while ensuring we can seize growth opportunities when they arise.

Our next question comes from Tom Wadewitz from UBS.

I wanted to ask about your capacity position. Can you tell us where you currently stand on terminal capacity? I understand you typically aim for a range of 20% to 25%. However, it seems like your last comments indicated it might be more toward 25% to 30% or even higher. Considering how much excess capacity you have, it appears that some projects have been postponed. I'm curious if those projects are included in your capacity figures, especially when you’ve invested but haven’t utilized the terminal yet because it isn't necessary. My broader question is, where do you currently stand? Are you considering a period of reduced capital expenditures and less focus on terminal development, given that your excess capacity is significantly above what you would normally maintain?

Yes, we are definitely above our target of having 20% to 25% excess capacity. I would say we are currently over 30%, possibly even exceeding 35%. Therefore, it's reasonable to assume that we'll have lower capital expenditures for our real estate next year. We haven't finalized all the details yet, and some of our capital expenditures are related to repair projects. We have ongoing projects that will continue into next year, which will always require some spending. Overall, we are in a strong position with our network. We haven't opened any service centers this year, but in the past couple of years during this freight recession, we have opened six service centers since the end of 2022. We have also completed construction on several service centers, and they are ready to be operational. As a result, we are already accounting for the incremental depreciation expense in our numbers, which is part of the costs associated with having that capacity available for our customers. Being able to assure customers that we can meet their needs is crucial to our value proposition. While capacity may not be a primary concern right now, it hasn't been too long since we've experienced shifts in the market that can occur rapidly in our industry. When the market turns, customers will focus on who has the capacity, not only in terms of service centers but also regarding labor and equipment. We believe we are better positioned than anyone to respond when the market eventually rebounds. We have several service centers on standby, and it seems more prudent to hold them rather than increasing the number of operational service centers, which would raise line-haul expenses and reduce efficiency, putting additional pressure on costs. This approach aligns with what we have done in previous cycles, and I expect we will activate them when growth returns.

The next question comes from Jordan Alliger from Goldman Sachs.

I wanted to revisit the topic of demand. Clearly, it remains relatively weak. Could you share your thoughts on the timing of a potential inflection over the next year? What factors might drive it? Are we approaching that point, and what will it take to return to normal tonnage seasonality?

Yes, that's a hard one to answer, obviously. We've been ready and waiting for it to turn over the last couple of years, this freight recession. If you look at ISM being below 50 for 32 of the last 35 months, I believe, that's obviously put pressure on everyone, and we haven't been immune to the macroeconomic environment. But I'm really pleased with how we've been able to deal with this decrease in network density in terms of controlling what we can control. And that's the message that we give to the team: control those items, those expenses, control our service first and foremost. And we've obviously been able to do that and be able to keep our variable costs as a percent of revenue, the direct variable costs that is, consistent with where we were back in 2022 when we were benefiting significantly from the improvement in the network density. So I think that whenever that inflection happens, and we're confident that it will, we stand ready to be able to put on strong profitable growth. I think that's when our model shines the brightest. I think when you look back at an environment like 2018 or 2021 when that market turns, I feel confident that we're better positioned than anyone else. And I think going back to the last question about capacity. And again, that's on the service center side, but I think there's a misconception in the market just looking at how the allocation of Yellow's service centers have gone since they filed bankruptcy. We just don't see that there's been a material change in many of the public carriers, total number of service centers when we look at the change from 2022 to the change in where they finished in 2024. So I think there's less capacity out there. And obviously, all of Yellow service centers didn't get sold to the market, and many were sold outside of the market or remain unsold. So I think what we know was a capacity-constrained environment in 2022 will be even more capacity constrained when we do eventually get into the upcycle. So I think those are the reasons why we feel like we're better positioned than ever to be able to start showing strong profitable growth.

The next question comes from Eric Morgan from Barclays.

I wanted to, I guess, follow up on the last one on volumes. Obviously, you haven't gotten any help from the macro, and I appreciate all the comments on how you responded and are positioned. But can you just speak to the market share dynamics here just because it does feel like the industry is probably not down quite as much, at least from what we can tell. And I don't know, is this something that can stabilize into next year? Or are we just kind of run rating into another year of down volumes?

Yes, Eric, I think that the challenge that we see is that our numbers are just compared to the remaining public carriers. And many of the comparisons leave out the fact that the third largest carrier went bankrupt, and there was a reallocation of that volume. So if you include that carrier in the mix going back to the end of 2022, then the industry numbers look a little bit different compared to our relative comparison to them as well. So I think we talked about this on the last quarter. The best way that I feel like looking at market share is I look each year when all the carriers' revenues are published in transport topics, and that would include the private carriers as well. And we've been right at 11.8% revenue market share for each of the last three years. Our strategy is generally in a weak macro environment, we continue to try to maintain market share, maintain our discipline over yields and discipline over our costs. And usually, we come out much stronger on the other side. So I feel confident about that. When will the market change? I mean, that's obviously the big question. I've asked ChatGPT that, and it suggests next year. So who knows? We'll see if AI is right or looking at other economic forecasts will prove to be right. But I think that it seems like as we've gone through every quarter this year, the next quarter has been pushed out to show that we would have a full return to normal seasonality. And obviously, we have underperformed seasonality throughout each quarter. And based on the starting point with October, I think we'll have a similar underperformance from a revenue per day standpoint, at least sequentially. Typically, the way this would work out was then you start seeing a little increase in demand, you start closing that gap to seasonality, you get back there for a couple of quarters, and then we have significant outperformance. So I'd like to think that when we get into the spring season next year, by then, I think this week, we probably are going to have a good indication of where the macro might go. I mean, we get a lot of feedback from customers that continue to have concerns over trade and the impact of the tariff environment. And so if some deal was formed, if you can close that uncertainty loop that many of our customers continue to struggle with, perhaps that's when we'll finally start seeing a little bit of recovery. It was obviously there in the first quarter of this year; there was optimism and those were the couple of months that ISM did go back above 50. So I think that there's that pent-up sort of demand that's hanging out there, but I think we've got to close that trade loop question before we see our customers really get excited about trying to grow their businesses again. But there's puts and takes on all sides with it. I think the tax bill was important, with the accelerated depreciation component of that. Hopefully, we'll start seeing some drive to demand. It seems like there's been a few things recently helping on the supply side within the truckload industry. All of those things should help to bring the supply and demand equation back into balance and support our ability to start growing again. But if you just roll normal seasonality out from kind of the current trend where we are, it certainly would lend itself that if we don't have a major inflection that we could be looking at continued declines on a year-over-year basis, at least for the first quarter. And then hopefully, we'll start seeing some compression for there and a true spring recovery, which is what we normally see in our business.

The next question comes from Ravi Shanker from Morgan Stanley.

Adam, maybe a couple of follow-ups to what you just said. A, just on October itself, obviously, a lot of questions there. But do you have a sense that the kind of big step down from September to October is something transitory, maybe related to the government shutdown? And from what you see right now, do you think that this continues for the entirety of the fourth quarter? And also, you have mentioned the things happening in the TL market. Obviously, we did see a bunch of volume move out of the LTL market to TL. You guys have always been optimistic that will come back to LTL. Are you starting to see any of that happen at this point, the TL market tightening up a little bit?

Yes. Let me try to cover everything. In October, focusing on tonnage, we expect a 5% decrease compared to September. The 10-year average shows a 3% decline. This aligns with September’s performance, which saw a 1.3% increase after several months of downward trends, but this is still below the 3.3% average increase. I believe we're experiencing a similar underperformance against seasonality. If this trend continues, with a decrease of 6.5% to 7% throughout the quarter, it would reflect the same level of underperformance in revenue that we've observed this year. Nothing has particularly worsened; it seems we are in a steady state. We anticipated third-quarter revenue to remain flat at around $22 million per day. Demand appears consistent, but we haven't observed the anticipated shift. Typically, we don’t see such changes in the fourth quarter. October has 23 workdays in a 62-workday quarter, and much of October's trend will influence the quarter's outcome. December tends to be a weak month. Our goal is to maintain tonnage trends throughout the quarter and hope to see an upward movement in the first quarter of 2026, where historically revenue declines another 2%. It's crucial to observe improvements in demand by the end of that quarter, ideally seeing a spring buildup. Unfortunately, we are still waiting for that.

The next question comes from Scott Group from Wolfe Research.

Just a follow-up. So you're not observing a significant decline in government-related activity in October. That was just a quick follow-up. Also, from a larger perspective, how are you balancing long-term pricing discipline with the changes in network density? Are you noticing any shifts in the competitive landscape or the pricing environment? I would appreciate your thoughts on that.

Yes, that was one of the points from Ravi's questions that I missed. We do not have any direct government business. Demand appears to be consistent, though October started off a bit weaker; however, the past week has shown improvement. There might be an indirect impact on the overall economy that could be affecting things as well. From a pricing perspective, we continue to see overall discipline in the market, and we’re proceeding with our price increases. We experienced about a 5% yield increase in October, excluding fuel, which reflects our expectations for the fourth quarter assuming normal seasonal patterns. That’s our baseline outlook as we navigate this period. We are currently facing a very competitive environment, given the overall weak demand in the industry. Nonetheless, we have an excellent sales team actively engaging with our customers about the value we offer. We frequently discuss service issues that customers using other carriers may experience. It is crucial for us and our sales team to demonstrate the value we bring, and we have consistently been able to do so. Despite the rising costs we confront daily, including more cost inflation than we expected this year, we have remained firm in our pricing increases across the board. We have managed to do this without significant customer losses. When examining our performance metrics—operating ratio and earnings per share—there seems to be a tendency to overlook the details, especially in compare with public carriers. While we do not like seeing our earnings per share in the negative, when I review the second quarter performance, the earnings decline for the three standalone public carriers was at least double ours. This emphasizes the necessity of maintaining discipline with yields and showcases our cost control measures that have preserved our operating ratio and earnings, placing us in a strong position for growth when market conditions are more favorable.

The next question comes from Bascome Majors from Susquehanna.

Really to follow up on that theme, Adam, if we kind of run seasonality through, it looks like next year could be potentially the fourth consecutive year of tonnage decline. And certainly, you've gotten no help from the market, but that's abnormal in the history of the company. As you take a step back, and I don't know if you have a direct answer to this, but what is the point in this sort of new weaker, more competitive paradigm where you really think about the balance of service, price, and volume growth and if you need to twist some of those knobs to really drive the long-term outcome that benefits your shareholders?

Yes. Over the past three years, we've experienced a disruptive and challenging environment. We've made significant investments to position ourselves for future growth opportunities and remain confident in our long-term market share potential. While we had hoped for an earlier market recovery, we have invested $2 billion over the last three years to enhance our network, maintain our fleet replacement cycle, and prepare for future opportunities, though this has come with its costs. Our capital expenditures were lower this year, and we expect them to decrease further next year as we focus on managing what we have, which should alleviate some overhead pressure. We continue to manage our variable costs effectively, despite operating a business with fixed costs across our 261 service centers, where a majority of our costs are variable. This downturn has lasted longer than anticipated, and we've faced skepticism from analysts who believe our growth story is over. However, we maintain these concerns for reference and look forward to a market recovery. The key element remains the value we deliver to customers. Although we do charge a slight price premium, our cost management allows us to remain competitive. In past up cycles, competitors with limited capacity tend to raise their prices above ours, suggesting that the price gap will narrow as they may need to increase prices to satisfy shareholders. This could create additional volume opportunities for us as demand improves and we gain from competitors’ churn. Historically, we've performed well in such scenarios, and we anticipate similar outcomes once we return to a favorable demand environment, rather than competing for market share.

The next question comes from Brian Ossenbeck from JPMorgan.

Maybe two quick follow-ups for you, Adam. Just the length of haul was coming down a good amount here. I don't know if you can put some context around that. Is that a sign of just the demand environment that you're in? Is there some sort of shifting mix in there? And does that have any sort of implications for how you operate the network or how the industry responds? And then just on the pricing side, I want to get your quick thoughts on dynamic pricing, and we've heard a little bit more about it. I don't know if it's really widespread in use, but I just wanted to get your perspective on how you utilize that, if at all, and then what the rest of the industry is doing as well.

Yes. Regarding dynamic pricing, we've heard some discussion about it, but it's not something we've actively adopted. Some carriers use it to a limited extent, but we haven't experienced significant positive effects from it. We prioritize consistency so that our customers know what to expect from us. We monitor changes in our costs each year, which influences our cost-plus approach to support ongoing investments in service centers, equipment, and technology. These technology investments have been effective in improving our costs. While some investments enhance service quality, customer engagement, and retention, many also help us operate more efficiently. Our track record in managing variable costs demonstrates this. In contrast, historical examples from some carriers, especially in the first half of 2023, suggest that these strategies haven’t led to improved earnings per share. It seems counterproductive to accept lower rates while costs are rising. Our earnings per share trends, along with those of other carriers, support this viewpoint. What was the first part of your question again?

Just the implications of shifting length of haul. It seems like it's been coming down for a while. The market or mix thing and how it impacts the business.

Yes, I believe this trend has been evolving over time, and we anticipate it will likely continue to decline. This reflects regionalism as we expect growth, particularly in e-commerce, which is likely to shift more freight into next-day and second-day services. Currently, this accounts for about 70% of our revenue. In the last quarter, our retail business outperformed industrial again, which probably contributes to this shift. Additionally, when there is time in the supply chain, which there is currently, other transportation methods can be utilized for longer hauls at a lower cost. For instance, looking back to 2021, once freight arrived at the shore, we expedited its conversion to truck as soon as possible, resulting in longer hauls. Currently, shippers can leverage the time available in the supply chain and send freight to us later in the process. This is partly responsible for the changes we are observing.

The next question comes from Jason Seidl from TD Cowen.

I wanted to stick on pricing a little bit. You guys obviously announced a GRI recently; it was 4.9%, I believe, equal to the prior year. But the market feels like it's weaker this time around. How are you guys gauging sort of compliance to the GRI as we move through the quarter right now? Would you think it might be a little bit weaker than last year?

You mean the increase or the request from the customers about the increase?

The increase that you announced. I think yours takes place in early November, I believe.

Yes. We were 11 months this year. We've done that in the past. Some years, it's 12 months, but we base our general rate increase off of our costs each year. We're not getting any kickback, so to speak. We explain to our customers what our costs are for equipment, real estate, just to generally operate our business. Keep in mind, too, this only affects 25% of our customer base. This is a general tariff for non-contract. Our contracts are about 75% of our business, and those increases are based on months of the year when they expire. So this only affects 25% of our business.

The next question comes from Reed Seay from Stephens.

You've had a lot of competitors invest in service and in their network, and you have a peer about the spin-off from their parent, maybe getting a little more financial attention. Are you seeing any changes in the market from these investments from either your public or private peers or any impacts from your peers as they prepare to spin from the parent company?

The best information we have to compare our service to others comes from the Mastio study. We didn’t notice significant movement when comparing ourselves to other carriers. The gap between us and our competitors remains as large as ever. According to the study, we ranked number one in 23 out of 28 service and value attributes. I haven’t seen much change among competitors in the past two to three years, even though there’s been talk of service improvements. We remain focused on the data. Service is more than just picking up and delivering freight on time and undamaged. We work closely on these attributes and review our performance with every employee. Everyone contributes to our service quality, whether for external or internal customers. We concentrate on ensuring that every experience at Old Dominion is a positive one, and we strive to be the best every day, not just on special occasions.

The next question comes from Ken Hoexter from Bank of America.

Great. Adam and Marty, I'm still a bit confused by your comments about consistent demand and similar underperformance as recently observed. Knight mentioned that conditions in the LTL market deteriorated quickly at the beginning of the quarter, with volumes down 11.5% compared to last October's 9% decline, which I believe was your easiest comparison since it was the worst month of the year. I want to understand if demand remains consistent or if something declined sharply. Regarding weight per shipment, could you share your thoughts on whether the decrease aligns with typical shifts or if the economy is contributing to lighter shipments? Additionally, there seems to be feedback from shippers that you are being more aggressive on pricing. I assume you will respond by saying that your pricing strategy hasn't changed, but I would like to hear your perspective directly. Has there been any change in your pricing moves in the market?

Yes, there are no changes. Our numbers reflect our consistent approach, and the year-over-year change in our yield trends supports that. However, the volumes are down, especially with a double-digit decline at the start of October, which is challenging given that we've experienced declines over the past couple of years. We are managing through this situation. My previous comments about underperformance relate to our tonnage's sequential change compared to the 10-year average. Last year, October's sequential change was a 3% decline from September, and currently, we are observing a 5% decline, making the year-over-year change appear worse. We'll monitor how this progresses throughout the quarter. The overall revenue per day and our performance in terms of revenue or tonnage reflect this underperformance when compared to our 10-year average. I estimate that tonnage could be down around 11.5%, and revenues might be around $1.29 billion if we maintain a decline of 6.5% to 7%. From a macro perspective, things feel stable. Regarding customer demand, we anticipated needing clarity on tax deals and interest rates this year. Following the tariff discussions, we recognized the need for resolution. We have made progress on some components, particularly with the beginning of interest rate cuts, which should benefit customers. However, the overall uncertainty around costs is hindering business decisions, leaving many business owners and managers feeling stuck. If we can gain more clarity, we should start to see an increase in activity.

The next question comes from Jeff Kauffman from Vertical Research Partners.

Congratulations on another strong finish with Mastio. I would like to delve deeper into the performance of your various customer segments. Industrial production has not worsened significantly over the past few months, and neither has the ISM. You mentioned that your retail customers are performing better than your industrial customers. However, I’m curious about how the different customer groups or industries are faring. I don't believe e-commerce is down by much, so where do you see the weaknesses that are contributing to the decline in tonnage? Which segments are showing stronger performance in this environment? Please provide some context.

Yes. We generally put the groups or SIC codes into a couple of major buckets. Our industrial revenue is 55% to 60% of revenue and then retail is about 25% to 30%. In the most recent quarter, the revenue per day, we were down 4.3% overall for the quarter. The retail wasn't wildly different, but was down about 4% compared to the third quarter last year. The industrial was obviously a little worse, but not a major difference. That goes back to the consistency that we've had in our customer base. We've talked a lot about the fact that we haven't lost any major customer accounts. We haven't really lost major lanes or whatnot and awards from existing customers. We have had a lot of continuity there. But obviously, demand for our customers' product has been weaker. Orders have been weaker. I think that's coming through with our weight per shipment trends, and that's indicative of the macroeconomic environment. We're seeing weight per shipment that's down in October right now about 2.3%. Continued decline is driving the overall change in our tonnage. With business levels being down, you have to say, well, what gives? If you're maintaining market share and not losing customers, it is those weaker orders. I think we continue to hear some customers tell us that they're consolidating shipments within the truckload industry. With that oversupply that's been there, we've had the capacity readily available, and that opportunity has existed. We’ve had some pressure in our 3PL business. That's about one-third of our overall revenue. Some of that could be dynamic pricing some carriers are using to a small degree and variable changes. That could be causing some incremental pressure within the 3PL world but not seeing it in a major way. Just some 3PLs are down a little bit more. I think historically, we've noticed 3PL managed businesses leverage their technologies and carrier connections to consolidate loads into the truckloads. We feel like pressure is kind of that truckload consolidation in the 3PL world. It just seems like a mix of factors contributing to the overall weakness in demand. I think that historically speaking, ISM has been the highest correlated metric with the industry volumes. With ISM being weak for 32 out of 35 months, that lends itself to our industry volumes being challenged overall, not just us. You got to consider the mix when adding Yellow into it when all of this started. The other factor is housing struggles. We noted some correlations between housing, economic factors, and volumes. While we don't have direct exposure, there are a lot of indirect exposures related to people buying new homes, building new homes, and some of the components that go into them. It's been weakness across the board, some mode shift, etc. contributing to the unfortunate declines in our business levels.

Our next question comes from Richa Harnain from Deutsche Bank.

It seems the theme of the call focuses on the consistency you've mentioned. Adam, you noted that demand is fairly consistent—although not strong. What stood out this quarter was your ability to control certain variables, particularly in managing costs and optimizing your workforce, which led to a positive cost outcome and a better operating ratio than expected despite typical seasonal declines. Can you discuss potential areas for further optimization? I understand you're anticipating a situation that is worse than usual seasonal patterns, but what actions can be taken? You've mentioned a few initiatives, such as tech-enabled features that could enhance cost efficiency. Regarding salaries, wages, and benefits as a percentage of revenue, you were at about 44% during the 2022-2023 period. Is it possible to return to that level? What triggered these cost-saving measures now? I know the workforce has decreased somewhat, but we’ve been experiencing a freight recession for a while. Why decide to cut costs three years into this anticipated downturn?

Yes. The reason we focus every day on saving costs. Whether you're in a good environment or bad, that's something you've got to be focused on. I had a mentor early in my career that said, if you don't focus on saving costs in the good times, you probably don't even know where to start when times get difficult. So that's a focus we have every day, and it's just part of who we are. Continuous improvement is a key column in our foundation for success as we always look at ways to get better, ways to invest in technologies that will drive a return for the business. Some of what we've seen in those areas helps us manage our direct variable costs consistent with levels we had back in 2022, which is crucial. We run tightly, but you need to give your people the tools to provide service while operating efficiently. That will continue to be our focus. As I mentioned in my prepared remarks, what's going to drive long-term improvement is density and yield. Our yield trends have stayed consistent throughout this freight downturn. Density is what we're missing out on, and it will return. The immediate opportunity is typically you see our operating ratio improve in recovery years, with periods where it improves 300 or more basis points. The movement in the operating ratio comes on the overhead side when you start getting revenue back in the system. I think we've probably got a couple of years of improvement given the level of excess capacity in the service center network. The long-term improvement in operating ratio we've seen has been on the direct variable costs side, and that will be the opportunity going forward. If we're already at record levels in those costs as a percent of revenue, imagine double-digit volume growth back in the system, which is the type of performance we've seen in prior upcycles. That's where those costs can continue to go lower as a percent of revenue. All of these things work together. We couldn't be disciplined with yields if we didn't have best-in-class service. It all feeds into one another, but understanding our costs and ensuring we're charging appropriately based on the cost to handle freight gives us confidence to drive the operating ratio back to where it was and beyond.

The next question comes from Ari Rosa from Citigroup.

I just wanted to ask you for a bit of color on the nature of the conversations you're having with your shippers, with your customers. How are they contextualizing some of this volume weakness? You mentioned some of the uncertainties they're grappling with. Does it feel like they've gotten more confident, less confident? I guess I'm trying to, again, as a lot of others have done, contextualize this decline we're seeing in October. And then is there any dimension in which they've perhaps gotten a little bit more emboldened in pushing back on pricing given whether it's competitive pressures or pressures they're feeling themselves on their own margins?

The sentiment among customers remains largely consistent as it has throughout the year. Many are waiting for positive developments. Looking ahead to 2026, the potential for lower interest rates, stable tariffs, and settled corporate taxes creates a very favorable outlook. Customers are speaking positively about these prospects. Regarding pricing, some customers are eager to discuss this topic. Our sales team is focusing on securing business from customers who prioritize timely service and have no claims, as this allows us to command higher prices. Currently, shipments are approximately 20 pounds lighter than they were a year ago, and we have a stable customer base with minimal churn. There is a sense of cautious optimism, and we continue to engage with these customers to showcase our offerings. We are simply awaiting an uptick in business.

The next question comes from Stephanie Moore from Jefferies.

Great. This is Joe Hafling on for Stephanie Moore. I wanted to go back to, Marty, something you mentioned at the top of the call. You mentioned a little bit about how you're using technology around workforce planning, dock management, and route planning. We don't often talk about technology in OD. So if we could just unpack what you guys are doing across those main cost buckets, what are the benefits you're already seeing, what inning you think you're in, and what's still to come? Just trying to get a better understanding of everything on the tech and productivity side.

Yes. We normally don't go in detail about our AI activities. I can tell you some of the things that we already have in use today, some being in cybersecurity with e-mail protection platforms. As we get into more bots, communications with our customers, we have to learn to manage better to keep cyber out. From an operational safety aspect, we have implemented line-haul plan creation that allows us to study our loads quicker, obtaining more pounds per truck as we move along. We analyze our Lytx cameras with videos so that we can coach our drivers more efficiently and increase our safety. We have AI in our billing automation, which lowers our costs. Content creation for our sales team enhances deeper customer engagements. We also use AI for capabilities related to basic application development. Things we are currently researching for the future include equipment utilization, predictive maintenance for our equipment, training for mechanics, and weather conditions modeling to take better routes during winter months. Those are just a few of the things we're examining. We expect a return on investment.

This concludes our question-and-answer session. I would like to turn the conference back over to Marty Freeman for any closing remarks.

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

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.