Covenant Transportation Group, Inc. (CVTI) Q1 2019 Earnings Call Transcript

Covenant Transportation Group, Inc. (CVLG 1.20%)
Q1 2019 Earnings Call
April 26, 2019, 10:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Excuse me, everyone. We now have our presenters in conference. Please be aware each of your lines is in a listen-only mode. At the conclusion of the presentation, we will open the floor for questions. At that time, instructions will be given to the procedure to follow if you'd like to ask a question. I would like to now turn the conference over to Mr. Richard Cribbs. Please go ahead.

Richard Cribbs -- Executive Vice President and Chief Financial Officer

Thanks, Stephanie. Good morning. Welcome to our first quarter conference call. Joining me on the call this morning are David Parker and Joey Hogan. As a reminder, this conference call will contain forward-looking statements within the meaning of Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those contemplated by the forward-looking statements.

Please review our disclosures and filings with the SEC, including, without limitation, the Risk Factor section in our most recent Form 10-K. We undertake no obligation to update or revise any forward-looking statements to reflect subsequent events or circumstances. A copy of our prepared comments and additional financial information is available on our website at covenanttransport.com under the Investors tab. Our prepared comments will be brief, and then we will open up the call for questions.

In summary, the key highlights of the quarter were -- our truckload segments revenue, excluding fuel, increased 13.7% to $149.4 million due primarily to a 560 or 21.9% average truck increase, partially offset by a 6.7% decrease in average freight revenue per truck in the 2019 period as compared to the 2018 period. Of the 560 increased average trucks, 435 average trucks were contributed by the Landair acquisition, as Landair contributed $20 million of freight revenue combined truckload operations in the first quarter of 2019.

Versus the year-ago period, average freight revenue per total mile was up $0.116 per mile, or 6.6%. And our average miles per tractor were down 12.5%. Truckload rates were impacted favorably, and utilization was impacted unfavorably by the impact of the Landair operations on the combined truckload segment. With their shorter average length of haul and dedicated contract, solo-driven truck operations generally produce higher revenue per total mile and fewer miles per tractor than our truckload business unit, our other truckload business unit. Versus the prior year quarter, freight revenue per tractor at our Covenant Transport subsidiary experienced a decrease of 8%. Our SRT subsidiary experienced a decrease of 1.5%. And our Star Transportation subsidiary experienced a decrease of 0.7%.

The truckload segment operating cost per mile, net of surcharge revenue, were up approximately $0.172 per mile compared to the year-ago period. This was mainly attributable to higher employee wages, casualty insurance claims costs, and the impact of the Landair truckload operations' higher cost per mile model. These increases were partially offset by lower net fuel costs and net depreciation expense, as they recognized the gain on disposal of equipment, totaling $100,000 in the first quarter of 2019 versus a loss of $1.1 million in the first quarter of 2018.

The truckload segment's adjusted operating ratio was 98.8 in the first quarter of 2019 compared with 95.9 in the first quarter of 2018. Our Managed Freight segments' revenue, excluding fuel, increased 143.7% versus the year-ago quarter to $46.4 million from $19 million. Of the $27.4 million of increased revenue, Landair contributed $20.2 million of revenue to the Managed Freight operations in the first quarter of 2019. The Managed Freight segments adjusted OR was 90.4 in the first quarter of 2019 compared with 94.4 in the first quarter of 2018. The result was an increase of Managed Freight adjusted operating income contribution to $4.4 million in the current quarter from only $1.1 million in the prior year quarter. A minority investment in Transport Enterprise Leasing contributed $3 million to pre-tax earnings, or $0.12 per diluted share in the first quarter of 2019 compared with a $1.5 million contribution to pre-tax earnings, or $0.06 per diluted share in the prior-year quarter.

The average age of our tractor fleet continues to be young at 2.3 years as of the end of the quarter, slightly up from 2.1 years a year ago. Since December 31st, 2018, total indebtedness, net of cash, and including operating lease liabilities, has increased by approximately $24.4 million to $279 million.

At March 31st, 2019, our stockholder's equity was $347.7 million for a ratio of net indebtedness to total capitalization of 44.5% compared to 42.6% ratio as of December 31st, 2018. In addition, our leverage ratio has increased to 1.7x as of March 31st, 2019, from 1.5x as of December 31st, 2018.

The main positives in the first quarter were, one, improvement in the operating income and operating margins at our Managed Freight segment, including successful integration of Landair's warehousing and transportation management service offerings, two, included with that, the organic growth of our freight brokerage service offering as compared to the first quarter of 2018, and, three, improved year-over-year earnings contributed from our investment in Transport Enterprise Leasing.

Main negatives in the quarter were, one, the operating margin declined of our expedited and solo refrigerated service offerings, two, an approximate 6.1% decrease in average freight revenue per truck for our truckload segment, excluding Landair's truckload operations verse the first quarter of 2018, three, increased truckload operating costs on a per-mile basis, most notably, the unfavorable employee wages and casualty insurance claims costs, partially offset by improved net depreciation expense, and, four, the $24.4 million quarterly increased our total of net indebtedness, primarily related to the growth of receivables purchased by our factoring division during the first quarter of 2019.

Our fleet experienced a decrease to 3103 trucks by the end of March and 51-truck decrease from our reported fleet size of 3154 trucks at the end of December. This decrease was primarily driven by a reduction of trucks from our solo-driven, one-way fleets. This was partially offset by a 24-truck increase to 1677 dedicated fleet trucks at March 31st, 2019.

We intend to continue executing our strategic plan of becoming increasingly embedded in our customer supply chains by growing our managed freight segment and the portions of our truckload segment with more predictable, long-term contracts. Based on the current freight market and normal seasonal patterns, we expect second quarter 2019 adjusted EPS to be fairly consistent with the prior year quarter based on the favorable impact of earnings contribution from Landair's service offerings, partially offset by the unfavorable impact of the slower freight market in general.

Thank you for your time. We will now open up the call for any questions.

Questions and Answers:

Operator

Thank you. At this time, we'll open the floor for questions. If you would like to ask a question, please press the star key followed by the one key on your touchtone phone now. Again, if you'd like to ask a question, you may press *1 now.

Our first question comes from Scott Group with Wolfe Research.

Scott Group -- Wolfe Research -- Analyst

Hey, thanks. Morning, guys.

David Parker -- Chairman and Chief Executive Officer

Morning, Scott.

Richard Cribbs -- Executive Vice President and Chief Financial Officer

Morning.

Scott Group -- Wolfe Research -- Analyst

So, David, you had a comment in the press release about sort of better activity so far in April. I guess that's a little different than what we've heard from some of the others, so maybe if you can add some color there.

David Parker -- Chairman and Chief Executive Officer

I would say that what I really meant by that, Scott, is the weather is mostly over with, probably 95% over with, even though it's supposed to snow, projections up in the Northern Plains area in the next couple of days. But that said, most of that's over with, so it is definitely freeing up some of the equipment that we had there horribly in the month of February and somewhat in the month of March. So, it's more of that is that the trucks are starting to have some freedom to be able to move and are able to generate some more freight on those trucks. It's not that I necessarily have seen any dramatic increase. I mean, it's not horrible. It's just not -- it's nothing to write home about. It's just we're having to work awfully hard to make sure that we move these trucks every day, if that helps you with color.

Richard Cribbs -- Executive Vice President and Chief Financial Officer

Yeah, Scott, the note -- noted that it still remains well below the level we experienced in 2018. It's just picked up some and versus a low base in the first quarter. We should see pretty good sequential miles per truck improvement in the second quarter.

Scott Group -- Wolfe Research -- Analyst

And how would you compare April verse a normal April?

David Parker -- Chairman and Chief Executive Officer

I would say that -- take away 2018, and it is equal to down over the last few years -- equal to down, take away 2018.

Scott Group -- Wolfe Research -- Analyst

Okay. If I look at the rate per mile up 7%, can you give -- what do you think the underlying rate per mile is excluding Landair?

Richard Cribbs -- Executive Vice President and Chief Financial Officer

That's on -- loaded mile without Landair, that was closer to up about 4%, a little over 4%. So, that's got mix issues with improved contract rate but offset by the lower dedicated average cost, or rate per mile.

Scott Group -- Wolfe Research -- Analyst

Okay. And maybe can you guys just share what you're seeing from a contract repricing standpoint and maybe how we should think about rate per mile trending as the year goes on?

David Parker -- Chairman and Chief Executive Officer

We kinda -- we believe that as the year progresses that we're gonna -- we're basically gonna see, in our minds and that, 2.5% to 5% kinda numbers on rate increases. And we are through a lot of hours. We have a lot of them that -- a lot of our big customers that come due in the month of -- in the second quarter, in the course of the second quarter. And we've negotiated some of those already. And I'm pleasantly surprised that -- I'm pretty happy with what we have seen, one that we had to take some reductions on, but we were able to get a lot of lanes at higher rates of new business. So, if I was to average all of those together, then I'm very satisfied with what we ended up with. Other than that, of the lanes that we do with our customers, our existing customers, we have seen in that 4% to 5% increase number, to give you an idea.

Richard Cribbs -- Executive Vice President and Chief Financial Officer

Yeah, Scott, I think the way that it might turn out looking, from a consolidated financial perspective, is I think you'll see the rates be kinda even-ish with first quarter and then move up a bit from there 2% to 3% in the third quarter. And then, again, forth is peak, and so who knows what that will end up looking like at this point? But the underlying piece of that would still be kinda equal to the Q3 numbers, the normal moving freight. And keep in mind, a lot of that is based on -- and what we're talking about on contract rate increases is talking about one-way freight, which continues to decrease in its percentage of our overall business.

David Parker -- Chairman and Chief Executive Officer

Yeah, yeah, yeah. Yeah, that -- and that has exploded. We've been really growing that area. That's exactly correct, Richard.

Scott Group -- Wolfe Research -- Analyst

Okay. And then, Richard, just one quick one for you. You noted the leverage starting to move a little higher. You planning to pay down some debt and then sort of get that going in the right direction again?

Richard Cribbs -- Executive Vice President and Chief Financial Officer

Yes, we had kinda a heavy piece of our annual capital expenditures in the first quarter at about $33.5 million. I expect that number to be more in the teens and twenties for the rest of the year each quarter, yeah, kinda finishing the year somewhere between $85 million and $95 million of net capex. It was a heavy capex quarter. We got more disposals in the -- for that quarter than we did in the first quarter. So, that should help as well as we kinda had a tiny event on purchasing some receivables for a new client on the factory side. It grew the receivable and the debt a little higher than it -- three days later, it was $10 million less. So, I do expect to continue to kinda pay down debt from here for the rest of the year.

Scott Group -- Wolfe Research -- Analyst

Can you just explain what you're doing with the factory?

Richard Cribbs -- Executive Vice President and Chief Financial Officer

Well, yeah.

Joey Hogan -- President and Chief Operating Officer

I think -- hey, Scott, this is Joey. We started a factoring business 2011, and the strategy for that was to offer complementary products similar to our leasing business and target it with our third-party carriers to help grow our brokerage business. So, that was the strategy. And so, it's actually in and of itself become a business that's coming quite large, as far as a factoring operation. And so, we have our relationship business. We have our factoring business. We don't have an investment but have a relationship with an insurance service. So, when carriers work with us, we tend to [inaudible] fuel products. We have a menu of services to try to engrain that carrier with us on an on-going basis. And so, that was the strategy. It's grown quite nicely.

Historically, it's been reported as part of our Covenant Solutions company because that's the legal entity that owns that operation. But we do run it separate. It's getting quite large. We're probably buying -- we're getting close to $700 million of purchase receivables on an annualized basis inside that operation. And so, it's grown here over the last year, and it's actually been quite phenomenal. Its return on invested capital's pretty good. It's much less volatile than the -- let's call it the truckload side of the space. We're pleased with its margins, as far as return on invested capital, in that high single-digit range.

And through the 15, 16 period of time, if you were to kinda think through, well, what happens in a softer freight period of time, it continues to grow through that period of time quite nicely. Obviously, credit's important, making good credit decisions. I think they report some to Richard, our CFO. We did that on purpose, made sure we had good controls and credit decisions around what we're investing in. And it's just really grown quite nicely. And the penetration, really, if you look at where we are, eight years later, it's really become more of a compliment. Our leasing and our factoring business is really more partnering together. There is some heath on the carrier side, but really, our leasing and our factoring business is doing good job working together, a lot of common customers between those two businesses.

Scott Group -- Wolfe Research -- Analyst

Thanks for your time, guys.

Richard Cribbs -- Executive Vice President and Chief Financial Officer

Thanks, Scott.

Operator

Thank you. Our next question comes from Brad Delco with Stephens.

Brad Delco -- Stephens -- Analyst

Hey, gentlemen. Good morning.

Richard Cribbs -- Executive Vice President and Chief Financial Officer

Hey, Brad.

David Parker -- Chairman and Chief Executive Officer

Hey, Brad.

Brad Delco -- Stephens -- Analyst

I want to ask a little bit about kinda the assets and how you're thinking about deploying them kinda back to balanced or a more balanced freight environment. You guys have been very successful with your team operation. But I think that probably provided some challenges in the first quarter to get utilization on those trucks. Are you intentionally trying to move those trucks into the dedicated? Or how can you manage your large team with the challenging environment we're in right now?

David Parker -- Chairman and Chief Executive Officer

Brad, our goal -- first of all, you're right. As we all know, the team side of the business, always in the first quarter, can be a difficult environment depending upon what the weather does. And this year was a -- is a bad weather event, so it definitely hurts that side. But --

Richard Cribbs -- Executive Vice President and Chief Financial Officer

Especially, against a tough cop with last year with the ELD issues going on and those things. It really helped that not be as big of an issue in the first quarter.

David Parker -- Chairman and Chief Executive Officer

But that said, our team side is a very great, profitable, good, wonderful piece of business that the vast majority of our competitors would love to have, the kind of team side business that we have got out there. But our goal is to grow -- continue to grow around it so that it takes out the volatility. And we're not happy with what happened on the expedited side in the first quarter, again, for weather. But the rest of our companies, as you look at what we've been saying for the last two or three years getting closer to the supply chain, and getting deeper into the supply chain, and growing the brokerage side, and the leasing side, and the contract logistics side, we can see that it's taken out some of the earnings volatility out of the business.

But that said, our goal is to continue to offer the expedited side of it. And as we grow the dedicated side, it's predominantly coming, as we speak, from the OTR solo operation that both Covenant and SRT have. And so, that's the first place. Do we have dedicated teams out there running? Yes, we do. Probably, out of 1700 that are all out there running, there's 40 or 50 teams that are running in the dedicated environment. The rest of them are OTR solos.

Brad Delco -- Stephens -- Analyst

Okay. And then, when I think about who your customers are for that expedited, I remember you guys being pretty closely aligned with a large e-commerce player that did a lot of two-day shipping. Now, they're doing, apparently as of yesterday, one-day shipping. Are you -- were you aligning with large e-commerce players for a move like that? Or are you realigning yourself with other types of customers for that expedited product?

David Parker -- Chairman and Chief Executive Officer

We are doing both of those. We are -- our heritage on that piece of business is, as you're aware, is virtually every LPL company in the United States, every air freight company -- not all of them, but I'd say 90% of them that we do business with, and those are our customers, anybody that's needing the expedited. So, therefore, we're definitely involved in all of the e-commerce freight. We're not doing as much with the folks up in Seattle, but they're still there, and we still do business with now better -- the fit that worked within that piece of business. But we're with every airfreight, every LPL company that there is, which we understand still moves with that company. Yeah.

Brad Delco -- Stephens -- Analyst

Okay. And then, finally, in terms of your guidance parameters for 2Q, for earnings to be similar, any way you can kinda give the puts and takes of that? You kinda have Landair sort of fully embedded. We probably would have expected to see some more earnings growth. So, what really is offsetting that other than just a more balanced freight environment?

Richard Cribbs -- Executive Vice President and Chief Financial Officer

Yeah, I think that's it. Brad, I think you're gonna have -- this Managed Freight side is gonna continue to show stronger results, including the piece that's Landair. And then Landair dedicated and Star dedicated continue to kinda perform consistently, as well as kinda SRT dedicated improving a little bit off the first quarter. And then, the one-way freight market being what it is, kinda being down versus last year. I think that -- then transport and product leasing, for example, they're probably closer to $2.5 million per quarter of income to us, going forward, versus the $3 million in the first quarter. They had some benefit from some gains on sale of some used equipment that was in really good condition kinda thing. So, they're probably gonna be down a little bit versus first quarter. Think that basically takes care of it.

Brad Delco -- Stephens -- Analyst

Okay. I think --

Richard Cribbs -- Executive Vice President and Chief Financial Officer

We had some peak costs in the first -- sorry, in January, that carried forward from kinda fourth quarter into first quarter. And so, I think we're gonna see our operating cost per mile down a little bit as well, overall, and so a little better operating margin versus the first quarter on the trucking side.

Brad Delco -- Stephens -- Analyst

Okay. That's good color. Thanks for the time guys. I appreciate it.

David Parker -- Chairman and Chief Executive Officer

Okay, Brad.

Operator

Thank you. Our next question comes from Jason Siedl with Cowen.

Jason Siedl -- Cowen & Co. -- Analyst

Thank you, Operator. Good morning, guys.

Richard Cribbs -- Executive Vice President and Chief Financial Officer

Hey, Jason.

Jason Siedl -- Cowen & Co. -- Analyst

I wanted to sort of look at your mix of business. As you were saying, you want to get more into that managed transportation. And sort of what percent of that is your -- is part of your business now, and where do you think you can get as a percentage of your business mix going forward? And how do we think on your reported revenue per loaded mile as that mix changes over time?

David Parker -- Chairman and Chief Executive Officer

Jason, you cut out there on that last part of your last question. Could you repeat that?

Jason Siedl -- Cowen & Co. -- Analyst

Oh, sorry, yeah. How do we think about those changes as you go to the more dedicated side of the business on your revenue per loaded mile over time?

David Parker -- Chairman and Chief Executive Officer

Yes, think about the way that we're looking at our business, the way that we're starting to move our internal discussion around. But it's just -- we brought some color -- the contract logistics space is comprised of dedicated. Let me just use that for -- dedicated --which I think could help answer some of your questions -- dedicated warehousing, freight management, and our factoring business. And if you think -- and then works at the transportation services are expedited, refrigerated, and brokerage operation. And so, if you look at where that was last year in the first quarter, 22% of our revenue was in contract logistics, 78%, and transportation services. Kind of the way to think about it is the one-way business plus brokerage is transportation services. In the first quarter of this year, 46% contract logistics and 54% transportation services.

So, the difference in that is -- so that's kinda one piece. So, it's more of the business, as David called it, kinda moves further down the supply chain, that contract logistics piece honestly continues to grow. We got peddled down in that. We've got strategic a strategic mission to continue to grow, dedicated, warehousing, our freight management spend. Our factoring, we're continuing to grow that. And so, the one-way side, not interested to grow, except for the brokerage piece of the pie. And why? Well, it's more volatile. The driver challenge is there, getting people to team together. It's just a lot of -- it's just too many industry issues there that are gonna impede growth. And so, that's an issue. Look at that, that's obviously the strategy. So, the impact of the rates on the dedicated side -- and we'll get them sides.

We're even having some pretty large difference in pricing inside of that 1700 trucks sitting inside of dedicated, a wide range of high-utilization customers, a lower rate structure type of customers, and then you've got somewhere we'll call is a high rate, a lot of waiting, time, and capacity available to move the freights. So, there's a wide disparity. The length of hauls are significantly different in there. And so, it's not what -- two or three years ago, we never had a more clearer answer, but generally speaking, the dedicated pricing, overall, is less than the one-way side. So, as we continue to grow that, almost a year ago, continue to get pressure in that space with comparable lower costs, just to give us a still nice operating ratio on that. So, we did -- as we look back at the first quarter on our dedicated trucks, our automotive business did well, relatively speaking.

Our new -- let's call it Landair -- actually, let's call it contract logistics product did really well. Our dedicated business inside of transport and SRT struggled into the first quarter. And there's several things in that that we're working on diligently as far as management of those suites, but probably didn't perform to our expectation, being frank, and so we're working hard with those to get them closer to the other two offices. And we're making a lot of progress with that. So, I think that's gonna be a plus. But Richard did talk about earlier with Brad -- or maybe it was Brad.

Richard Cribbs -- Executive Vice President and Chief Financial Officer

Yeah.

David Parker -- Chairman and Chief Executive Officer

As far as some sequential improvements, I believe those fleets, those 900 trucks in those fleets, will do much better in the second quarter than the first quarter. But it's a big mix issue, even inside of dedicated, until it stabilizes. But here's the thing is that it's gonna continue to grow, and we're, overall, very comfortable because now it's a wonderful complementary product to our one-way on fleets, from a driver's standpoint. A driver makes choices. The one-way fleet is very complementary to the dedicated fleet when it comes to lane of capacity and surge capacity with the dedicated accounts. And they need that. And so, it's a nice mix of two.

So, right now, the way that we're thinking about it, our dedicated fleet's got 1700; our one-way fleet's got 1300, if you will. And we expect that dedicated side to continue to grow. It's had a huge amount of growth the last year. I think it's gonna continue to grow. But the rate of growth will slow. And the one-way fleet has been declining and will continue to decline, but slower. I think we're supposed to pick numbers. I can see the one-way fleet being 1100 or so by the end of the year and dedicated closer to 2000 trucks or so by the end of the year is where I think it will settle out.

Jason Siedl -- Cowen & Co. -- Analyst

Okay. Listen, that's great color. I'll turn my last question here back to David and give somebody else a chance. But David, you kinda mentioned that April, as compared to normal April, is flat, maybe modestly down a bit. Is that the same for both your main trucking division, so you're regular driving and SRT? Or is there any differentiation?

David Parker -- Chairman and Chief Executive Officer

Yeah. No, it is the same. It's really the overall amount. Find it interesting the refrigerated side of the business that we have seen also there in January -- I mean, there in February and March, that it -- those were worse. They kinda went hand in hand with the drive [inaudible]. I was talking to a large -- I was talking one of our large customers on a particular week that their business is down. There in the winter time, there in the month of January -- excuse me -- there in the month of February, they were down about a 1000 loads a week off of the base, of a large base. I can't answer that question on how big the base really was, but I just found it surprising that they were down because you think about the food side of it. But at the end of the day, there in February and March, people just weren't getting out, and if it wasn't a vortex going on in 30 inches of rain in Chattanooga, Tennessee. And people just were not getting out to dine or to do -- and I guess when we're at home, we end up eating potato chips instead of steaks. I don't know.

But at the end of the day, we hadn't eaten our food just because we're shipping it well. But that said, we're starting to see some life. As we speak, we are start -- but this is the 25th or so of April, and we're starting to see some life on the food. Why? Because beverage season is a process, the beginning. Produce is about -- I'm seeing Florida. And it's now starting to move out of Florida, so the southeast is starting to tighten up as we speak. And so, we got about two and half more months of that produce in the south. I'm starting to see the west coast produce that is starting to crank up a little bit, so we're probably about three weeks away. And it'll take us through September.

So, the beverage, I'm starting to see the grills in the south that have started to cook out. We're starting to see some movement. And so, we got one food company next week that we won about $5 million of brand new business. It starts next week. And I've started to see some movement on that side. So, it's one of the reasons why we're saying that, as we speak on the 25th of April, that April is flat to down a little bit, excluding 2018. But I do feel that there's expectations that we will start riding out the base and start getting better as the year progresses.

Jason Siedl -- Cowen & Co. -- Analyst

Potato chips over steak sounds like my son's preferred choice. Thanks for the color. Take care, guys.

David Parker -- Chairman and Chief Executive Officer

Kinda like -- well, you hear what I eat. Okay.

Operator

Thank you. Again, as a quick reminder, if you'd like to ask a question you may press *1 now. Our next question comes from Kevin Sterling with Seaport Global.

Kevin Sterling -- Seaport Global Securities -- Analyst

Thank you. Good morning, gentlemen.

David Parker -- Chairman and Chief Executive Officer

Hey, Kevin.

Richard Cribbs -- Executive Vice President and Chief Financial Officer

Hey.

Kevin Sterling -- Seaport Global Securities -- Analyst

What are some of the initiatives you're undertaking to drive down your insurance costs? I know weather did not help you in Q1, honestly, but was there anything else unusual that may have led to an elevated rate?

Richard Cribbs -- Executive Vice President and Chief Financial Officer

Great question. We're putting a lot of effort into that, Kevin. We're continuing to add some technology on the trucks that haven't been there before, as we're bringing in the automatics. For example, we were at approximately 2/3rds of our fleet equipped with automatics through the end of March. That expectation is to be about 90% to 95% by the end of this year, 100% in some of the fleets. And so, we think that's a benefit. But included with that comes truck collision mitigation, lane departure, and those kind of things. It will have the full suite of products available on those trucks. And we're seeing really good numbers from that.

It's interesting. Our DOT accident rate has continued to be pretty good, and we really finished the last quarter really strong. The month of March was actually really impressive, and we were excited about the low number of accidents that we had and -- coming off of a pretty tough start in January and February probably. Like you said, it could be a lot of weather-related issues there. But we're also spending time on some behavior issues and then looking at our hiring practices and those kind of things. So, I think that we're gonna see that number improve some versus the last three quarters. It slightly improved from June 3 to Q4 and from Q4 to Q1. But I think we do have some room to go there. I do expect it to get back down to numbers that are far from $0.14 a mile as we move forward.

David Parker -- Chairman and Chief Executive Officer

Yeah, your question there, Kevin, exact same question that we're seeing because we -- there's a lot of things that we've been doing for last couple of years that have been helping and assisting from a safety standpoint, and we've seen some results from the accidents. We did have -- I would say, in the last three or four months, that we've had some claims that grew bigger than what we expected them to grow that had some effect on that. But we don't believe that we should be at a [inaudible] insurance cost. And we're trying to make sure that we do everything in our power to get that, the cost side.

At the same time, it's interesting that we can have better DOT accidents that are lower. And we're also just seeing a higher cost. When you do have an accident, we're seeing higher cost of that. It's like we broke somebody's leg and it's $150,000. I mean, it's those kinda things that are just creeping up on things that used to cost you $20,000, $30,000, $40,000, $50,000 will now cost you $100,000. So, that's one of the aspects that I'm seeing as we go through each and every one of the claims.

Kevin Sterling -- Seaport Global Securities -- Analyst

Yeah, thank you. Is this -- the higher cost of claims, is that just the new reality we live in these days do you think?

Richard Cribbs -- Executive Vice President and Chief Financial Officer

There is some inflation there. And you're seeing the same thing on the medical insurance side if you think about that. Those things carry through into the casualty insurance side, when you have accidents that involve third parties, and there's costs related to that. As you see medical costs rise, you're gonna see similar inflation costs on the casualty and worker's comp sides. That's really where that is. I don't it's much more than that.

David Parker -- Chairman and Chief Executive Officer

Yeah, our incident rate, to Richard's point, first quarter, it was down actually on DOT accidents by 13% versus first quarter of last year. March was an incredible month, so that was extremely helpful as we closed the quarter. Well, our severity or accidents with third parties was almost double what we had last year, so I would kinda point it to more of a severity question. Now, last year was one of the lowest we've had in accidents with third parties in a long, long time. And this year was a pretty rough quarter. So, I would kinda point it -- the way I look at it, Kevin, is, if the overall incident rate is continuing to move in a good direction, you're in a good path. Unfortunately, I understood, there's gonna be some severity at times. But the overall rate being down quite nicely in the first quarter versus last year gives me comfort that we're on the right track.

And the severity one, that's -- obviously, you've got to watch that. But that's where all the things Richard mentioned earlier comes into play and helps. And all our trucks have basically, well, stability, collision avoidance, lane departure. The automatic question is more of it. We still have some thoughts and studies around as we continue kinda grow that and get it closer to 100%. There'll be some help there too. But we had pretty tough incident -- I mean, severity rate in the first quarter with no fatalities.

Richard Cribbs -- Executive Vice President and Chief Financial Officer

That's right.

Kevin Sterling -- Seaport Global Securities -- Analyst

Okay. No, thank you for that. Let me pivot here if you don't mind and maybe ask about M&A opportunities. Are you seeing a few more opportunities these days as maybe the secondary values of equipment soften a little bit? Some of the smaller operators see last year as a generational year and kinda look to exit business or maybe caught in a spot market. For instance, like, hey, let me get out while the going is still good. So, maybe talk a little bit about, if you don't mind, of your M&A pipeline of where you're seeing a few more opportunities today.

David Parker -- Chairman and Chief Executive Officer

Kevin, there is -- since we did the Landair acquisition last July, our goal was just to bid successfully to integrate that into the system. So, there's no doubt, just from the things that come across our desk, that if we paid any attention to it, it could get heavy. Yes, everything you just said there, that your definitely seeing carriers that have an interest in selling and still trying to get by on the 2018 results and -- but we have not entertained those. And so -- until we get -- feel comfortable with the Landair side of it. And then, in that case, we're much more interested in a Landair type of acquisition than we are just somebody that has OTR trucks.

Kevin Sterling -- Seaport Global Securities -- Analyst

Yep. Gotcha. Thank you. And last question is -- once again, I'd love to get your thoughts on this divergence we're seeing in the contract market versus the spot market and maybe share some conversations, or general conversations, you have with shippers. And it sounds like you're pleasantly surprised by the contract market relative to the spot market. And so, some of the conversations you're having, are shippers coming to you and just locking in a contract and forgetting about it for the rest of the year, or do you sense some shippers may be holding back some freights to put the spot market? Or are shippers -- are they just scared from last year still having to put a lot of freight in the spot market? So, I'm just curious. Are you starting to have shippers maybe hold back a little freight to take advantage of the spot market weakness or are they just scared to death after what happened to them last year?

David Parker -- Chairman and Chief Executive Officer

I would say you had about four bullet points and they're all correct. And because you do -- you have all of the above. And I would say, as they hold, I want relationship customers that we have are ones that are negotiating rate increases that realize it's not 2018. And they're not expecting rates to go up like 2018. But they are -- do believe that there's another 2018 somewhere down the road, and they don't need to be shortsighted in those decisions, and that they're being fair with us, being fair with the carrier. And so, we have a whole slew of our top accounts that are predominantly that way. We did have chair shippers that are saying, "I got hurt so bad last year in the market that I'm not gonna use the spot market anymore." And -- but we have got to be -- I'm not expecting any type of rate increase. So, you got that set of shippers.

And then, the third one is that you got the ones who are saying, "I gotta take advantage somewhat of the spot market because it's down so dramatic. It hurt me last year that I gotta make up some this year." And it's really -- it's almost like every meeting that you go to, you gotta figure out where they're at because I'm here to tell you the transportation departments of these companies are getting pressures from their CFO. They are getting pressured. Sometimes, they are just being shortsighted. I was talking to a large -- one of our large customers just in the last week or so. And he had to go report to his upper management, and what he said is that -- he said, "Rates are down right now. Rate will be going back up. Why? Because none of us can hire enough truck drivers."

And until that one deal, the truck driver situation is straightened out, there is going to be rate increases. There might be a pause when you have an economic environment that pauses for a little bit. There may be a pause then of rate increase. But then, rate increases are gonna start again, all in the name of drivers. And so, at the end of the day, we may be going through a spell here for one or two quarters that the trucking industry's having to go through. But, long-term, the driver situation is still there, and rates for drivers are gonna have to go up. And, therefore, rates for our customers have got to go up.

Kevin Sterling -- Seaport Global Securities -- Analyst

Okay. No, really appreciate your thoughts on that. Thanks so much for your time today. Take care, gentlemen.

David Parker -- Chairman and Chief Executive Officer

Thanks, Kevin.

Operator

Again, as a quick reminder, if you'd like to ask a question, you may press *1 now.

David Parker -- Chairman and Chief Executive Officer

Does that mean -- is there no one in the queue?

Operator

There's no additional questions at this time.

David Parker -- Chairman and Chief Executive Officer

All right. We'll wrap the call up then. Thank you, everybody, for your concern with us and spending the time with us. And we'll talk to you again next quarter.

Operator

Thank you, ladies and gentlemen. This concludes the presentation. You may now disconnect.

Duration: 46 minutes

Call participants:

Richard Cribbs -- Executive Vice President and Chief Financial Officer

Scott Group -- Wolfe Research -- Analyst

David Parker -- Chairman and Chief Executive Officer

Joey Hogan -- President and Chief Operating Officer

Brad Delco -- Stephens -- Analyst

Jason Siedl -- Cowen & Co. -- Analyst

Kevin Sterling -- Seaport Global Securities -- Analyst

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