Q4 2019 Earnings Call
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Good morning, and welcome to GB Arts fourth quarter 2019 earnings Conference call. All participants are and will be in listen only mode until the Q and a portion of the call.
After todays brief presentation, there will be an opportunity to ask questions.
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I would now like to turn the conference over to Brad Delco, Vice President of Investor Relations Mr. Daqo. Please go ahead your presentation.
Good morning, and thanks for joining US hopefully everyone has had an opportunity to review our earnings release issued earlier. This morning, if not you should be able to access the release on the Investor section of our website at <unk> Dot com.
Before I introduce the speakers on today's call I'd like to take some time to provide some disclosures regarding forward looking statements.
This call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 words, such as expects anticipates intends estimates or similar expressions are intended to identify these forward looking statements.
These statements are based on baby hunts current plans and expectations involve risks and uncertainties.
I could cause future activities the results to be materially different from those set forth in the forward looking statements.
More information regarding risk factors. Please refer to JV Hans annual report on Form 10-K in other reports and filings with the Securities Exchange Commission.
That's the way I would like to introduce the speakers on today's call. This afternoon I'm joined by our CEO John Roberts, Our CFO , David Me Shelley Simpson's Chief commercial officer to President Highway services.
Daring field executive Vice President of intermodal.
At Hicks Executive Vice President of dedicated and our Chief Accounting Officer, John Cool.
This time I'd like to turn the call to our CEO Mr., John Roberts for some opening comments.
Brad.
During our last call my comments were focused on the key steps taken over the past several years that had charted out of course, we highlighted how we probably work has two key growth initiatives, our technology platforms known comprehensively as JB Hot Threesixty and our final mile service offerings. We also confirmed our commitment to enter.
Oh dedicated and highway services as a part of our long term strategy.
In 2019, we grew total revenue by 6% and operating income by 8%. This data includes a downward shift of approximately $60 million in income opportunity for ice yes in part driven by I've stated position to move forward with the developmental strategies, we have for our digital freight management platform.
360.
Call out a challenging pricing cycle through fiscal 2019 impacting our comparative data and it should be observed that the financial data between 2018 in 2019 is rather noisy due to several one time charters that occurred in 2018.
Even still we see the results for the year is confirming our ongoing portfolio approach to the markets we serve.
A key to the improvements shown in 2019 for the company overall come from our Dcs business unit at the growth initiated in 2018 predictably moved into more stable performance for Dcs, we experienced 25% topline growth and 39% operating income growth in part these increases are.
Enhanced by the two previous acquisitions made for our final mile services, along with a strong trend organic growth for private fleet conversion, which we anticipate will continue in 2020.
We also enjoy an extremely high retention rate approximately 98% with this business, which we attribute to the closeness we maintain to our customers in operations and shared data used in managing the services we provide.
We're also pleased to have recently announced our third acquisition for final mile.
For 2019 intermodal continued to strike a return to load growth and demonstrated a slight directional upticks as a third and fourth quarters.
As we are in the early stages a bid season, we will watch closely for a balanced approach to growth and great quality.
We continue to experience cost headwinds and utilization challenges both of which keep pressure on desired near term margin improvement.
Hopefully with much of the P.S. our work behind US we can work with our rail providers to increase the transit velocity and service reliability needed to convert more business from the highways going forward. In addition, we will keep a close watch on freight patterns with newer customers in 360 for intermodal conversion opportunities.
Our Howard services lines I see us in truckload continue to monitor the pricing cycle challenges presented through the fourth quarter and the beginning a bid season, our truckload business delivered a solid year given the conditions in 2019 and continues its march toward a more asset light model into 2020, I see has spoken to.
We need to work through current bids and we expect the investment in technology, particularly for the marketplace and shipper and carrier programs in 362 continued throughout 2020.
Lastly, we will be breaking out the Panama service business.
Usually from Vcs, beginning in first quarter 2020, with supporting financial data for the prior year for both final mile and dedicated.
2019 was a progressive year in many respects and I see to set up for 2020 of productive I expect I expect this year to both reveal and confirm our strategy and executing on our based businesses, while we expand our presence within our growth channels now I'll now ask they need to make this column.
Thanks, John .
Little bit more other shore.
Our results basically around fourth quarter 2019.
We experienced a fairly strong, but a very compressed peak season during the quarter.
And it allowed no room for operational Hiccups. In addition, we saw customer expectations for operational accuracy at one of the highest levels we've ever experience.
This was not a surprise to us going into the quarter you that if conditions change from our planning assumptions, we were going to err on the side of customer satisfaction.
In intermodal, we realized some volume growth off the west coast as expected. We also continue to feel the effects of volume contraction.
As we finally get to lap delaying closure comps, but continue to see headwinds from truck competition in the eastern network.
The western growth was not seen across all of our customers that put additional pressure on revenue per load results.
In addition, we lost some volume due to some rail service interruptions and we incurred some additional cost recovering from those who that is trying to meet customer expectations.
In dedicated we benefited from our customers food freight patterns. During the can dance peak season, as a year over year asset productivity improvement and steady and predictable new contract startups kept sequential margins from experiencing their normal seasonal decline from third quarter to fourth quarter.
And I see as we realize both volume and revenue growth versus last year, but this was almost entirely due to freight mix changes away from LTL business and toward truckload freight.
Mix change resulted from both customer directives and a more concerted effort on our part to penetrate further into truckload brokered right.
And then drive it through our marketplace through 60 platform.
Most of this freight was contractual business, where we experienced very competitive pricing during the bid season over the prior several quarters. However, we did not experience similar competitive pricing in the third party carrier markets, nor did we capture a materially larger portion of spot activity during the fourth quarter, Hence our margins were squeezed.
Our operating income declined as we continue to disproportionately invest in a disruptive technology marketplace Threesixty and as John alluded to we will continue to do so most likely for the next four to six quarters as we complete and improve our digital platforms to generate revenue growth and operating income longer term.
In truck, we were down in both revenue and operating income primarily from a smaller volume of spot activity and general customer rate pressure compared to a year ago.
However, the mixture of company owned equipment with independent contract carriers buffer the operating income and return on capital impacts we have as we have historically experienced during these volume and rate declines when we were operating with a 100% of fleet.
Brad that pretty much covers my prepared remarks I think.
Questions I will are ready for questions you can open up the launch.
Alright, and just as a reminder for without you might have a question. Please feel free to press pound to deplete yourself into the question Q you will hear notification when your line has been.
All right.
First question.
Alright, you want it and I mean it please state your name and your organization.
Yeah, Hey, it's Chris Wetherbee from Citi. Thanks for taking the question appreciate it.
I guess I wanted to talk a little bit about what we expect the intermodal mode.
Well look like as we move at least into the first half a year you mentioned, we're lapping some of the P.S. our initiatives for lean rationalization I think there's been some share gains.
Acceleration from what we saw in the fourth quarter do we need to see sort of improvement from rail utilization to kind of see that.
Okay Fair question, one that we certainly would have expected I'm you know.
We hit a negative volume run rate in the back half of 18 as we entered early 19, the latter closures.
Produced sort of a you know a steeper hill to climb to dig out of the volume.
Position we were in.
And so we're happy that in the back half of 19, we were able to dig out of that and actually represent positive volume growth in the fourth quarter certainly turning the corner on the comparison from last year. When we lost an annualized run rate of 60 to 70000 loads during the first quarter due to.
Claim closures certainly this year not having that comparison is going to drive some some help for so I would expect continued volume growth.
We're not guiding on just what that would be but we're certainly.
Have the expectation based on what we know today that we will continue growing.
In 2020.
Okay. That's helpful. I appreciate that and then just a follow up on a 360 spend I know for incrementally another four to six quarters of spend you start to see that the potential losses go down or at least double the rate of spending decelerates from here or maybe the net impact of that spending decelerate just maybe there's some some profit coming from.
The initiative I, just want to get a sense, maybe how does.
The cost and maybe the returns starting to pile up your as we go through the next several quarters.
Yeah. So if we think about our investment in 360, we really think about it in three key areas, we are making that investment and scaling the business as we believe it's critical to reach mass scale for us to create a more efficient transportation networks. That's the first component that we're very focused on that well be very dependent on what's happening in the market from a brokers.
Perspective, a embeds bid season in the carrier P.T. side, the second piece by investment is around our people and so we do have people so bad our shippers and our carriers, making sure that our experience is one that our customers with rave about and whenever a pea and continue doing business with a very high retention rate.
Among customers and carriers.
And then the third piece is in our technology spend.
So from a tax then we will continue to invest the rest of this year really our people and petkov fairly well known for 2022 early for 220 21, and the variability is more on our investment in scale and what that will look like here through the rest of this year.
Okay. Thank you very much appreciate it.
Alright that well go ahead and take our next question comes from Justin Long from Stephens, Inc.
Thanks, Justin long from Stephen I wanted to start with a question on intermodal margins I know.
Your initial expectation wise for sequential improvement in the fourth quarter. We ended up seeing margins declined by about 40 basis points sequentially is there any way to breakout how much of that shortfall was related to repositioning costs and how much was related to the derailment you mentioned I just.
Wanted to get a better understanding of how much of this more margin shortfall was specific to the fourth quarter versus something well continue to see in 2020.
Okay again another for her question Justin This is darrin.
I think.
You know our margin challenge in the fourth quarter is simply costs are higher today than what we have experienced you know in 2018. We were we were successful in increasing prices, but a lot of those dollars found a way to support our labor cost our rail purchased transportation costs are.
Up and.
Intermodal participates in the technology improvements were making a JV on as well so all of those.
Present to some degree some challenge as we go into 2020.
It's certainly our expectation to be working towards improvements in in our.
And our cost structure, but it's probably pretty early to too.
To call anything specific about data would I would just say the fourth quarter.
Was hurt.
In a meaningful way by empty repositioning, but at the same time.
Empty repositioning is something we've done during my entire career at JV Hot and I would expect we will continue to do some degree of that in 2020, obviously.
But that's an opportunity for us through mix and sales and our efforts with our customer base to help fill some of those empties and that's an ongoing effort and as we go through 2020, we'll be working towards solving now.
Okay. That's helpful. Thanks, Darren and secondly, I wanted to get your updated thoughts on on intermodal pricing I know, it's it's still a little bit early but curious if you had an initial take on what you think 2020 bid season could could look like and based on.
That outlook do you feel like getting back to the intermodal margin target of 11% to 13% is it possible in 2020 or do we need to see a better pricing environment to get there.
Well, you're never going to hear me say, it's not possible clearly it's possible I think is I think we have a lot of headwinds in front of us.
The pricing more like you are saying it is very early to say.
We have very limited results and the results that we do have have been a mixed bag. We have results that are beneficial we have some.
Pressure on price, certainly and a and we have a lot of efforts going on in order to help solve for some of our mix challenges and when you add layer that on to just a difficult capacity market. I think it's really early to try to predict what will happen with price, but I would highlight there.
Pressure out there.
Oh, Okay I'll leave it at that thanks for the time.
All right. Our next question comes from Jordan Gallagher from Goldman Sachs.
Please go ahead.
Yeah, Hi, I'm just a question on the dedicated business can you give an update on your fleet expectations for 2020, and then sort of longer term and you mentioned productivity improving I'm just sort of wondering if you could comment a little bit more on on that <unk> and how you expect that to move through next year as this year as well thanks.
Certainly this is Brad good morning, more out we would expect warnings wanting to be very similar to what we experienced in 2019 in terms of new sales targeting 800 to 1000 trucks a inside of 2020.
And really continue to have confidence in our ability to operate in the 11 to 13 range as we've stated a historically over the long term for our traditional dedicated business model. So pipelines remain very favorable do it based on historical standards and we believe that.
Gives us optimism to believe that will be successful in our 802 about <unk>.
Thank you and just just a quick quick follow up and maybe address I don't remember on the I see Es business.
I know you sort of talked about the obviously the increase spending and then obviously theres the market weakness, that's pretty well documented in brokerage right now.
Any sense for like the order of magnitude between between the two in terms of whether it be the.
The the decline in profits versus last year were sequentially, just just to try to get a sense for order of magnitude between the market and you're spending thank you.
So I would say as we progressed through the fourth quarter, we saw more margin compression as the quarter moved forward. So as we moved into December really right before Thanksgiving all the way through December we saw a pretty big squeeze from a margin perspective, primarily driven from the supply.
Outside.
That has continued here in January and I would say that historically off from what we've experienced the path a several years in total.
So I think for US, we're just watching whats happening in the market and I'm trying to make sure that we make the best estimates with our customers on how we should best handle what's happening and being close to the market.
Great. Thank you.
All right moving on our next question comes from Brandon Oglenski at Barclays.
Hey, good morning, everyone and thanks for taking my question I guess Shelly.
The last question there can you discuss.
The strategy I guess as you build out make investments. This year I think you guys have said that you know those losses, probably continue through the year, but is this a game where you're increasing your efficiency to have much greater scale you want to see a lot of growth. If we just need to wait for the market to come back or is this more internally specific to what you guys are doing.
Good question. So am I believe we've said the losses continue in between four and six quarters from our last call an ugly Dave also reiterated that opening remarks.
I would tell you we are focused on gaining scale and the platform from a shipment perspective, and that's really from the data we see in a platform from a carrier community. So we do you have a large adoption from the carriers, we see the abandon right inside our platform, how often are abandoning and really how we need to if you will get Michelle fall.
Thats a huge focus for us but in addition to that the market is under pressure on both our customer side and recently on the carrier supply side. So I would say that has a more material impact in I see us in the last six week Ah, but our strategy is to continue to work very closely with our customer.
Cars through the rest of this year in next year to build scale and we will see the efficiency with our people moving into 2021 back half a in total and that should drive towards their bottom line.
Sorry, just a quick clarification, when you say supplies that constraints on supply.
There are constrained on supply.
And have there's been constraints on supply since about the week before Thanksgiving, we have seen slight easing over the last day or two but it has been very tight on the supply side.
Okay, and then if I if you don't want answering but you know there's a lot of competitors I think pushing bigger into similar products and business models can you just tell us what is really differentiated about the 360 platform versus maybe some of the new entrance.
Yeah. So for US we are the largest multi modal digital freight platform. So we don't really look at it from a brokerage only perspective really think about a 700 million dollar market and how we take waste out of the 700 billion dollar market. So one third of every driver that is available in the market to.
A day Threed a half million drivers one third of their hours, it's completely wasted every single day and that's the heart of what we're trying to accomplish in 360, removing the waste and system. So for us our multimodal approach in bringing really that the best intermodal products, the best dedicated product to market inside that and certainly a large highway.
Hi, good side really allows us to solve for our customers in a more efficient way.
Thank you.
Okay.
All right moving on our next question comes from David Ross with Stifel.
Yes, good morning.
Question on the intermodal side of things.
You mentioned that you expect volumes to be up.
An undisclosed amount in 2020.
Is that true for both the eastern and the western.
Loads or is there a difference among those two.
[noise], so we didnt, we didnt differentiate the a the two there I would I would say that's on the on actually held for our system [laughter] I think it's too early I happen to know the answer to that clearly.
Eastern network is where them the the bulk of the highway capacity challenges is really hurting intermodals ability both eastern railroads have improved their service in the back half the 2019, and we're encouraged by that I don't have either railroad come in and suggesting that they'd like to.
To cut our costs, so that we can become more competitive in the market. So you know we will offer intermodal products to our customers across the board in the east and West I.
I think in today's environment. There is a challenge to grow in the east because the customers are able to secure truckload capacity at rates equal to or better than intermodal and until we can offer.
Economics in service combined that outperform truck I'm working it we're going to be gonna be challenge there. So.
We're not highlighting that we think or any one segment will be.
Stronger that would certainly be or would be growing certainly that would be our system, our network will grow and in 2020.
And then just a follow on you mentioned the lane imbalances that popped up more than normal because there's always certainly imbalances was that concentrated in either the Easter the west in what drove.
I guess, the higher than usual lane imbalances in the network.
I think what drove it is you know for the first time in in the history of our company, we were negative in volumes and when when you're trying to turn the corner.
The the load volume that is available to grow with comes on when its available and so growth in essence, it's almost like a startup expense, where we're layering on new business and the opportunities that were presented to us in a in the middle to back half of last year were concentrated in.
A few markets and that drove empty repositioning requirements in order to produce to cut capacity to bring on that business.
We didn't highlight NT repositioning in the east door the west.
And so we reposition empties in both markets and so I'm just going to leave it at at the macro we we certainly had a little higher run rate than than what is normal. However, it's very normal to move empties in both markets all the time.
That's helpful. Thank you.
Our next question comes from Scott Group with Wolfe Research.
Hey, Thanks morning, guys, so darn I get 11% to 13% it's tough for the year. So two questions. What do you think you see.
Any margin improvement in intermodal this year and then as you take over this will do you think the 11% to 13% target is still the right long term target or do you think it's appropriate to sort of reset those lower.
Huh.
I'm certainly not going to change our long term margin target that's been our target for a long time and will continue.
Target, we're working every day to find ways to drive efficiency into our system, which would help expand our margin.
I you know.
Walk me through the first part of your question again I just you hit me with the art in my ready to change the long term target absolutely not.
[laughter] the first part was just.
Do you think you see in any intermodal margin improvement we're not this year.
Well certainly is finding a better margin is part of our plan.
You know there are just there's still a lot of unknowns out there. So I'm not going to tell you that were not planning to improve the margin certainly we are.
Okay and then.
Hi shown here on the the I see I. So I think we get in four to six more quarters of losses any directional color on the magnitude of those losses, meaning we did 103 or in the fourth quarter does that seem like the right sort of place and then if we're losing money at least for the next period of time and we should be.
Maybe judging on maybe revenue growth, what's what sort of the revenue growth that you'd be happy with it that segment. This year as it is it 10%, 20%, 50% I don't know how to think about it.
So we think about revenue growth really outpacing our historical norm and outpacing what the market looks like so if we are doing that it will really trend with whatever is happening in the market and that would.
Good for us from a loss perspective, it's gonna be very dependent on what happens here this bid season.
And also what's happening on the on the carrier market. If we haven't experienced such a a tightening on supply side. The last six weeks I, probably would have more certainty as to when the losses occur this year and by quarter.
Because of that I'm, a little fuzzy on what that's going to look like for that.
Okay. Thank you guys.
Okay.
Our next question comes from Bascome majors with the Susquehanna Financial group.
Yeah. Thanks, Thanks for taking my question guys. If you look back over the last six years. The intermodal business is compounded profit growth at about 2% per year.
If you look at the six years before that it was closer to 11% in that period actually include the great recession right in the middle of it.
Yeah from a real high level and long term view is is this management in the border JB, how it's still view intermodal as a secularly growing business or is it but just becoming more cyclical in nature as you've gotten bigger supply chains are getting shorter and the class one railroads continue to work to extract value from their partners. Thanks.
Sure I think it's a very fair question, certainly we continue to see opportunities from our customers in the millions of loans I think we've shared ive to even think Terry highlighted on the last call eight to 10 million loads of opportunity.
To convert off the highway to intermodal now that's in Rod data. The reality is we have to produce the combination of economics in service that convinced that customer base. Then intermodal is the right solution for them.
I would be wrong, if I didnt highlight that it's more difficult today than it was during the six year period, you referenced the there was a lot of expansion in intermodal system. We had railroad opening services. During those six years. So you have you can go after some low hanging fruit.
The business that is warehouse transfer and its inventory replenishment and it's it's items that that intermodal is perfect for in today's environment. Our customers are expecting a more truck like service environment with a benefit in the economics, obviously, they're not going to give us intermec.
No business at rates that are higher than than they can get at the business truck for they do expect some version of a discount and it's up to us with our rail providers to develop service solutions that will continue to drive intermodal growth as we move into the next several years I expect us to.
To be successful in doing that so, yes, I expected to be a growth.
Market, but we need the railroads to participate with us on the service front and economics front I think it is in there. So they are strapped day are delivering a strategy that that's what they want to do I guess over the next four or five years, we'll see if we're able to work together to accomplish that.
Thank you for the thoughtful answer there if I could just clarify the last point.
In partnering with the railroads has has the bigger challenge in your perspectives spin the service design changes or is it the lack of flexibility and your cost of capacity. Thanks.
Wow, Great question I'm not sure Theres, a correct answer to that it's both.
No.
The lack of flexibility. The reality is the railroads would say in order to be more competitive on economics I have to find a way to be efficient and one of the way. They can be more efficient is there they're removing some of the flexibility from the customers trying to drive benefit.
It's in their networks, which ultimately produce a lower cost that we can pass along to the customer. So you know is it a chicken or egg thing or are they trying to develop efficiencies. So that weekend together with the railroad and the intermodal market produce a lower cost the pass along to the customer I think I think thats.
Very real and every railroad would say I would love to offer a discount a stronger discount to the market to grow intermodal, but in order to do that I have to cut my costs and I think thats, a fair perspective on their part to try to drive efficiency in their system, so that weekend together.
Her passive some portion of that onto the customer.
Thank you for all the time.
[noise] alright doesn't move onto our next question.
This question come from Todd Fowler with Keybanc.
Great Thanks, and good morning I.
I just wanted to ask on final mile I know that we're going to get some more detailed next quarter have that broken out separately, but if we strip that out from dedicated can you help us think about how you're thinking about the growth for final mile. Maybe both in 2020 than on a longer term basis, and then also speak to what sort of investments required to support the growth there and do you see that.
Being organic or are there other inorganic opportunities.
Oh, great question.
And I think that yes, we're gearing up and as part of the reason why were separating it out as its own business unit and so you're going to get and see a lot more information and details as John alluded to we do intend to a show you what 2019 looks like a in that separation and the look back and so I think you'll.
I have a much better perspective, when we get to the ended the first quarter here in 2020 in terms of investment.
No Shelly spoke about the tech investment there are a similar tech technology investments in final model not nearly to the magnitude that we see a into 360 platform, but we we do have incremental investment but.
Again, I think you're going to be into in the guidance. We've given before is that final mile is going in our target operating range is a 2% to 4% and we believe you'll see that when we split it out and we're confident that we're going to be able to operate a in and around that range for the foreseeable future similar to the second part.
Your question on revenue growth.
It is a lot like what Shelly said, we do believe that we will outpace the market and growth.
In our final mile segment.
We're not prepared yet to.
Disclose what those percent targets look like but our full intentions are as part of separating it out our that it will be a billion dollar business for us.
You won't see that today I think last reported numbers, we shared where in the 500 550 million for 2019.
Well the targets and but we're moving quickly towards that John mentioned, we just had to our third acquisition that was announced a few weeks back and that that's going to help us with some of that revenue growth that we're also seeing organic revenue growth through our sales channels that we're excited about.
Great. That's that's very helpful and they just a follow up David I'm not sure. If you spoke to kind of a capex expectation for for 2020, if you have a number you'd like to share and if you could break it down maybe a little bit in kind of give us. Some some help on what you're thinking for the intermodal container fleet and where the rest of the spend would be thanks.
Yeah the.
I think the number in our models.
Ranged from 675 to 700 million on a net basis.
As far as container growth drive and containers inside of intermodal are going to be virtually flat.
We obviously have replacements that we are going to place orders for there maybe some backend growth, but we do have optionality in our contracts to allow for that but.
We'll have to have some.
More conviction that we're going to actually need additional equipment as.
I think you realize our turns are not where they have historically been and we're going to focus on that.
We'll add refrigerated containers.
The plan right now is around 1500 or throughout the year, there will be sprinkled in throughout the year, we don't expect them to me in any one quarter.
But thats kind of our goal at this point in time is just add.
Refrigerated containers.
Brad talked about adding eight to about 800 to 1000 trucks and dedicated.
So growth Capex would be there.
We have some technology that will be capitalize somewhere between 80 million in 100 million I think ends up being capitalized in the year again metal based on project completion. So we'll have to wait and see what that number actually plans out to be.
And then the rest of it is just maintenance and replacement Capex.
So growth is somewhere around out of that 675 to 700 million was somewhere around 200 million 250 million.
And the balance would be maintenance.
Okay.
Great. Thanks for the time this morning.
All right. Our next question comes from David Vernon progressed.
Hey, guys good morning.
Dave or shall I could you help us kind of right that's kind of what the operating loss could be in in DCF for 2020, I know the sequential rate has ticked up a little bit obviously, there's volatility on the gross margin side, but.
Is there like I tens of millions of dollars range you can put around what the operating why should be for 22 anyway.
Are you asking for guidance.
No I'm asking for a directional range on on on on what the what the loss should be around I guess for 2020.
Zero to 400 million I don't know.
David that's what that's with Shelly was talking about is it's a little early to try to quantify that has a lot of it is going to be depending upon the market.
And we're seeing some from mixed signals in the market as it as it is right now we have a pretty good idea, what we're going to spend on tech.
And what we're going to spend on people.
But how all that shakes out at this point that it's too early to give any kind of range.
I will maybe.
If you think about the volume growth in and I see us.
Coming in at 3% I understand the LTL fallen off entails growing in there.
As we kind of when should we expect us to lap that thats sort of LTL decline and see a pickup in the volume growth, obviously put a bunch of capital business you'd expect to see some more volume running through it like when is that is that a 2020 thing or is that a 2021 thing.
So we watch base revenue and volume our LTL volume will have a much lower revenue per load and or revenue per shipment in total I would say throughout this year, you should see an accelerated change and what's happening with our and total revenue and that can be the number that we watch closely I think you'll start to see that.
In Q1 shipment I'm not totally sure and how much faster, we're getting great TL and what can happen inside LTL. So I can't really say when we may or may not like that.
Is there is there a time when the LTL headwind is sort of laughter or is that just you were not going give us any sort of additional insight to that.
Yeah, no no more feedback.
Alright. Thanks.
All right.
We're going to our next question from Allison Landry with credit Suisse.
Thanks, Good morning, I, just like backlog last mile you got to be done a number of acquisition some more sizable than others, but just trying to gauge how aggressive you might be on that surprised that lets say, maybe a potentially very large opportunity came on the mark.
Okay, and if you could answer that strategically and and from a capital allocation standpoint, how willing you might be the take up leverage for M&A. Thank you.
Yeah.
You never say never.
And so I.
I would say that from a strategic standpoint, I think that we've been.
Fairly.
Open to growth in both modes, especially when it comes to final mile both organic and through acquisitions obviously.
There there might be opportunities to.
Make an acquisition a much larger.
Size than what we've done so far and like I said, you never say never.
But frankly hadn't thought about it up until two days ago, but to be candid.
As far as a strategic whether we would be willing to lever up.
To make an acquisition, we've always had that approach.
Yes, we'd be willing to use our balance sheet. If we think that the return profile is.
Sufficient to additive to the portfolio, but that you would have to meet that criteria.
Before we'd be willing to extend our balance sheet at it that's frankly, a rule regardless of the size.
I think that we've been fairly disciplined.
In our acquisitions in our in our.
[noise] performance of those and it is all been based on return metrics and I wouldn't think size would have anything.
Our wouldn't change that that directed.
Excellent. Thank you telecom.
All right or next question comes from Tom Wadewitz, Yes.
Yeah, Hi, it's Tom Wadewitz so.
Well I wanted to ask you I think this is for Shelly.
I think we've seen in the spot market data the truck stop data or whatever spot. They do you want to look at you've commented on it as well that there was some tightening in the spot market in let's say December I think you said like the last six weeks.
Do you think that that's more a function of seasonality.
Oh or do you think this is really the beginning of the kinda.
Anticipated big capacity reduction that you know I think people are are hoping takes place in tightens up the trucking market. How do you think you know what do you things happening I guess, you get into seasonally weaker freight here and so you know it. So just trying to figure out whether things are off to the races that capacity coming out or if it's you know fees.
No you know kind of noise that has tightened things recently.
That's right I think I talked about this little bit earlier about it. It is the first time that we've had such a short period between Thanksgiving and Christmas and then on time, we haven't gone through the seasonality of that and so long that it's hard to draw any specific parallel to that so I think that could have had.
Some impact a entitle, but as I said earlier you know we are watching very closely what's happening and I would I will say the available carriers.
Let down considerably in December and in the first couple of weeks here in January that wouldn't surprise, even from normal seasonality. So.
Now for US it it's too early to call on what that means in the market certainly it feel from a supply side like a tighter environment didn't really what people are talking about we'll see if something starts to shake loose here in the next couple of weeks and then returning more to you know one.
Maybe that has shortened window between Thanksgiving and Christmas had an impact that we just can't forecast.
So does that that recent tightening does that give you some optimism that maybe rate I don't need to be down so much in terms of the 2020 bid season, whether it's you know truckload or intermodal contract rates or I think earlier on the call. If someone mentioned pressure. So is it still realistic to think contract rates are down.
Yeah, we're working through each bed with each customer it's something we're trying to match what's happening in the market with every single customer as they're coming to bed.
It's like I said earlier, we're watching very closely trying to keep our customers abreast as to what's happening in the market and well continue to do that trap in season.
Okay and last of the Fine point, it's something you said you're building scale are you looking to kinda invest in scale and I see us what does scale to you is it.
I had one and a half billion and I see us revenue in 2019, that's a decent amount of scale is scale.
3 billion 5 billion, how do you think about reaching scale and I see us.
Yes, it is markets actually around 86 billion or so something like that.
And so really to have a platform where any shipment as available for any carrier that would be a perfect platform that we got to get to a place where abandoned rate and abandoned carts from a carry perspective is now filled into I think scaling a billion and a half is good but it's not good enough our platform the billion happens.
For a traditional brokerage business. It is not good for our platform to actually execute play in an automated way it creates a more efficient transportation.
Okay. Thanks for the time.
All right moving on our next question comes from Brian Ossenbeck from JP Morgan.
Hey, good morning, Thanks for the time, it's another question Charlie on the and the Threesixty platform, maybe you can give us some.
Senses to how the recent iteration of 53 60 went what sort of adoption and feedback you're getting and then also on the carrier side it looks like.
You're kind of bumping up against that 700000 carriers on the platform how many of those are returning.
80, 80% of this 20% of them. So if you give us some sense is too.
Option in retention rate, both on the carrier and the shippers side in the pipe.
So I think we did release that percentage of carriers that actually active in the platform is that we were very pleased that's what we came out with first inside the platform because the fragmentation and the carrier market and we are very pleased with the activity level, we continue to onboard new carriers or both.
Into our entire company, but also into Threesixty as well, so I would say with a really great about whereas there. It really comes back to the shipment side. So for US. It is about gaining more scale on shipments for my customer perspective, our shipper Threesixty launch that we did there in November we have been talking to customers.
It's about what that looks like we are setting up our sales offices as we speak a accelerating growth inside those offices to really talk with as we expect that to progress as we come through this year that we continue to escalate the amount of shipments coming through ship a 360.
I would say really early in that space.
Okay. Thanks, Thanks for that.
During a quick follow up for you just go back to the whole cyclical versus secular.
Movement within truck to rail conversion.
How far.
How far off do you think there from a tipping point of getting that secular conversion.
I can do you think there has to be some sort of of catalyst or for shock to the system. Obviously you felt some of those some of the opposite direction [laughter] Foundation, but do you need something else to happen here, maybe put existential threat in the in the mix and I guess I'm, referring to is it within economists trucking sort of launch or track.
That would actually help drive some more collaboration here.
Between [noise].
Well.
Certainly I think it as truck capacity goes in prices in that market change intermodal either benefit or feel pressure from that is if truck capacity tightens, we've got an opportunity now.
For more sustainability of intermodal, what I would what I've told the railroads is you know I'm appreciative and supportive and a believer that.
Efforts that are putting in place to improve their service this year, our material there impactful and they're going to help us, but we as an industry have to sustain that for a much longer period of time than a few months in November December and January we have to sustain it for multiple sites.
Tools, we have to be very good at educating our customers on what's the best method to benefit from intermodal I.
I think where the bested doing that I think we do offer the best service product already but at the same time.
We've got to continue to drive confidence in our shippers that intermodal won't wont put them at a risk of delivering their goods to their customer if that the transportation move is actually a transaction between two businesses, that's really the big bucket of business left to come.
Convert.
It's smaller shippers and to them they view intermodal as being a little bit risky and we have to continue to work hard to educate and give them assurance and make sure that their experience is excellent with intermodal and I think I think we're positioned to do that I'm not sure.
Answering your question I don't know how to to tell you you know the railroads need to cut their price by 5% and that's going to give us a pick up but I don't think it's that clear I think we'll have to continue to drive.
Hi, quality service and capacity and design and communication with the customers and that will help drive intermodal growth. Meanwhile, the railroads have to work with us and together a combination of our cost has to represent a value to the shipper period.
And then I might add to that one as are our long term target inside our platform is to be able to identify the shipments that are moving over the road that can convert into intermodal, we still do a lot of our business in intermodal with a small group of customers and so we're just now entering the mid size.
Market and small market with ship or 360, you already see good results in our platform I've shipment that historically have news truckload and marketplace that we are talking to those customers now about what that would mean and what that would look like for them as they're getting introduced to intermodal for the first time, so they're more scale we gain insight.
Todd JV had 360, the better it is for intermodal and for the rest of our assets.
All right appreciate that show and then I guess that the questions really.
If you have a mixed dilutive venture for railroads that are all focused on operating ratio.
I might be a little harder to get them to the table, but yes I can appreciate.
The challenges and the upper teens, you're trying to drive a true so thank you for that.
All right moving on.
Well take our next question. Your line is been a median please go ahead.
Oh, Thanks, a it's a merger with Deutsche Bank. Thanks for squeezing me in here I appreciate it.
David I was just wondering if you could help us with respect to the headwinds to intermodal profits from the 360 investments in 2019, because I think it would just be helpful. In understanding you know the real underlying profitability of the business.
And also like weather that 360 related costs are allocated to intermodal increase or decrease in 2020.
I'll, let their inhale at that's in his business.
Well, we certainly don't you know, we're we're modernizing our technology platform. So that's our operating system, it's the way that we.
Booked orders the way, we dispatched trucks the way, we communicate pay railroads that sort of thing all of those systems.
Need to be modernized into.
Today's technology and yes, an impact do I have a specific number for you and then I guess, we don't we don't.
Break that out so I'm not going to be able to do that but it but certainly it's it's it's different than it was a cost headwind and that's probably all I can say because of higher in 2020 that is in 2019 interests on incremental costs.
No I honestly don't know the answer that.
Okay.
I just had a couple of very quick follow ups. One is could you could you talk about yield you know I'm the length of haul dynamics were more favorable in the quarter I guess, if you will get sequentially or year over year.
We would have I would have just expected yield to be a little bit.
Better than it wasn't a quarter. If you could just talk about that and then and I guess more relevant is as growth returns to the eastern network, because hopefully trite tightening truckload capacity is is there potential for yield to be down this year because of that maybe mix effect or maybe I'm not thinking about.
Good I talk to that.
So you know Weve [laughter] through my years, a meeting with the various folks a lot of people would like to ask us what's the difference in our margin in the west in the east than we simply don't don't highlight that we make our.
Out there Mark I'm asking on yield, though not I'm talking about margin, sorry, I'm asking about yields.
Okay, well on on I mean, it's all going to the eastern network business, if we were to grow that.
Faster than the Trans Con business is that going to lower our length of haul potentially appear I guess it could.
In the past, we've had times, where it's been a growing the east much faster than the west it's going to influence you revenue per load certainly.
Well, that's a that's a potential outcome of growing faster in that.
Okay. Okay. One quick very quick follow up I know I'm over them allocation, but one very quick one you talked about seven to 900 trucks being added in in dedicated and that's <unk>. You had this nice wave effect in 2019, because you had a lot more trucks in 18, and you had that you benefited from that in a war.
I know you're talking about 11 to 13 as a long term target, but given that the additions. This year are pretty consistent with 19 would the wave effect kind of be no one Boyd and <unk> margins. The way, we should think about margins are flat year over year bass given that dynamic.
Well first I would say that the the wave effect that you have seen we've realized was overstated all historical standards because of the the 2018 tractor add your than we had that was abnormally high that the 802000 trucks will still have away.
Dave.
Historically, our business does not come on evenly throughout the year it doesn't come on 112.
Each month comes on in chunks that points in times, and and you know we don't know yet when exactly it will all onboard a there's also a gap in timing from when we sell the business to when it actually starts a and so again, we feel very favorable on on our ability to hit our goals.
But.
It's just a matter we don't can't predict the win.
Right. Okay. That's helpful. Thank you very much everybody appreciate it until we can.
All right we have time for one final question.
Hey, wealth and no other questions <unk>, what we're getting called now.
[noise] alright.
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