Q1 2020 Earnings Call
[music].
Hello, and welcome to the hub group first quarter 2020 earnings Conference call, Dave Yeager hubs CEO fill yeager hubs, President and Chief operating officer Jurby pseudo hubs CFO are joining me on the call.
At this time all participants are in a listen only mode. A brief question and answer session will follow the formal presentation in order for every once you have an opportunity to participate please limit your inquiries to one primary and one follow up question any forward looking statements made during the course of the call or contained.
In the release represent the Companys, that's good faith judgment as to what May happen in the future.
Statements that are forward looking can be identified by the use of words, such as believes expects anticipates a project at variations of these words. Please review the cautionary statements in the release. In addition, you should refer to the disclosures in the company's form 10-K and other.
We see filings regarding factors that could cause actual results could differ materially from those projected in these forward looking statement.
As a reminder, this conference is being recorded and it's now my pleasure to turn the call over to your host Dave Yeager you may be can.
Good afternoon, and thank you for participating whole group first quarter earnings call.
Today, we feel good your <unk>, President and Chief operating Officer, and Terry Pazuto, Our Chief Financial Officer.
Before we begin reviewing the first quarter I'd like to acknowledge the men and women of Hopper, who worked tirelessly to ensure that we're serving our customers and suppliers to remove handler.
Like all businesses safety is job one of the logistics.
Today over 90% of our office team is working for Mo, providing service to our customers will deliver a central goods.
We've been receiving many cost lives for clients on the level of service and we think the entire team for the extraordinary effort that we're putting forth.
And as for drivers who are on the front lines everyday delivering those with central goods. Thank you. We greatly appreciate your dedication and your commitment.
On another front I'd also like to acknowledge our CFO Terry Pazuto, who has announced a retirement as of June thirtyth of this year.
Today was EUR 52nd earnings call the CFO.
She's worked diligently to ensure the financial 40 was accurate clearer concise won't building relationships with our shareholders and the analysts who cover hope. Thank you Terry for years and service contributions to making a successful.
Obviously, the first quarter was challenging.
We experienced margin compression due to the price competition from both over the road and local competitors.
In addition, we've incurred some additional cost as a result of a lack of imports, thereby on balancing our intermodal network.
Okay area of focus for teams on capital preservation during this volatile time.
We intend to continue to invest in technology and equipment the benefits our business, both near and long term.
However, we have taken measures to reduce non essential capex, such as placing a holes in the construction of our additional headquarters building.
Although we do believe the second quarter volumes will further deteriorate, we are seeing wins across all business lines and have a strong pipeline for long term growth.
We believe the economy will begin to recover and that volumes will increase as girls business conditions return in the latter part of 2020.
I'll now turn the call over to fill to review our business funds.
Thank you Dave I would also like to thank our drivers team members and vendors for their continued support of our customers. During this challenging time.
The safety of our team our customers and their families remains our top priority.
I also wanted to thank carried for all three years of dedicated service to hub. Your contributions have been a man that impactful and while we are sad to see lead the company. We know you have left that's an excellent position with your team successors.
Our team has shown resiliency character through this unprecedented environment as we have maintained our excellent service to our customers with a seamless transition to work from home.
Drivers remain safe and healthy through extensive new measures and protocol and we've also been giving back to the community by supporting healthcare workers in food banks.
Our focus on reducing costs and improving efficiency will continue to service well during this dynamic economic environment and we are ahead of schedule on or $40 million and profit improvement initiatives for the year.
In order to ensure our success and delivering on these savings we continue to add talents areas across our company, including trucking maintenance technology procurement in sale.
Most notably we have hired a new president for our trucking operations Dario scope.
Who is a proven leader and we believe he will be able to help us make significant improvements in both our drayage and dedicated network.
I will now discuss our business segment performance.
Intermodal volume declined 7% and revenue was down 8% for the quarter Transcon volume declined 2%, while shorter haul local east and west volume was down eight and 9% respectively.
Our team has done a great job in driving down costs in our drayage network through increasing the efficiency and utilization of our own capacity and decreasing our cost with third party.
These actions are helping to offset a challenging pricing and demand environment with increased truckload and intermodal competition as well as headwinds from increased insurance and rail costs.
These factors in aggregate led to a 210 basis point decline in gross margin as a percentage of sales year over year.
We hope to see a return of demand in replenishment in the latter portion of this year as the economy begins to reopen.
Our services continued to improve over the record that we set last year and we're focused on leveraging that drive growth.
Well just its revenue declined 10% and gross margin as a percentage of sales improved 70 basis points year over year.
Okay Tech has performed extremely well during this difficult economic environment and we have maintained our excellent service levels, which continue to improve our pipeline of opportunities for growth.
Our transportation management business has improved profitability and has a strong pipeline for growth and onboard.
We're also nearing the completion of our technology transformation in logistics and see many opportunities to further utilize the platform to leverage our scale and drive efficiency.
[noise] brokerage volume declined 10% and revenue was down 17% for the quarter. However, gross margin as a percentage of sales improved 150 basis points year over year.
The decline in volume was driven by a decrease in LTL demand, which was offset by an increase in spot.
Im contractual truckload activity in the latter portion of the quarter.
Our team is doing a tremendous job of improving our costing and identifying opportunities for profitable growth.
We also saw 24% increasing productivity of our associates year over year driven by it.
Our improved organizational structure processes and technology.
We believe this will pay increasing dividends as the economy reopens and load counts increase.
Lastly, we continue to see new customer wins and are leveraging our strong service to drive profitable growth.
We're still in the early stages of our dedicated trucking transformation revenue for the quarter declined 18% and gross margin as a percentage of sales declined 160 basis points year over year.
However, there was improvement at the ended the quarter and I'm pleased to note that in March dedicated was our highest margin business.
We are onboarding, new profitable wins and of shed poor performing accounts, we're continuing to focus on improving our operational efficiency and believe there still ample opportunity to enhance our returns in this business.
Once again I want to thank all of our hub team members in our customers for their ongoing support and dedication I will now handed over to Terry to discuss our financial performance.
Thank you, Phil and Hello, everyone before I begin my comments on the quarter I'd like to thank the drivers who are the heroes, helping our country fight the pandemic and delivering the freight every day, it's inspiring to see the dedication teamwork and come Rotring about tremendous employees as we rallied together and navigate through.
In the unprecedented challenges.
Now I'd like to highlight three point for the first quarter.
First we're focused on liquidity with $277 million in cash and $219 million available borrowing on the revolver at the end of March.
Second case that it's a bright spot sales and operating performance are at record levels due to case that strong value proposition delivering product to essential businesses.
Third we continue with solid cost control headcount is down 4% from year end and we are on track to achieve the other benefits of our profit improvement initiative.
Now, let's take a more in depth look at our performance in the first quarter.
Hub group's revenue decreased 10% to $839 million.
Due to a decline in revenue in offshore service line.
The largest dollar declines were in intermodal at 8% and logistic at 10%.
Intermodal revenue decreased principally because of a 7% decrease and load.
Logistics revenue decreased because of soft customer demand.
Gross margin as a percentage of sales with 12.5% and was down 110 basis points compared to last year due mostly to a decline in intermodal gross margin.
Rail cost increases lower pricing and insurance and claims headwinds were only partially offset by profit improvement initiative.
Salaries and benefit which included $2.1 million of severance decreased $11.2 million due to lower headcount and lower bonus compared to the first quarter of 2019.
Headcount was down 14% compared to March of 2019.
Operating margin was 2.4% compared to 3.8% last year 440 basis point decline.
Hi, good diluted earnings per share with 40 cents.
This 40 cents, including seven cents of cost related to severance consulting and donations of hub equipment to support coping 19 relief efforts.
This is compared to a record high diluted earnings per share.
71 cents in 2019.
The decrease in earnings per share was driven by the soft freight market, including the impact of Kogan 19, and intermodal in truck competition.
Partially offset by the savings from our profit improvement initiative.
Looking at our cash flow cash flow from operating activities for the quarter totaled $41 million earnings before interest taxes, depreciation and amortization was $50 million.
On the liquidity front, our balance sheet is strong and we continue to generate cash our management team needs daily to closely monitor customer credit limits discuss any customers deviating from payment term and review cash inflows and outflows.
Before I wrap up thank you, all but especially Dave infill.
For making my last 18 years, the best years of my career and for your guidance and leadership.
Congratulations to John I think Kevin.
They'll be a key part of hubs growth and success.
And to my colleagues that hot and in the investment World I treasure the relationships, we've developed and I'll Miss works will together.
It's the friends along the journey that make like special and I. Thank each of you for making this chapter so rewarding Dave over to you for closing remarks.
Great. Thank you Gerry.
The first quarter was a challenging starts for the year, but the virus is a disruption not a permanent reduction in economic activity.
Hello group is extremely well positioned to endure the downturn with a talented workforce strong balance sheet solid technology and excellent customer relationships.
With that we'll open up along with any questions.
Thank you we will now begin the question and answer session. If you ever question. Please press Star then one on your Touchtone phone. If you are using your speaker phone you will need to pick up your hands that first before pursuing any numbers.
Once again, if you'd like [laughter] Star then one.
On your Touchtone phone.
First question comes from Scott Group from Wolfe Research. Your line is now open.
Alright, Thanks afternoon, everyone and best of luck sorry in retirement.
So thank you I was hoping can we start maybe just go down each of the business lines and can you give us an update on sort of volume or or revenue trends is in April.
Sure.
Yes. Thanks this is Phil.
For the month of April were anticipating in total about a 15% to 18%.
Revenue decline for the organization the whole.
Logistics is really holding up the best with Kate DAC, continuing to see a surge in demand in us, bringing on some new logistics transportation management outsource onboardings that are offsetting some of the challenges with our non essential retail customers.
Dedicated is.
Seen surges with our home improvement in general retail clients.
That's offsetting some of the challenges once again with non essential retail and automotive and then intermodal once again, just as seen some of the challenges with the was truckload environment.
Well as lower import activity and lower fuel prices.
Brokerage is going to be the most significantly impacted as spot truckload and to a more in particular LTL demand or dissipating with high tender except levels.
In the in the marketplace. So all that kind of comes together to that 15% to 18%.
With intermodal and brokerage seen the highest level of impact and then dedicated in logistics, Eric faring better so.
That helps do you think you can share with the intermodal volumes are down.
No doubt about 16%.
Okay.
And so if I.
The intermodal gross margins.
It sounds like the big roots are sort of in insurance and rail costs. If I heard right. So those don't necessarily feel like covert impact. So I was just feel like.
Business impacts and my thinking about that rights or are these headwinds that we just are going to need to deal with all your sort of regardless of the volume environment.
Then just along those lines.
If we're now compounding that with volume and at least in the second quarter do you think that the gross margin decline in intermodal.
Is worse in the second quarter or any thoughts on.
And all that.
Scott This is Dave I would suggest to you that we do think that the second quarter will be a quarter, we'll see volumes down just if nothing else due to a lack of imports and as the country begins to open up and demand comes back we think a lot of a non essential products will be coming in will be flowing that'll better.
Balance our networks, it'll but are Ah reduce our costs. So it is not the rail increases we are very clear visibility of them.
This is really a.
It's a competitive.
Environment that we're dealing in which is still remains very aggressive both with our traditional motor come.
Orders as well as a over the road competitors.
And so we again, we do believe that and it's also volume related at this point in time.
An interesting statistic is oh.
Our clients our top 178% are currently open that 78% or revenue.
Versus 17%, which are disclosed so that revenue just does not exist and did not exist for most of March and we're forecasting that as well for the second quarter, but believe it will begin to open back up again.
Okay, and then what about the insurance pieces are anyway to quantify that and if that's a we should think about that impact continuing all year.
In pricing because of the challenging pricing environment with a little lower than they planned as well.
Okay, and then just last year I ticket, you're not giving earnings guidance, but any any guidance pieces you want to give us either on the the quarterly AAPEX or gross margins <unk> whatever.
Do you feel comfortable sharing if if there's anything.
Yeah, I mean, we've done yeah, there's quite a bit of uncertainty surrounding the pandemic with the you know free fall on the economic indicators uncertainty uncertain came about when we'll see the coven pandemic curved start <unk>. So.
Ah God given guidance is difficult we have model there. It is downside scenarios from dire to base, Kate and believe we're on solid gooding flourish. Once we come out of the recession and we'll be pulling every lover available and we do generate free cash flow in all of this scenario is that we modeled unbelievably.
Substantial liquidity.
So we feel very comfortable with where we're at in his Dave mentioned previously wants to get out of this pandemic.
Businesses start opening again will be very strong and ready to react accordingly, because our customer service. During this time has also been applet.
Okay. Thank you I'll I'll pass on somebody else.
Yeah.
Thank you are next question comes from Justin long from Steve in July and how fan.
Thanks, Good afternoon, and Terry Congrats on a great courier, you'll definitely need mass Oh. Thank you.
So maybe following up on that day April commentary that was really helpful. Feel I I was wondering if you can give us any color on gross margins in April as well, even if it's on a consolidated bait basis, just to see how the businesses flexing given that top line pressure and then on intermodal ball.
<unk> it would be helpful to get the monthly volumes for the first quarter as well.
You mentioned that there was quite a bit of pressure in March I, just wanted to know how pronounced that was.
So I can give it a monthly volume as far as in a motor we were down eight in January down 16th up and down seven in March and if you looked at the last couple of weeks of March we were down 910%. So we really started feeling the impact Tobin in March.
True and this is still on on the gross margin difficult to to give a exactly where it's going to wind up but what I could tell you. It is dedicated has been our highest gross margin business would just 16, the lowest with brokerage and then or Moto in the middle So is that.
Change happens, we we don't see a significant mix impacts, but you know that that is really the direction.
The though so we would anticipate it'll continue to be rather similar.
Huh.
That does that's that's primarily what I was getting out with just kind of a mix changes and then maybe secondly.
On the T. then I was wondering if you could give an update on that Brian you know how much your business is actually coming up for for bid and maybe an update on you know the business that has come up or bad roughly where that's price so far.
Sure. So we are anticipating great tend to be down a low single digits for the year, we're about 31% of the way through busy season at this point with full awards in 35% of our in a mortal businesses active. So we are being good wins come on we're seeing customers think long term about.
Capacity availability and given the limited capital expenditures are seen on the truckload side and trying to walk in now more of their in a mortal capacity. So we we are feeling good about busy then we're continuing to get good feedback from our clients and when we're certainly you know excited to see those those wins come on and started.
It's really come back once the economy reopens.
Okay, Great and maybe lastly on that.
Improvement plans, so you're stuck to that 40 million dollar guidance sounds like you're ahead of schedule on that Brian. It can you share how much of that 40 million was recognized in that first quarter and.
We'll be incremental going forward and and maybe as you go through that you could talk about your comfort in this guidance in the various scenarios that Terry mentioned detail liked it to something that's achievable and all of those scenarios.
Sure Yeah. So we <unk>. We are ahead of schedule a small amount was recognized really on the fourth quarter that $40 million, we are making significant headway, though we are there's really a few key categories of the profit improvement initiatives. The first scene really headcount efficiency continuing to find ways to.
To do more with laughs and and utilizing technology that I would say, we're making the most progress on and it's been a ahead of schedule. Their we're also making significant strides in our procurement strategy in or or doing an excellent job and driving down clocks and our trucking business has a core focus the areas where we still.
I have some opportunity in in or earlier stages is really in the transformation of the trucking operations. We we have heads teary mentioned reduced our costs per load in our drainage network, we're improving the retention of our drivers, but we're also very early stages in or maintenance program and the evolution that we're going to improve their so I still feel.
Confident that we're going to achieve the full amount in those scenarios, we're going to continue to focus on on delivering on that and that's really why we're adding talents to the organization as well like dorio, who we think and hopeless deliver on that.
Okay, Great I'll leave it at that thanks for the time.
Mm.
Thank you are next question comes from Ben Harper from buried your mind is how often.
So.
So could we get a little bit of perspective on the I.T. project and and and weather.
Been able to accelerate the timeline on a given some of the changes here and maybe we just talk a little bit about how.
The organization that responded through cobas through the changes to work from home et cetera.
Changes the the projects do have underwear.
Yeah, I I've been extremely impressed with Howard team is handled it in particular logistics team as we've come to the conclusion of our transition to Oh T.M. There I I'm really pleased with with how we handle that with our clients and how we're we're supporting them through it and and the training that we've put in place to ensure that that is the fact.
We are also very focused on improving the planning tools that are available to our intermodal and dedicated teams. We think there's significant opportunity there to continue to push that forward and we plan to continue to roll that out throughout the year and we're seeing really good results in the markets, where we put that for the the other.
Piece that were very focused on his customer experience getting them better information more quickly and I would say our customer feedback on on what we're doing their continues to be very positive. The the last piece the opportunity and I would say we're somewhat early stages. On this is continuing to drive automation, we have a lot of areas that we've already.
Succeeded in but as we get integrated fully into the platform. We are we continue to find more opportunities, which is very excited and I think an opportunity as we look out past even this year.
There's a day, but I'm just too light room, maybe a little bit all the work from home in all candor I've been very surprised to productivity levels in the complements a there'll be been receiving from our clients have been quite frequently and I was surprised just how productive people aren't what I guess considering the the.
A fair amount or people living downtown Chicago have a reverse commute it's anywhere from two to three hours.
Oh, that's surprising so I do think ultimately that this this pen debacle of one of the things that weren't as it may change the way that we work and how we conduct or.
On the cost saving size of 40 million dollar number no.
<unk> have a variety of outcomes as it relates to scenarios.
But that we can see but have you taken cost action steps above and beyond what you had previously stated the sixties at the end of the year. The 40 through this year or their costs opportunities identified and under way above and beyond those previous targets.
Over the past.
Six weeks and can be anticipation of obviously for this.
During two too sure yeah.
We we continue to find additional opportunities and and we are executed on those so I I would say it it's not just directly because of Kobe, but because of the hard work that everybody's put in on us being as efficient as we possibly can or should we continue to do your point, we continue to find opportunities and we plan to execute on.
All those really independent of what the economic environment.
I guess terrier.
<unk>.
Since two to you and your retirement.
As you think about free cash flow and and volumes normalizing the backup.
Gotta returning to the growth focus are there.
Carrier benchmarks. When you think about you know reengaging, the the expansion of headquarters or deploying capital and forms of sheer repurchases [noise].
Or perhaps acquisitions I mean, as we kind of get beyond the the bunker down type mentality here at the moment what are some things that you'll be looking for the coming.
Weeks and months and.
To begin to redeploy some of the the capital that's been pulled a coupon.
So.
Yeah. We can we continue to have an active pipeline for N.A., then and the current environment.
<unk> Oh in terms of devaluation liquidity and financing and so we've got well good opportunity there that we'd like you need that free cash flow well when when we're able to do adequate due diligence on on some of those potential acquisition also you know we talk about share repurchases that every.
Board meeting, we have a board meeting coming up in in May So, we'll talk about that as well, but that once we get through this out.
The pandemic because right now we're focused on the quality and making sure that we get we'd get through then we are very confident that we're going to have adequate liquidity and free cash flow and Dan and he mentioned we have that building that.
We have stopped that we will stop next month on and we can start that back up anytime we want and that but we've got a lot of efficiency is actually I could result of having to work from home as well so that well how about how until we're able to start back on that and then.
Cat back we reduced our cat back for the building, Okay see that for the rest of the year ranges from $50 million to $80 million and that 50 million to 80 million. There's only 20 million give or take that is for I.P. investments that we're going to make and and the building and the rest.
More discretionary based on grill, so that's the other needs about cash.
Okay.
Mmm.
Our next question comes from David Ross from Steve follow your line is now fan.
Afternoon Terry.
This you to say.
I'm, a truckload hire new guy dorio coming in which is background.
<unk>, Yeah Daria work at U.P.S. for about 24 years and then most recently he ran a all transportation for U.S. foods, which is obviously an extremely large private sleek and warehouse network really a a great background for us where I think you know the his focus on operational difficult.
And and technology is really going to help us improve significantly. So we're really excited to have them on board.
If you're going to spend more time on a dedicated side or is he going to get involved with friends as well.
We both but initially given the progress that we're making Andre edge. His focus will be primarily on dedicated to start that's where we continue to have a significant opportunity and then obviously, we still think we have opportunities you know drayage network, but we're making more <unk>, they're so so the priority will be dedicated.
And.
On the intermodal.
Facing side.
To be done.
They just for the year.
Service seems to have improved so.
When do you think that translates into better pricing, because maybe because it better service you could argue that you shouldn't have to have a reduction in right.
Yeah. This is able to you know there's no question was service right now is as good as we've seen it is exceptional I think the the the the issue is the <unk>.
Memories from from right now, obviously fuel was extraordinarily tree.
Usually the demand truckload capacity is just not there and as a result.
A lot of the over the road motor carriers are basically running just to kind of surmises, who will so I do think as the economy does.
Oh come back to normal that's in fact, we'll see that demand pick up a at that point in time, I think we'll have a a a good opportunity to be able to increase pricing.
Are you seeing any service differential at this point between east and West.
They're both very very good honestly and then we see constant improvement as well from both of US are pairs the union Pacific and the Norfolk, Southern So no they're both doing a great job and the consistency of services.
Substantially better than it has been several years ago and I noticed I said continues to improve.
Excellent. Thank you.
Thank you are next question comes from Todd color from keeping capital market your lightness how often.
Oh, Great thing some good evening in Cherry Congratulations again.
They just wanted to follow up on the the net revenue margin conversation show isn't right to think that net revenue margins are going to compress sequentially into the second quarter, just given some of the pressure that you're seeing.
And if we do see kind of volumes rebound in the back half of the year and kind of get back to more of you normalized environment.
We get back into the range that you previously had to 13 and a half to two almost 14 or with the price me environment and some of the cost has has that change that the net revenue margin.
More inner immediately.
That's how it's really hard to say I mean, we've got sensibility.
For April now, but what kind of take it as it goes then we certainly hope things recover but second half the ticket well, but not sure and you know they will depend on what happened.
And the second half as well so that will impact <unk> our barge.
Could impact significantly if we have a child peak for example, so I think what did you know take it as it comes in give me more color several corridor and that if we do see demand come back that's really going to help with our asset utilization are loaded miles and we're going to be able to take advantage of our improved cost structure as well so.
No our our hope would be you know.
In the in the back half, but certainly we don't have a ton of visibility to to what that's going to look like right.
Yeah that that helps I mean really what I was trying to get that is you know with the pricing commentary and some of the costs just that feel dramatically different than where you were at the beginning of the year and you know we understand that the volume environment has changed and you know that peace is changed but if we got back to more of a normalized volume you know.
A new situation, what kind of those prior expectations still be realistic.
Yeah, and if the truck market titles that helped too. So that's another factor that Whitney apply for I think you know our other businesses.
Continue like felt that early or continue to do while case tech than on fire and.
We've done a great job serving essential businesses I mean, there there are service has has been.
Fantastic.
They're seeing a lot of Ah peak peak business right now where they were have demand you know 60% higher than normal.
Time during the past quarter and currently it's about 10% higher than normal. So they've worked the customer the warehouse deprioritized supply and retailers to prioritize demand and E. commerce with with kick that gets up as well except for 100% in key one compared to keep bullet. So <unk> we've got.
Great pipeline there and.
And keep deck as well as legacy Majestic and so we're.
Very well have a lot of strength in good good foundation for the second half the year and not only enter mode, but.
Okay that helps and and and just on the the intermodal volume commentary the down 16 in April if I remember the second quarter of last year, you kind of didn't see that seasonal build as as you move to two q. So can you remind us to the comparisons get easier in May and June and what kind of the indications that you're hearing from the customers is the down.
16.
You know kind of.
And I know visibility is limited, but just cannot use that kind of a stable level from this point going forward or to the comparisons you know impact what we could see for the last couple of months at a quarter.
Yeah, our our inner mortal volume in in Q2 of you.
You know last year was down to 7.2% I don't remember off the top my head what.
The volume whereby month, but I it wasn't.
I think you're right, we didn't seem to put people people out there either yeah <unk> that you know it adds to the your progressive <unk>, we'll get easier yeah, and this is really the time last year, where we saw crime scene from Enomoto and truckload competitors really deteriorate, obviously, we we state.
Very disciplined during that and and so a lot of those are up for renewal right now in civil participating in those R.P., yeah, and just to give you. Those numbers are still mentioned it icons to get easier and key three or volume was down.
A person before it was town 11%.
Jerry I thought that you had all 54 quarters memorizing give somebody.
I did not.
My memories going.
He just the last one if I if I could you know I I. There was a question earlier about quarterly operating expenses and there was a little bit of kind of color around it but you know with 85 million here in the first quarter and the chef wrenched can you directional you mean should we expect that to train down with some of the costs you know take out the chapnick.
Or is there any sort of directional commentary can give us on quarterly operating expenses. Thanks sure.
Yeah, we can give you a little bit on Q.. If you I'm sure you read the press release and you'll see that we donated about $5 million worth of equipment cue.
<unk> food organizations, it's not like hospitals in connection with cobin, So you'll see that isn't non recurring items in the second quarter, it's absolutely not pass.
And then in terms of we we did reduce our head count sequentially from here and about 4%.
So those headcount reduction Kane.
And in the corridor, so you'll see some of that in.
Second quarter.
Severance also comes out and then but we only have part of the years rated in the first quarter 'cause outrageous don't go into effect until mid February though net net you know maybe it. It's it's similar assuming things day the thing we don't have.
Any bonus recorded.
In the first quarter and.
We help things get better we didn't get to record sent by the things stayed like they are.
Not have any those recorded.
Okay got it thinks you're going for the time mhm.
Thank you are next question comes from Brian I sent back from J.P., Morgan chasing company or minus how often.
Thank you very much for taking the questions.
Terry Jeff and Kevin Congratulations on your new role.
What's next.
So you can go back to the the real service questionnaires to follow up on that how much how much of the improvements.
Because really from the or something a structural that you can count on when volumes return you as everybody kind of expects my second half <unk> how much of that you think it's really structural versus just having a lot less volume to put on the network right now.
[noise], Yeah honestly I think a a lot of it is ah operational and structural I think but P.S.R., which I was always a little bit skeptical low is working I think is making the <unk>, they're taking not only costs out but the they're they're they're they're taking transit out the same point in time and it's thinking a more comes.
Assistant and with all of our customer surveys that we've done a consistency is always the key issue. So they're really addressing the service concerned that our clients have so I think it's a very sustainable process.
And.
She is to continue to improve a at least over the near term.
I was just to add to that.
When volume you return and we do see that or if that is going to be the task than the opportunity where us in our real partners can prove that that consistency is going to be maintained and really very more from that with our clients that they can rely on animal service and we think help kind of reignited in in more of a.
That growth story going from there.
[noise] [noise], Okay got it on the topic of peaks you mentioned the one last year. This time didn't really happened what what do you think happens with back to school you know if whatever back to school actually looks like and then things to open back up is there is there stuff I'm assuming their stuff <unk>.
This 70% of your customers that are shut down I mean, they have stuff stranded do they have to reposition that.
Fire show it or how how does that work what do you think it's going to happen on that front. It does seem like there'll be some activity, but maybe not the same types and we've seen in the past so curious to hear thought to how that'll plays out.
Yeah.
Sure Yeah. It. This is still too you know, we do think that when important demand re open that we're going to being a really good position to to take advantage of that we have equipment ready.
To service, our clients and and we do think that we will see some jump at the end of the year as a as people you know get to get back out and and feel more comfortable and spending money and a and hopefully the holidays come around obviously, that's or hope there's no no certainty around that Ah, but.
But certainly you know we <unk> if if that does occur weren't a very good position to take advantage of it and and feel competent in in our ability to provide a really good service during that time period.
Yeah, but last one on K. stack it sounds like it's continuing to outperform especially with the thinker environment can just provide a a bit more context on if it's grown you know since you've acquired it can you still move that in a bigger waiting expand the footprint, they're low level.
Capital intensity.
And what's the competition look like now, but one of the other major players is Ah, but there's been acquired by yeah Big brokering industry.
Yeah during the second the first quarter it it Kate that Gradney grew about 17% margin also group can't tell exactly how much but at the close Mike and at the percentage of sales is that about 50 basis points just for the logistics business and they continue to have a very strong pipeline.
I'll, let pillow talk about that and great value proposition to the customers in terms of allowing.
The product to get to the retailer on time and fall and prioritizing the product that should be there with the with the <unk>.
Flier.
Sure you and I I would I would highly <unk> with case backwards is fantastic is you know we do have the most sizeable scale in this business, we have great service to our customers at this point, we have actually brought our sales and solutions groups together and what we're starting to see when with some larger clients then we would happen.
The path and that is building up a significant amount you know a pipeline as well. So we think that while the the legacy case that comes to room with small to mid sized P.G. is going to continue to be a quarter of that we can introduce this product for some of our larger consumer products clients on some of their lower volumes skews been helping save some money. So we're all.
So continuing to make headway with setting up additional retail consolidation program and as as our customers think about how do they utilize their their space, which is the critical items for them more effectively this is going to continue to be an opportunity. So we're very excited about the pipeline excited about what we're doing and.
I think we're going to continue to grow the business significantly regardless of you know other had one.
And the footprint in something you can still expand pretty much an asset light fashion or would that remark more more together when I get there.
No yeah, we we plan to continue to grow it in in the current format. So and we we have a great set of of warehouse partners and we have a great Gee geographic footprints at this point will really be continuing to grow in the same drawn graffiti that we already operate in which I think is is a great thing for us as well.
Wow.
Okay. Thank you can <unk>.
Thank you.
Thank you are next question transform Jason sign off from calling and company. Your mind is now then.
Hey, guys. This is Adam on for Jason once to ask quickly about competition intermodal you know obviously no kind of competition with truck can make sense, what's going on between fuel between you know soft drink market, but I guess competition with other into multiple providers you know it's kind of <unk>.
It is pricing still rational have you seen kind of any competitors other into mobile providers kind of drop price significant me or get a little bit more aggressive in the space.
It's been since last year. This time, the price environments been extraordinarily aggressive.
So if there's any I've seen and I think it's just basically because there is a lack of demand and a lot of supply and so all we've seen prices come down.
Got it maybe some more question in brokerage.
<unk>, what kind of one of the larger brokers you know comments recently that they tried to gain share [noise] no earlier this year and kind of we're we're a little bit more aggressive and trying to to gain market share. What do you guys seeing it comes with the competitive environment in brokerage and then maybe specifically also with some of the kind of more at Bay.
Or more electronic brokers are you seem to be as as aggressive but they were maybe this time last year or a big kind of focus on marginal them more.
Yeah, I, obviously brokerages, a highly competitive market and in a market like that's where there's lots to me to go round and spilling over supply of truckload capacity, it's going to be a extremely competitive we've certainly seen other companies go more per share games, but we still believe that there is a great opportunity for us now that we built.
The foundation and a platform that can provide a high level of service at an effective cost to our customers to cross the l. to our our top 100, we have not fully penetrated that or or near where you're even near that at this point. So there's still a long runway to go we are team wins with those customers, especially since we've <unk>.
Strategy and what we've asked our customers for as we focus on what we call Powerlines, where we can buy it better than the market is better than other brokers or so so we are seeing winds were <unk>, it's obviously a highly competitive market.
You know, there's a variety of players when it now and and you know who we run into I think are more the the legacy players the that you're referring to in our customers who are more you know kind of fortune 500 fortune 1000 in nature.
Got it got enough that was all really helpful. Thank you for the time.
Thank you.
Questions comes from Bascom majors, <unk>, Hi, no financial airline is now fan.
Area, congratulations from us as well thank you.
I was hoping that you could.
Maybe should a little light on the framework used in stress testing the business that you talked about and you're prepared remarks, I I don't know if that's.
Revenue declines or volume make lines or anything else you can kind of think of doing your that your and your models to like it was pretty pretty significant the dire case with very significant.
Revenue landmark in decline.
And you know a lot of our transportation costs are variable.
The only six cost really within our transportation is depreciation which is about.
At $20 million this quarter and so we have flexibility. There. We also you know model the propped improvement initiative that we have but we modeled are we kind of took where we're at today or for the last couple of month instead, okay. What if that business went down.
Stand, Chile and that way so dire K. and then we took more based k.
Thinking that well, maybe that second quarter, it'll be pretty tough and then after that we see somebody copy so those with it too.
<unk>.
[noise] in.
Among those scenarios do you think that the second quarter remains breakeven on T.V.T.S. basis, you know maybe except in the dark age is trying to think about the sensitivity based on your own work like it.
Yeah me too.
Thank you [laughter].
Thank you are next crashing times from Tom Wadewitz from U.B.S. July and is now then.
[noise] yeah. Good afternoon in a theory when she's the best that'd be fun retirement.
And you know thanks for your patient with me over the years I tend to have a lot of questions.
<unk>.
Let's see so you know what I just have one but I'm seeing a lot of good questions in a call on.
Deep how would you think about the current framework relative to what happened in 2008 in 2009, I think you're not be hubs in very different place than than you were back then.
Just in terms of how volume recover.
Being recovers.
Mmm, whether that's going to be good framework for thinking about the market.
Or whether you think it will be you know what might be different from that a time frame.
Sure well of course, I and Oh, you know nine it was really a financial crisis and it was up to a large extent a lack of money supply was in the economy.
This shell and it really is it's social issue it took people issue.
I do think that if in fact, we open the economy backup that there should be a at least they use shape is not a v. shaped recovery.
There is pent up demand I think everybody's.
A little sick of hanging out at home.
It's you know, it's it's very stressful in this environment than I do think that depending upon how quickly they open up and how the Hell Everything's opened up.
That we will see more demand for imports.
As well as a four didn't domestic production that you know what are the big questions as to I'd I'd her bunch statistically it in New York, 60% of all deals where you can rest approach I don't know about sexual but.
Oh, how quickly do people begin to go back out again and.
You know there by achieving the near full employment that we had before so that people have a expendable phones. So I do think it'll be quicker.
I do think the administration here is a is a bit more pro business it'll be proactive.
And so I'm home for it's it's it's not going to be back to normal by the end of the year, but but certainly a I couldn't head definitely in that direction and I think we will see some strength and demand in the near term.
<unk> would you be optimistic that pricing would would.
Like 2021, potentially bounce back a lot or fuel stays down is that going to you know kind of way on animal pricing opportunity.
You fuel impact is significant.
I do think though if there is and pick up in demand we are going to see so motor carriers that just aren't going to be able to cut it I mean, it's so it's a very difficult environment you can only run for gas money for so long.
So I do think that 2021 should see it approved pricing environment, what I I doubt seriously that'll be a like 2018 my phone just here [laughter].
Yeah, Okay, great. Thank you could have done that so.
Well once again, if you would like to ask a question. Please press char that wine and your touched on phone can ask the question. Please press start them one on your Touchtone phone.
Our next question comes from France in Oakland Ski from Barclays. Your mind is now fan.
<unk>.
Randy.
Thanks for taking my question.
So just.
Question about.
The dedicated space I guess, you know in some of the scenarios you read how did you view the dedicated space.
And maybe a an adverse scenario do feel terriers will still.
Look to kind of prioritize the dedicated fleets.
Sure. This is still yeah with our with our dedicated business. We're in a really great positioned with our customer base, where we're mostly handling and for central retailers distribution centers door or distribution center to home delivery. This set this up very well I think with with our particular customer base.
Which it is once again very heavy retail very happy in the home improvement in general retail sector. So we feel good that revenues will hold up were also green on new wins that are more profitable than some of the portfolio that we shed a late last year and earlier this year. So asset of started out we enter.
The big getting back to to 40 utility on our trucks, and a and really reducing costs from there.
I mentioned before a profit improvement initiatives are also heavily tied to our trucking organization as we continue to take I take I'm coughing improve efficiency. There. We we are anticipating profit improvement in the dedicated space.
Great and then just a quick follow up.
When you mentioned the deterioration in second quarter, what's that specifically with respect to that.
Talk to about April shaping up.
<unk>.
Three q. Runrate wise.
Yeah, it's really relative to the April run rate and where we're at with the declining volume and rather.
I think.
Congratulations.
Thank you we have a follow up question from Scott Group from Bluff Research. Your line is how often.
Hey, Thanks, guys.
Oh, just quick thing so I'm not the back side. It is there is there no volume variability to the Outback says as volumes fall I understand we we have that on.
P.T., but I'm just.
Oh, there is volume variability I mean, I think it's our biggest costs below the good as much in line at salary and I'm working in that we're going to pull out elaborate we need to call.
You know, we as I mentioned, a little bit earlier, we did have a reduction in poor at the end of the at the end of March so.
Those people come out for that.
Quarter and the rest of the year and then it's still mentioned we continued to invest in technology in automation and that save that resources as well so that.
I'm, assuming we do T. I love ramp up in the second half of the year that we'll be able to do more with less.
Oh wait I plan and do it most efficiently and effectively while providing grade service to the customer done and also as I mentioned earlier bonuses that I buried like it should with our earnings and so that is flexible and we looked at other areas as well and were carefully watching our cost we've we've.
Some G.N.A. costs will travel and entertainment certainly is one that it can't go out can't spend any money. So that's kinda easy, but we've also cut back on subcontractors.
Where we are not wanting to invest right now because it's not necessary and.
And and will continue to look at those call.
Okay, and then fill earlier your comment about truck brokerage seeing the biggest headwinds.
Was that a gross revenue were net revenue comment I I would've thought that brokerage would be seen them release on on P. Yeah. Yeah. It's it's a gross revenue comment actually so yeah. A net revenue margin great are are still holding very strong. It's just a front from the top 1% Yeah still mentioned it.
<unk> I think that check brokerage gross margin. It's a preset itself was that 150 basis points here open here. So we can can we see.
The benefits from the technology changes, we've made the leadership changes we've made and the.
Changes in purchasing that we've had it resulted <unk>, how we deal with that carrier.
Okay, and then just last thing for for Dave You mentioned, a few times about working remotely and it's working.
Maybe about permanently cancelling the plans for the new headquarters that's a really interesting question, Scott and it I don't know I think that it. It it is going to have us relocated <unk> how are people.
Feel about working from home I think that albeit they are more as there is many that are more productive now I think that there is social aspects to work, which I think you need to take into consideration.
Plus I'm just not sure.
<unk> been to the building, but we hit it's relatively dench no. There is not six feet of separation between people in the cube and look or old dog bows, and so I don't know if there's gonna be governmental regulations on how much space and so.
Well, we require the space just because we can't have the density. So I think it certainly is something that we're going to look at very closely but I don't have a good answer for you know I think Ah when actually speak what the second quarter will have a much better idea as far as what that direction is but we are basically shutting down the building now.
It's still has probably another six months or the book for the build before and we're not gonna Reengage until we've come to a decision.
Okay. Thank you guys.
We have no further questions and Q. at this time I will turn the call back to J.B. anchor for closing comments will again. Thank you everyone was for joining us on the conference call and be half of the management team Terry. Thank you for all your great work and so it's been a pleasure working with you for the last.
18, plus your yeah. So.
We do we do wish you well in your retirement. So thank you again and it's always in the father already question. So please do feel free to call. Thank you.
Thank you ladies.
<unk> today's conference. Thank you for your participation you may now just connect.
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