Q2 2020 Hub Group Inc Earnings Call
[music].
[noise], Hello, and welcome how Chris second quarter 2020 earnings Conference call.
Maybe acre <unk> CEO filmmaker President Chief operating officer.
After you burn you know how CFO I try to me in the call at this time all participants are in listen only mode.
Great question answer session filed the formal presentation.
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Happening in the future.
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This past quarter is now my pleasure to kinda column pretty hot Dave Yeager, you may now be can.
Good afternoon. Thank you for participating in hub group's second quarter earnings call.
I'm joined today by feel Yeager, most prominent chief operating officer of Geoff Demartino, <unk> Chief Financial Officer.
I want to begin the call by recognizing hubs employers who are performed metrically for our clients. During this pent up.
Our office that continues to operate effectively well or drivers continue to be a far more deliberate essential goods should support or valued customers.
We continue to support our drivers and stuff, what's necessary PPD supplies as well as training to ensure that they remain safe during the pandemic.
As anticipated the second quarter from very challenging as revenue decreased by 15% year over year.
All of our business was acquired revenue due to soft demand coupled with pricing pressures.
We did however, she our intermodal volumes improved sequentially with July exhibiting strong demand in certain regions as businesses replenish depleted inventories.
With that I will turn the call over to fill to review our business launch.
Thank you Dave.
I'd like to start by echoing Dave's remarks, and thank our entire hooker team for their unwavering commitment to our customers communities at each other.
We've seen an improving demand environment since April and we're maintaining focus on our key priority of a differentiated service and an improved cost structure, which will drive long term growth.
In April we reviewed our top 100 customers, which accounted for 80% of 2019 revenue and determined that over 20% where either closed or significantly impacted by the end die.
Today over 90% of our customer bases reopened with the remainder still somewhat impacted as their facilities continue to ramp back up to full production or Serbian end markets that are still impacted by closures.
I will now discuss our business unit performance.
Intermodal volume declined 8% and gross margin as a percentage of sales compressed 220 basis points in the quarter as our improved street performance could not offset how competitive pricing environment lower volumes and rail cost increases.
Local widepoint declined 3% Trans con volumes were down 7% and local east declined 11% as we participated in a competitive truckload and intermodal environment, which was amplified by the pandemic.
However, volume improved throughout the quarter and was up 5% in June.
We've seen an improvement in demand to start the third quarter and it performed very well in bid season.
Due to our execution during bid season, we plan to grow our fleet by 3500 containers and over 200 tractors.
The continued strength in rail service and our enhanced drayage operation, our positioning us well to provide superior service to our customers as demand returns.
Well just fixed revenue declined 15%, while gross margin as a percentage of sales improved 190 basis points year over year.
We had a strong margin enhancement and also saw growth in case that we.
So we had several customers that were significantly impacted by the pandemic, which drove our decline in right.
We've had several new wins and onboardings during the quarter and this was partially offset by a small number of losses with customers that were negatively impacted by the pandemic.
We are focused on profitable growth and have an excellent pipeline.
Our team is becoming more productive through our new structure and technology investments, which is positioning enough to grow while we provide excellent service to our customers.
Brokerage volume declined 12% for the quarter, while gross margin as a percentage of sales improved 100 basis points year over year.
We had lower spot volumes in LTL and truckload, however volumes improved sequentially throughout the quarter.
This trend has extended into July and we're having success in selling new contractual award.
We have successfully improved our productivity for our new operating structure and technology, while providing superior service level.
Dedicated revenue for the quarter declined 12% and gross margin as a percentage of sales improved 200 basis points year over year.
We have supported a surge in demand for several of our retail and consumer products customers and successfully on boarded several new profitable win.
These when helped offset our focused effort on shedding unprofitable business.
We're seeing the impact of our focus on improving profitability, while maintaining our great service.
We still have ample opportunity for improvement burp, we're pleased with our progress.
Ill now hand, it over to Jeff to discuss our financial performance.
Thank you, Phil and Hello, everyone.
Our business performed very well in the quarter, despite unprecedented macroeconomic condition.
We saw revenue improved throughout the quarter and gross margin as a percent of revenue expanded for all core service lines compared to Q1.
Q2, gross margin was 13.8% of revenue up from 12.5% in Q1.
Our results demonstrated the resilience of our operating model as we generated over $70 million of net cash from operating activities and over $52 million that EBITDA during the quarter.
We continue to exhibit strong cost control.
Our non driver headcount is down 14% over the last 12 months.
We are on track to achieve the benefits of our profit improvement initiatives.
We are improving our trucking operation driving higher utilization and lower costs and reducing our operating expenses.
Salaries and benefits expense for the quarter was down by over $11 million as compared to the prior year, driven by lower headcount and bonus expense.
During the quarter, we incurred $5.7 million of expense for donations of refrigerated trailers to covert 19 emergency responders.
We also spent $2.6 million on consultant, who work with our team to drive improvement in our trucking operation.
This engagement is now complete.
DNA costs were up $4.9 million year over year.
Excluding the donation and consulting expense these costs were down by $3.4 million as we reduced our spending in several areas, including travel and implementation costs.
How grips diluted earnings per share for the quarter was 39 cents.
This includes 21 cents or costs related to donation consulting and fabric.
This compares to 87 cents a diluted EPS in the second quarter of 2019.
The decrease in earnings per share was driven by the soft freight market, including the impact of cover 19 and competition within intermodal and truckload, partially offset by the savings from our profit improvement initiatives.
During the quarter, we repaid the $100 million, we had borrowed on our revolving credit facility in March and we ended the quarter with over $200 million our cash.
We continue to have solid liquidity and low level of net debt.
For the remainder of the year, we expect to spend between 55 and $75 million on capital expenditures primarily to support growth in the business.
We are purchasing 3500 intermodal containers and over 200 tractors to refresh and grow our fleet.
Date back to you for closing remarks.
Thank you Joe.
The second quarter was quite challenging and Thats, what pandemic walk down not a central businesses and disrupted the lives of all Americans, but we are encouraged but we are beginning to see the economy come back with the demand for logistics services growing those businesses restock their inventories and we expect the second half of your reflect improved volumes.
With that we'll open up aligned to questions.
Thank you well now begin the question answer session.
You have a question. Please press Star then one on your Touchtone phone today the much from the Q. Please press sign or are they asking.
And our first question comes from Justin Long from Stephens. Your line is open.
Thanks, Good afternoon, and congrats on the quarter.
Thank you Patrick.
So you mentioned that volumes in June and on the intermodal side were up 5% I was wondering if you could give us monthly volumes throughout two Q, maybe what you're seeing in July and then after you do that we'd love to get your thoughts on.
Ben.
Why in our market share you've wondering bid season, and how much of that it's reflected in that to pick up we've seen in June and July.
Sure and this is Jeff Justin.
By March April was down 15% May were down 13 June was up 5% and then today in July were up 8% and we expect to high single digits for the rest of the year in intermodal volume.
Great and Justin This is Phil just from a bid perspective.
It was somewhat aggressive during the peak of the pandemic from a pricing perspective, we did perform very well, though with of our larger customers in their intermodal renewals and those customers are performing extremely well through the pandemic actually seen surges in demand and that's what gives us that that confidence and continuing to it.
Yes and growth growth fleet.
It is still somewhat competitive out there, but we are seeing signs of tightness and hope that that will continue and that will set us up per very strong 2021 bid season, but we are 71% completed on our bid at this point.
Don't have some larger wants to complete but feeling very good with the results that we've been able to generate.
Okay, Great and as you think about that volume forecast for the back half are there any thoughts around intermodal gross margin than progression sequentially that we could see and third and fourth quarter.
Sure I mean.
For the whole for the business as a whole we do expect margins will come down sequentially.
Closer to that kind of at Q1 number.
Occupancy the impact of our repricing start to hit hit the numbers more fully it's more that business is online we do have to rail costs increased in the second half the year, we're going to work to offset that with our profit improvement initiatives.
Both in the gross margin line and also in the in the costs and expenses line, but we do expect up.
Gross margins will be lower in second half.
And just add onto that just than we are continuing to see improvement in our cost per load and productivity on the greatest side.
And feeling very good with those results as well so we're going to continue to push that forward to help offset the cost.
Okay, Great I'll leave it does too I appreciate the time.
Thanks.
And your next question comes from benchmarks first from Baird. Your line is open.
Good evening guys.
Just to kind of close the loop on some of these cost elements do any.
Sensor direction, where salary and benefits of DNA some of the.
Operating type expenses will trend over the back half of your as well.
Yes, if you use the Q2 number as a starting point and back out the specific items, we called out which is the donation.
The severance and the consulting expense and all of which we don't expect going forward I think thats, a pretty good number to use.
Okay.
Thanks.
Dave just interested in your perspective.
What's going on right now in the West coast in particular.
Couple of different times elsewhere, but seems unusual unusual how tight it is.
Starting to see some transactional surcharges put into place.
Right, a reasons for that but but as you.
Experience that today.
And your mind, what does that set up for peak and how concerned are you as it relates to.
Service rail service in particular, as we as we move into the back half of the year.
Well, how far rail service continues to be very good and so were our rail partners have been I think on an awful lot of work they did.
With.
The PSR I think really did help quite a bit.
And so the service we're very confident in right now Theres No question, we're seeing surges off the west coast very strong. So the quick quick us acceleration I've seen.
From the customers that we've spoken with.
They do believe that this is going to go through peak that we're going to have these elevated outgrow elevated levels above business going through the west coast I want to the shift inventory replenishment.
And.
Again, I think that a lot of its been sitting in warehouses, apparently on the west coast.
Is now being shifted mass and so.
We'll see this through August through I would hope of maybe through November maybe beyond what did it seems as though the restocking is definitely going to take some time as inventory levels are quite depleted.
And Ben I would just add to that I think one of the things that we've been most pleased with from a rail perspective is the of reaction time and how much more nimble our rail partners are than what we have seen these kind of spikes in the past the.
Even though there can be challenges that response times and the fixes that we're putting into place with our rail partners to support our customers are very fast and very fluid and so were we think that sets us up well to serve our clients guarantee.
Okay. That's good that's helpful. Thanks, and then.
Phil maybe just a quick couple of your thought on dedicated can you provide us an update where that stands operationally what sort of little bit of momentum. There you talked about at the press release.
When do you think and get back to positive growth from a revenue standpoint, given what the pipeline looks like and then just the status or that Unisys operationally.
Sure at yet we are making progress, we're certainly not where we want to be long term, but you can see it in the numbers that we are making progress.
We still have some work to do operationally and on the technology front, but once again make making strides we are through the majority of.
The.
Loss of unprofitable business and that will start to show up in the second half of the of the third quarter.
And feel very good about that the wins that we're bringing on obviously there will be some startup costs, but long term. We think we'll be very strong business for us and so my hope is in 2021, we're getting to a positive growth trajectory in that business with strong margins and returns.
Ill turn it over somebody else.
And your next question comes from Scott Group Wolfe Research.
Hey, Thanks afternoon guys.
I apologize if I missed it but did you give the gross margin trends by that business in the quarter.
We didn't but I can give us to now.
What appear.
Through our year over year basis intermodal were down by about 220 basis points.
Brokerage were up 100.
Logistics up 190.
And dedicated up 200.
Okay and then.
When you talk about mid single or sorry high single digit volume growth in intermodal do you think thats a function of of market share gains through bid season or do you think that's is that your view of the market.
I would say a combination so we certainly did have some some strong showings in bid with some of our larger customers who have the ability to drive share shifts that we think we did.
Perform well there and we're focused on really hitting the mark for them and meeting the commitment that we set I also think with some of the tightness that were seen in the market right now there will be some additional share shift from truckload and we're seeing a lot of customers come to us now focusing on peak plans and peak support.
We are focusing on supporting the clients, who have stuck with us and we're going to continue to support them and Thats really a big part of why we're expanding the fleet.
Okay, and then just spell it sounds like the volumes are accelerating but the gross margins get worse, because maybe the pricing is getting a little bit were so is this.
Sort of a shift of sort of refocusing a little bit more on growth and less on yield and how quickly can you turn that yield lever back on in a tightening market.
Sure we do want to focus on growth, we're going to continue to focus on growth, we need to get back to a strong growth trajectory and intermodal.
So that is the focus of ours.
We do believe that if the tight as continues in the market that we're seeing right now that that's up extremely well for 2021 bid season, and an ability to grow.
And get profitability backup.
Okay, and just last question real quick the increase in Capex.
Is this.
Pull forward from from next year was going to be or is this sort of a new run rate to think about continuing into next year as well.
No it's not a pull forward side, it's us responses and supportive of of growth that we see out there, particularly in intermodal.
On the that's for the containers on the detractors repurchasing really strong operating opportunity to generate a strong return by refreshing the older higher cost model.
I would just add to that within the drayage business or the greatest side of our intermodal business, we need to make sure that we're maintaining our share of our intermodal dredge, though that our hub group trucking fleet is managing a significant portion of that even as we grow. So we will need to continue to invest in that to maintain that share.
Okay. Thank you guys. Thanks.
Your next question comes from David Ross from Stifel. Your line is open.
Yes, just to follow up on the drayage comment there.
What percentages company dray disappointing and what's the target.
Sure right now were added in Q2, we did 60% on our own assets I was up from 54% last year.
Over time, we'd like to get back closer to 80%.
And I would add to that Jeff Jeff that we do have if you look at just where we have terminal locations that actually 74% of our overall business.
Okay. That's helpful and are there any constraints right now and the driver market to getting that because it seems like you've got the balance sheet in the capital. So if you want to do just fine.
By the trucks, it's a matter of seeding the trucks with the drivers have how are you thinking about the timeline on getting that up.
Yes, we've invested a lot of time and effort in improving the productivity of our driver. So that was really step. One. We also have improved our retention. So at this point, we feel very good about being more aggressive in the market going after drivers it is getting somewhat more competitive but as we're seeing some of that tight.
In the markets some drivers tend to.
Block toward getting their inserter or.
Really moving.
Independent model during that time, but we feel very good about the value proposition that we branded drivers their home every night, we help them make a very strong living.
And support them. So I think we're going to be able to add drivers we have to stay competitive with wages and make sure that the drivers we have our stay happy and supported as well.
But it sounds good in this last question on the consultants you've mentioned.
Bringing them, bringing them into tell you do with trucking what were the key takeaways from their time, there or what were the.
The point to focus.
Yes, it's healthy it's been a great investment for US I think we recognized.
A lot of opportunities for the organization, we've executed on a lot of the so I would highlight a few areas first driver productivity and retention I mentioned noted earlier and I think we've made significant strides there and that's what's really reducing our cost per load in the drayage network.
Our maintenance program was also another huge focus area for for that and Thats really a big part of the investments, we're making in the tractor fleet and in our own maintenance network and we think we have.
Hued runway to improve in our maintenance organization and then the other big area within our procurement and how we purchased everything in our in our asset fleet, whether it goes to fuel or tractors or our containers. We have we had opportunities to drive down our purchase expenses and.
We are taking really.
A big swing if added continuing to make a lot of progress there. So so a lot of really good stuff that they help support.
That trucking improvement both at Drayage and dedicated was a big component of the 40 million dollar of profit improvement initiatives and talking about late last year. So we are certainly executing on that part of it.
Excellent. Thank you very much.
Your next question comes from Todd Fowler from Keybanc. Your line is open.
Great Thanks, and good evening everyone.
Phil can you share.
I'm, assuming that you're almost all the way through the bid season at this point. So can you share where contract pricing for for 2020 shook out and then as you look to the second half of the year mismanaged can be some initial bids maybe late in the fourth quarter is the market now to a point where contract pricing intermodal should flip to being positive just based on the tightness in what you're seeing in there.
Markup.
Sure Great question. So we are 71% done and awarded so we still have some some sizable ones that are out there, but still feeling very good about about how we've executed.
Through that we if the tightness in the market continues at a rate that it is I think it sets up for a very solid 2021 bid renewal season.
We may see some customers try to move bid out, but we've made commitments on 12 month rates and we plan to.
Continue to support those but but if people are pushing them out we will take actions to make sure that our pricing has been a competitive play we need the tightness to continue though for for a little bit of a longer period, I think before I could say that intermodal pricing is moving on a contract basis really in a in a really good inflection, but the signs are out there that were move.
And in the right direction.
Yes, Okay that makes sense and I mean, do you care to kind of put a range around where that that the 70% came in at is it fair to say kind of low single digits or do you want to share number around that yes would be low single digit.
Great Okay.
And then just on the cost side.
I guess, Jeff Im curious of the 40 million that you've targeted for this year how much do you see that's already in the numbers right now so what can we expect going forward and then I think the next big bucket that you laid out was $20 million I think that that was a 2022 number is that still a number that's that's out there in the horizon is there anything that would move that.
Forward or push it out a little bit further.
Sure, Yes, the 40 million, what we've kind of thought on that is we expect to be at a run rate. Once we've got all the initiatives in place. We're very close I think to having those initiatives largely in place. So we're starting to recognize that now for the full year full calendar year 2020 will recognize about half of that in year, So by 20 million.
We're still recognizing the 50 million, we executed on and the latter part of last year.
For the $20 million going forward Thats really a function and a lot of that's driven by.
Our continued implementation of our elevate initiative.
So the timing of that 20 million will be will be dependent on those the IP project coming into place, but that's something we're looking at for next year.
Okay got it and then just the last one for me.
With the I guess, maybe two parts versus the 200 tractors that you're buying this year are those where are those going to be split or those dedicated or those intermodal and then do you have.
Some kind of parameters for dedicated revenue growth in the back half of the year as you start to lap the loss business and based on some of the awards that you saw in the first part of the year. Thanks.
Sure, yes that tractors.
The vast majority of those are going to be dredge, there's a few and dedicated as well.
The dedicated revenue growth for the back half of the here we are still cycling.
Some of the site exits that happened late last year early this year.
We are winning new business and that is starting to come on but we do expect revenue will be down.
Before that those new sites can really start to contribute.
Great. Okay. Thanks, so much for the time Tonight.
Thanks.
Your next question comes from Jason Seidl from Cowen Your line is nothing.
Thank you operator Hello, everyone.
Getting back to the intermodal pricing side, if we're getting sort of this low single digit number now.
As we look out to 2021, if we can anticipate that this tightness continues in the marketplace should should we be looking at something more towards the mid single digit range.
Sure Yes.
I would be hopeful of that but obviously the tightness does need to continue we need to be demands continue.
There.
We're certainly hopeful that the economy gets back moving in a positive direction and.
Pandemic does not drive any further disruptions all that being equal yes, I would think given the dynamics that were seen in the market right now we would anticipate a strong pricing environment, Okay and follow up just.
You guys talked about some of your initiatives I was wondering what type of technology initiatives, you might have whether it be on the intermodal side, the drayage side or even the dedicated side.
That could drive some cost savings going forward and if you could just give us some more details on those.
Sure. So we are in the process of moving to our single platform for the organization really retiring legacy systems and.
One of the biggest benefits of what we are implementing is our driver optimization tool and we've seen significant improvements in the test sites that we've done in both loaded miles and productivity for our drivers as well as the productivity of our it so they're able to Preplan a day AD spend their time on really more value.
Added things for our clients.
So it will be both a.
Productivity head count enhancement, but also the larger bucket of dollars is going to be in making our drivers more productive having to put in less capital getting more out of the expense that we're putting it.
And when that going to be 100% rolled out.
That will be at 2021 rollout.
Okay. Appreciate the time as always.
Yeah.
And your next question comes campus County managers from Cowen Your line is open.
Yes, thanks for taking my questions I wanted to follow up on the Capex adjustment if I recall.
The initial range that you guys gave in February before you reduced it was pretty similar to.
So what you raised the two today, but there was a.
You had delayed the expansion of your headquarters building, which I think was 30 or $40 million. So could you unpack.
The nature of that spend today, even though it's similar in dollar terms, how it might be different in the uses and email pine on whether or not you plan to to renew that headquarters expansion in 2021 of the YOD. Thanks sure. This is Dave.
We have put on hold to other was some expense in this quarter.
As we did have to complete the HPC and the fire protection.
But it sitting idle at this point in time, all we are waiting to see several things number one we are relatively densely populated headquarters building.
We're not sure if in fact.
While we may be able to if the government may put regulations in which would allow us to fewer people in the building. So thats one thing we're waiting for we're also looking very closely.
And how many functions can work from home.
And is it possibly that they are working from home four days, a week or one or so we're we're going through that process now and ultimately when you have the combination of the two we can determined if in fact, we're going to.
Finished the building rented sell it worked fact inhabited because we need the space overall, so we're still there's a lot of unknown, but it's sitting idle right now what is fully up to code and.
Could be finished I would say probably within six months, if we chose to do so.
Yes. This is Jay.
I could give you the breakdown you're correct. Our original guidance back in February was 115 to 120 of Capex.
Included in that with about 35 million for the building.
Thank you David we spent about 49 million in the first half than the and then the outlook for the second half is 55% to 75.
So we're back to that kind of 120 range approximately.
About 20 million of that full year is on the building.
Lower $40 million on containers.
Kind of 30 to 40 on tractors and trailers and then the rest is going to be active.
Thank you for that.
That's really all ahead. Thank you.
Thanks Wes.
And our next question comes from Brad ill come back from Jpmorgan.
Hey, good afternoon, thanks for taking the question.
I wanted to ask one about.
I mentioned rail service, but there were also seeing some new additions couple of our announced earlier. This week your partner out West had some market share gains if they were talking about as one of the see how that was slowing down to your business than if it had any any implications for deciding to grow the container fleet I guess.
In the near term and then long term you can just offer some thoughts on.
Just the pace of growth, we expect these to be sort of things to continue or it's moved too early to expect that at this point.
Great. Thank you Brian.
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We're always looking and pushing our rail partners that additional services. We're excited that they are.
During PSR, we lost some land that we're servicing large clients and some of it reopening notes, which is which is great and allows us to get back business that went to trial.
So we're very excited about that and the opportunity to to go back after those as bid seasons reopened and truck capacity hopefully tight.
So certainly we think that.
That stands from our rail partners is fantastic, we hope that it continues and we're going to continue to work with them to find new opportunities to drive growth.
Okay. So it sounds like the container fleet was separate from all that because some of these are still pretty neat I guess the other question is when you expect to to get those containers and how much of that replacement versus incremental growth.
The incremental and we'll be getting the throughout really the peak shipping season from August till until really November start November. So we can make sure we get from turned on those to for for this year.
And yes, I would say, we really made that decision independent of the new offerings, but if we architectural and continuing to grow in those new new corridors that we would obviously when it continued to invest in in the fleet.
Okay just.
Just one more if you can give us an update on on cakes stack.
So I think outperforming expectations since you bought it do you have.
Anything new to share there in terms of growing the footprint or how that's performing I would think its is probably doing pretty well now with the restocking.
Yes, and in that in the volume to the type of customers that serves.
But what do you see from our perspective, and again with I guess, when a bigger competitors going over.
Larger.
Just six company, if you've seen anything change in the market from that perspective as well.
Right well, we when we acquired this is Dave when we acquired piece that we did that they were.
And still believe that they are the premier.
Company in their space and.
You are absolutely correct, it's been baby surpassed our forecasts very consistently they of course are serving the CPG customers going into a central retailers and so that market has been very very strong.
The management team has done a really really good job in in the panel in the growth and candidly also the.
The impacts of the coated virus so.
Nothing but.
Kudos to the team and.
They've added a lot of valued hub overall as an organization.
I'd just add that the footprint that we have at the national footprint, we feel very good about the location that we have but we we may.
Where we will continue to expand.
In our existing market.
Had.
We continue to add business and that has really been the playbook that we've been running.
The other piece that I would highlight is that we are winning larger awards with really legacy hub customers, which is driving a good amount of growth that was one of the use of the deal was that we would would really be able to cross sell and then the other part that I would highlight is that we're also adding new retail program and will.
Really pleased that has also come to fruition, we plan to continue to grow that so another another great.
When that we've gone through that that acquisition.
All right great. Thank you for the time thanks.
And just a reminder attention the Q ask your question. Please press Star then one on your Touchtone phone to maybe Stephanie Q. Please press the pound sign or the ASP.
And Andrew Q Darwin and your next question comes from time model It yes.
Yes, good afternoon.
Wanted to see positive admits just bill. Thank you commented on brokerage as you look to second half.
Yes, good gross margin performance in the quarter, but obviously the market.
If you have any thoughts on kind of how your brokerage business you had expected to perform in in.
Third quarter and.
Theres pressure, maybe how quickly you can get through some of the gross margin pressure. If if you do have a strong peak season.
Sure to sell to as you're probably aware our brokerage is primarily contractual dependable.
Majority of that business is with committed carriers, where and those committed carriers are living up to the award than commitments that we set with our clients and continuing to support us and our customers. So we feel very good about that where we are seeing some compression is when it is a committed land from a customer that we were sourcing transactionally.
Really prior to the tightness and so that is where we're going to Ethan some compression, we're working with our customers on ensuring that they understand the compression that we're seeing and also working to get higher margins by volume into the business the spot market tightening from a capacity.
Perspective prior to the demand side from a rate perspective. So we do believe now the spot market load board activity is increasing spot opportunities are increasing so we feel as though we're going to be able to really keep our gross margins that a good level, but we'll see some pressure in the back.
The only other piece I'd highlight as we do have some high profitability project business that we typically run that had slowed down given.
Pandemic, so that will be somewhat of an offset as well, but I think we're doing a very good job in our procurement methodology. We're supporting our carriers were continuing to work with our customers very well and so we're focused on growth and really continuing to buy well in the market now just to add to the process changes and tech.
How do we put in place and made our carrier rep are much more efficient than than they used to be going back a year and a half for two years ago and so we're we're seeing that benefit on the bottom line as well.
Great, Okay and then.
With respect to the new business, you're bringing in intermodal.
Yes.
You to be the wet the train continental.
I wanted to see if theres some color on the type of business ended and you've been winning.
Sure a lot of our wins were local west and Transcon, we feel very competitive in the east both with truckload and with other intermodal competitors, but the majority of those wins were really kind of western and trend based.
Right. Okay, great. Thank you for the time.
[music].
And our next question.
From.
Benjamin had first from Baird. Your line is open.
Okay. Thanks for the quick follow up Jeff.
So this I missed the.
The details which line items specifically the.
The various called out expenses from the donations consulting severance et cetera were.
We're looking for it.
Sure.
Severances and salaries and benefits and then a donation and consulting expense for both in GNS. Okay.
And then an update on where you guys.
Sit as it relates to evaluating acquisitions in this environment can you can you provide us an update there.
Absolutely, Yes, we are why continue to do M&A, we want to get.
Larger and expand our suite of services look too.
I have more of those opportunities to cross sell the laggard service to our intermodal customers, where we've had pretty good success in the acquisitions we've done.
We are targeting really kind of the value added threepl type businesses non asset based businesses.
Where we can add new lines of server.
Expand our freight under management and or get into new customer verticals. So we've been looking all year. We at one point I thought we would get a deal done this year I think we still hopeful we can.
The things have kind of go on hold in.
March through June timeframe, but we are back at it evaluating opportunities and helpful to get one done here.
And in the meantime, Youre your mindset as it relates to potential share repurchases or does that sit in the higher.
Sure I mean, we've been pretty conservative obviously taken down 100 million on the revolver early this year.
We always do we do always evaluate share repurchases at our quarterly board meeting.
One of those coming up and I'm sure be a topic of discussion.
And then lastly, you provided some parameters to think about modeling.
So the.
The need to gross margin line operating expenses, but.
Incentive comp in the back half of the year and as you can even think about 2021 can you talked a little bit about what may or may not have included in.
You know that might further and as we move through the year.
Sure, Yes, very very little incentive comp in Q2.
We.
Yes, I think are our earnings are going to be down year over year, it and our incentive compensation program is not designed to pay when that happens.
Okay Thats helpful. Thank you for sure.
Your next question comes from Best County, Master Susquehanna. Your line is open.
I'm, sorry, but thanks for the follow up there I just wanted to follow up on bench follow ups is a special dividend a possibility is that something you guys should even do if you wanted to assuming that M&A doesn't come through as quickly as you hope to because.
Certainly the cash balances rising and looks like you. If all goes well you should be the net cash position again next year. Thank you.
Yes, I mean, it's not something that's off the table, but I get our priorities for.
For excess cash continue to be reinvest in the business both.
Through capex and through acquisitions and I think.
Those are those are two areas that we are either actively are looking to invest in as a priority.
Thank you.
Thanks Bascome.
And then.
This question answer session now turn the call over.
Q JV acre for final remarks.
Well again, thank you for joining us this afternoon as always if you have any further questions I'll fill Jeff and I are available to talk at anytime. So thank you again have a good debt. Thank you.
Thank you ladies and gentlemen. This concludes today's conference call. Thank you for participating you may now disconnect.
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