Q4 2020 Hub Group Inc Earnings Call
Hello, and welcome to the Health Group fourth quarter of 2020 earnings Conference call David.
Dave Yeager hubs CEO, Phil Yeager hubs, President and Chief operating Officer, and Geoff Demartino hub 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 everyone and have an opportunity to participate please limit your acquire ease to one primary and one follow up question and.
Any forward looking statements made during the course of the call or contained in the release represent the company's best good faith judgment as to what may happen and in the future.
Statements that are forward looking can be identified by the use of words, such as believe expect anticipate and project and variations of these words. Please review of the cautionary statements and the relief.
Addition, you should refer to the disclosures and the company's form 10-K, and other SEC filings regarding factors and so you could cause actual results to differ materially from those projected and these forward looking statements and.
As a reminder, this conference is being recorded and it is now my pleasure to turn the color of your host Dave Yeager you may now begin.
Good afternoon, and thank you for participating and hub group's fourth quarter earnings call.
Im joined today by Phil Yeager hubs, President and Chief operating Officer, and Geoff Demartino clubs Chief Financial Officer.
The fourth quarter saw a dramatic reversal from the depressed volumes earlier this year two of market of strong demand and limited capacity.
Most of the surge and demand was driven by strong import volumes as customers sought to replenish inventories.
Hub was able to capitalize and this market with strategic customer wins that helped drive a strong peak season.
We believe we are well positioned for 2021 due to the ongoing strong market conditions, coupled with our customers' continued demand for high service levels and cost effective solutions and with that I'll turn the call over to build a review of our business lines.
Thank you David.
Before I discuss our business unit performance I would like to commend the hard working women and men of hub group and successfully managing through the most dynamic year, we have had in recent memory.
For the quarter intermodal volumes increased 9% and revenue increased 5%.
We achieved year over year volume growth and 2020, despite of large deficit and the first half of the year due to the pandemic.
For the quarter Transcon volumes increased 13% local whacked increased 20% and local east declined 2%.
We experienced a significant amount of demand of the west coast, driven by completed inventory type of truckload and intermodal capacity and strong import volume.
Our investment and our container fleet supported our growth and was the key enabler and meeting the demand of our clients.
Gross margin as a percentage of sales declined 290 basis points year over year, while demand was extremely strong leading the peak season surcharges and our trucking operating efficiency continues to improve volume was very imbalanced.
This has led to increased repositioning and outsource drayage costs, which along with increased rail costs and lower pricing from earlier and bid season offset those improvements.
We believe the with the tight capacity and high demand environment, along with our strong fee performance that we are in an excellent position heading into 2021.
Logistics revenue declined 1% and gross margin as a percentage of sales declined 170 basis points year over year.
Revenue growth continued the case back and declined and our transportation management services.
However case stack margins were compressed as we experienced higher transportation and warehousing costs, along with the Onboarding of some higher revenue the lower profit customers.
We're very excited about the newest part of our logistics business non stop delivery, which we acquired in December.
And SD executed of best in class service experience for our clients and of euro of significant growth showing the value of our non asset based model.
We are excited to have this new offering and the high growth last mile logistics segment and are maintaining a strong pipeline for growth across all of our logistics solutions.
Brokerage volume declined 8%, while revenue increased 27% and gross margin as a percentage of sales declined 400 basis points year over year.
Volume declined across all of our offerings, but we executed well and the spot market, while maintaining and commitments and service from our customers and our contractual business.
We believe the commitment will position us well to grow and expand margin and this upcoming bid season.
Capacity cost increased throughout the quarter, but we are now seeing and much more stability and the market.
As we continue to invest in technology and our inside sales force. We believe we can generate more prolonged growth and a variety of market conditions.
Dedicated revenue for the quarter declined 3% and gross margin as a percentage of sales declined 530 basis points year over year.
Large insurance and restructuring charges as well as increased surge capacity cost and non core markets were headwinds.
However, we continue to make significant progress and improving our operational and commercial discipline, which we anticipate will generate margin expansion in 2021.
I will now hand, it over to Jeff to discuss our financial performance.
Yes.
Thank you Phil.
And we're pleased that our business has continued to grow coming out of the challenging period earlier and the year with Q4 revenue up 6% led by our intermodal and truck brokerage service lines.
As expected intermodal volumes grew high single digits and the quarter benefited from strong demand from our strategic customers.
Q4, gross margin was $106 million or 11, 1% of revenue and.
And included a $3 $5 million pre tax charge related to our insurance and claims reserve estimate.
We continue to exhibit strong cost control with quarterly cost and expenses equals of seven 8% of revenue as compared to nine 7% last year.
Salaries and benefits expense for the quarter declined by over $10 million as compared to the prior year due to lower head count and the decline in the variable compensation expense.
Our non driver head count is down by 9%, excluding the impact of the NFC acquisition.
Due to our efficiency and technology initiatives.
Q4 of general and administrative expenses declined by $3 million as compared to the prior year and included a $1 4 million restructuring charge related to the closure of an office that supported our dedicated operation and $1 million of transaction expenses related to the acquisition of NFC.
Hub group's diluted earnings per share for the quarter was 67.
This compares to 84 of diluted EPS in the fourth quarter of 2019.
Our tax rate for the quarter was 22, 9% as we benefited from several state tax credits.
For the full year revenue was $3 5 billion as compared to $3 7 billion and 2019.
Diluted earnings per share for 2020 was $2 19, as compared to $3 20 last year.
We generated $63 million of EBITDA and the quarter and ended the year with $125 million of cash after spending approximately $90 million and cash to acquire NXT and December.
We continue to have solid liquidity and low levels of net debt.
We view, our capital structure Hasnt assets, and our priority continues to be reinvestment and the business through capital expenditures and strategic acquisitions.
For 2021, and we expect revenue will grow and the low double digit range with intermodal volumes of high single digits and revenue growth across all of our business lines, including the addition of NFC.
We expect year over year revenue growth will ramp up as the year progresses and.
We expect consolidated gross margin as a percentage of revenue will begin the year at a level similar to Q4 and project margins will increase during the year as we progressed through the bid season and realized rate increases.
Our outlook is based on the assumption that positive economic conditions will continue to benefit the consumer demand and that low customer inventory levels will continue to drive the need for restocking.
We expect quarterly costs and expenses will increase from Q4 levels due to incentive compensation expense merit increases.
And the addition of NFC and more normalized travel spending.
For the year, we expect costs and expenses of $365 to $380 million.
For Q1, we expect costs and expenses to range from $85 to $87 million and will increase throughout the year as we book more variable compensation expense in line with growth and overall profitability.
For the full year, we expect our tax rate to be 25%.
We will continue to invest in the business and 2021 and our capital expenditure forecast is $150 million to $170 million, we expect to add approximately 2005 hundred containers, which will result in net growth of 2000, and after retirements as well as 150 refrigerated containers.
We are also planning to add approximately 750 trackers and 500 of which are for replacement of older units and 250 of which will support growth and our drayage and dedicated fleets.
David back to you for closing remarks.
Thank you, Jeff the fourth quarter of reflected very strong demand as our customers continued to restock.
Demand continues to be strong and 2021 with January of intermodal volumes up 16% on the business day adjusted basis.
We expect that the strong demand will continue through much of 2021.
And with that we'll open the call up the questions.
Thank you and we'll now begin the question and answer session.
And do you have a question. Please press Star then one on your Touchtone phone.
<unk> with Keybanc and loosen the queue. Please press the pound sign or the ASP.
If you use the speaker phone.
The pickup the handset first.
And the numbers.
And once again you have a question. Please press Star then one on your Touchtone phone and your first question comes from Justin Long Stephens. Your line is open.
Thanks, Good afternoon.
Afternoon.
So maybe to start with the 2021 guidance, Jeff I don't think you provided and anything specific about margins I know you said the first quarter gross margins would be similar to the force, but any way to help us think through what you're expecting from gross margins for the full year and may be operating.
Margins as well just trying to get to and EPS guidance and curious if the U K.
Give us some more color around that.
Sure. So I think if you take Q4 is the gross margin and.
Adjust out the insurance charge, which was kind of.
Resident in that quarter that gets you to about 11, 4% for the full year, we think anywhere from May.
Maybe 100 to 150 basis points.
And that for the full year, we think Q1 and certainly we will start off closer to Q4.
Price is a very important driver of our gross margin and profitability and.
While we think.
Pricing re pricing will be.
Mid to high single digit the cadence of that re price activity.
And as much more impactful and the back half for example, and Q1, we repriced about 41% of our volume, but the vast vast majority of that happens towards the end of the quarter. So we won't see as much of that price impact on margin in Q1.
Okay, and just to clarify that 100 to 150 basis points of improvement is that relative to the full year 2020 gross margin.
And relative to day of 11 four.
And fifth the 11 four.
Okay.
And then maybe second on on pricing I think you just mentioned kind of mid to high single digit increases I think what we've been hearing on intermodal is something above that level more in the high single digit to low double digit range, So am I reading into that correctly or.
Maybe you could just speak in general about what Youre expecting on the intermodal pricing and what's baked into the guidance yes.
Phil what I would tell you is we're guiding on the mid to high single digit for effective price for the year. So as Jack mentioned, 41% renewing in Q1, and the latter portion of 24% and the second quarter and then 33% really in Q3 with the very small amount and the fourth quarter. So as we think about the.
The implementation of those rate it should be mid to high single digit, but that also implies high single digit renewals.
For the.
And the renewals that are upcoming right.
And that's just I hope some clarification around that but we believe in line with really what we're seeing and the market and what you are hearing as well.
Okay, Great I'll leave it at that thanks for the time.
<unk>.
And the next question comes from Scott Group from Wolfe Research. Your line is open.
Thanks.
And Chris.
In terms of the guidance.
Hello can you hear me, yes, that's a matter of Scott.
Okay.
I'll pick up the headset so on the gross revenue guidance of low double digit.
Top line, so I think the acquisition alone adds about four points and.
And obviously, you've got the easy comps relative to 2020 are there any of what are the offsets that we should be thinking about here and that gets you to low double digit and not something better than that any customer losses or churn, yes, I mean, I think it's the same story, we've been talking about in Q3 and Q4, we did have some customer losses mid year and 2020.
We've been working to fill the hole this isn't dedicated and logistics, primarily although some of the logistics customers drove brokerage volume for the brokerage did see the impact that as well, but just cycling those of the.
The midyear of 2020 losses, and then filling those with new customer wins and haven't kind of fully.
Not yet fully offsetting the impact of the losses.
I might add Scott that these will be also these were candidly not overly profitable.
And so we think that we'll backfill it with.
The customers, where we'll be able to make the more fair return of our investment.
And.
And one other point to add too just in terms of the cadence, we typically do see a step down and revenue between between Q4, and Q1, and so I would expect that as well, but we certainly believe there will be wrapping up revenue growth throughout the year.
Okay, and then on the gross margin guidance, if we use 2018 is.
Maybe as of the best sort of example, we started at around 11% at the beginning of the year. We ended at close to 2014, and we got a 14% I.
And I guess, the following year and 19.
Directionally is that.
How youre thinking about this playing out as this year plays out and exiting this year.
And then maybe exiting the year close to that rate I think it takes two full years of strong pricing and get back to that.
2018 run rate level.
Got you okay.
Alright, Thank you guys.
Thanks Scott.
And our next question from the Thomas Schwarz from Steve.
Your line is open.
Good afternoon, and thank you for taking my call I'm filling in for Dave Ross.
So it's a bit of of platitude.
And that 2020.
The very unusual year, just curious I suppose more from a theoretical level.
What would a 20 a very successful 2021 look like for your company given that year over year comps are going to be as meaningful as they perhaps typically would be thank you.
Yes. This is Phil.
I think there is.
A few key factors for US obviously, we want to get back to a strong growth.
Both trajectory, we did a really nice job in ensuring that we got our cost structure and a really good position through the pandemic, we think that theres a great opportunity this year to to grow into it at a nice high clip across all of our service lines.
And that varies intermodal, we think is going to be of great story.
With high single digit volume growth and high single digit or mid to high single digit pricing.
So very good story, there and we're investing and that brokerage is another great. We think double digit revenue growth story.
We are of great opportunity and and I think we're showing that we can deliver on that logistics with the addition of NXT and the growth and the final mile space. We think it's another area of of great growth opportunity.
The stack with increasing <unk> continues to have a great spot in the marketplace as well and customers are really looking at our need for additional solutions to offset the cost increases. They saw this year. So our transportation management services are and a great place as well and then dedicated right I think one way truckload rates really caught.
People off guard this year and so there is a significant demand for dedicated services, we need to be intelligent in particular and the dedicated growth. So I think youll see us meter of that a little bit more obviously, it's more capital intensive and we want to make sure we're generating the right return and that business given the asset intensity. So I think it's growth across all of the.
Service lines that varies across them and then leveraging our cost structure and continuing to be more efficient I think one of the things that I was.
Really pleased with this year's the productivity enhancements that we were able to drive just as an example, our Q4 brokerage productivity was up 20% year over year, our driver productivity and intermodal was up 9% year over year. So there is.
And the opportunity to continue to drive that forward and improve the cost structure through that as well and obviously take advantage of the pricing. So I know I know a lot of things we need to do there, but but we think all very feasible and will deliver a very good year, both financially and for for our customers.
Thank you so much.
And your next question comes from Todd Fowler from Keybanc. Your line is open.
Great Thanks, and good afternoon.
And the on the expectation for high single digit volume growth in 'twenty, one obviously youre starting off the year very strong with the 12% in January and you've got easy comps and the first half of the year.
Do you look at high single digits is kind of where the market's going to grow on the intermodal side and 21 or do you think that thats some share opportunity or with the pricing are you planning on maybe being a little bit below the market I'm just kind of curious.
How do you think about market growth rates versus what youre expecting the sure yes, it's a great question yes.
Anticipating that we're not going to underprice the market in any way.
And we are looking to continue to yield up but.
But we think that we will grow above market, we did a phenomenal job as an organization and stepping up for our customers. During what is probably the most hectic peak season any of us can recall or remember.
And that is going to give us an opportunity to continue to grow and take share and the marketplace, while improving yield.
And we also have some great opportunities, we think to improve the balance and our network improve continually the productivity of our drivers. So theres a lot of opportunities out there both in the cost and volume side and we're going to focus on both.
But we would we are.
The assuming share growth and and continuing the price very very well and I would just add this is Jeff I think our strategy of investing and equipment certainly paid off and the second half of 2020, and we grew we outgrew the market and we're going to continue down that with that strategy in 2021 with our container investments.
Okay. Good that helps.
And then.
I guess, maybe just from my second question now that you've had NSV in house for about one month of the half or so.
Kind of curious if theres anything that you've learned now that you've had a better look at the business and how youre kind of thinking about the relationship with that business and your other service offerings and kind of how that fosters and.
Additional growth of additional opportunity going forward. Thanks.
Yeah, No. We're really excited about about that acquisition I would start the culturally we've become and more and more excited about the alignment that we felt during the diligence process. So really excited about that are cross selling and pipeline is extremely active and.
And really I think the bigger challenge that we're going to out of is ensuring that we're picking the right opportunities to go after that have the right long term growth profile and fit with us while continuing to support the great customer base that they already have so so really excited about that and I think of lot of customers experienced significant service challenges this year.
<unk> and what NXP was able to do is deliver really in my opinion and what we've heard from multiple clients and they've won multiple customer of the year were carrier of the year awards since the acquisition.
Is that they were the highest service provider and their network and last mile and so we're go into other new clients with that.
Really the sales pitch and we're gaining a lot of credibility and opening of lot of doors very quickly. So we think theres a great opportunity here and.
Very excited about the non asset based model because it just gives us a significant amount of flexibility and I think customers are recognizing that that's more and more important the on.
The other piece I'd highlighted we're finding a lot of opportunities to improve the transportation costs that asked the has and.
By doing so we think we're going to be even more competitive and the marketplace and be able to continue to grow while maintaining the strong margins that MFC already had so we're really excited about what we're seeing and just.
Just think of theirs.
The huge opportunities with our retail customer base, which is around 45% of our customer base at this point so very excited.
Okay. That's interesting Phil Thanks for all of the color there thanks for the time.
Yes, Thanks, David.
And the next question comes from Jason Seidl.
From Cowen Your line is open.
Thank you operator, and good afternoon, gentlemen, I wanted to ask a little bit about your customer base and should just brought that up and you do got you do have a lot of exposure and the retail side, there's been a bunch of restocking of this year is there any sense for sort of how long that is expected to continue and do you think this year, we might hit a little bit of of pocket. After that's done.
And <unk>.
Sure. So yes. This is Phil I think there is going to continue to be a significant restocking taking place you look at import volume the number of vessels that are.
Really just sitting off off the west coast right now ready to come in there is a massive amount of demand out there and what we are hearing and seeing from from our retail clients is that the.
And the spring surge that typically comes on and in particular and the home improvement space is going to be and we're very large and that is going to be extremely active we're hearing that our other customers where are the more traditional or retailer and E commerce need to continue to restock and even after demand flows down it's going to take them.
The three months period to even cash up beyond that so.
Don't see at least through the first three quarters of the year really of slowdown, we do think that theres going to be a pull forward of.
The inventory this year to avoid some of the challenges that people that are customers went through during this past peak season, and so it should be through the first three quarters of much higher level of volume, but probably more stable and less spiky than what we saw this past year. So it's something we're certainly watching for the fourth quarter, but.
I would tell you of the first three we expect to be much higher demand and much higher volume and obviously capacity continues to remain tight and with with the amount of drivers coming online and delays in bringing capacity on and we don't see that slowing down anytime soon either.
Listen that's Super helpful wanted to talk a little bit about some of the expenses.
Particularly the outsource drayage it looks like you're bringing on some more tractors to probably help you out there going forward also some of the rail congestion cost.
Should we look at these of sort of transitory in nature as we move throughout the year of those are sort of the abate.
Sure.
And.
From a third party drayage perspective, yes, we're going to continue to add and in the key markets that we have what will really happen. This year on third party was.
We had significant growth in some very key large markets and that led to a significant increase over what we were running our trackers that now I'm really pleased with the the improvement we've made and the productivity of our drivers, but we can still be better.
So that would be.
See that coming more in line as we bring more tractors and drivers on and.
From a from a rail congestion issue, we are seeing service improve sequentially and and are going to continue to see that we think throughout the year, So and Dave I don't know if you would add.
I would just add that.
There was some congestion it was of 12.
And to a large extent of the COVID-19 virus didn't affect the impact a lot of warehousing, creating labor shortages, which creates lack of capability to unload quickly. So we did see containers bunching in certain locations, which caused chassis costs and also chassis shortages. So there was a.
The combination of things, but the <unk> point, we have seen sequential improvement.
Both through throughout the fourth quarter and into January. So we're hoping we can get our on time service back up to the levels that in fact, we target.
Encouraging signs gentlemen, listen I appreciate the time as always everyone be safe. Thank you. Thank you.
And the next question comes from <unk> majors from Susquehanna. Your line is open.
Yes, thanks for taking my question.
The margin improvement efforts that you've made over the last couple of years seem to really be socal.
Focus on a lot of the non intermodal businesses, though certainly not exclusive to those.
Could you talk a little bit about if we ever go Peel, the onion back and look at where the intermodal margin where to stand and if we could get more stand alone.
How that compares to some of your peers the right on the B and that.
We're tracking for call, it 10, and 11% operating margins and and what opportunity to use the two.
Potentially breach that GAAP and should make more efforts on that front and pricing starts to cooperate. Thanks.
Sure. Yes. Thanks. Good question, yes, so I would tell you that inter.
Intermodal is our largest segment certainly carries a larger portion of our corporate costs, but at the same time, our margins would be lower as compared.
But we have of less asset intensive model as well we're running about.
<unk>.
For a full year around 60% of our own drayage outsourcing and the remainder.
And we obviously don't have the capital investment into chassis as well. So I would tell you the different model so somewhat of a different.
The margin profile.
But we still have opportunities to improve and and.
And we've highlighted those around continuing to improve the productivity of the of the drivers that we have as I mentioned, 9% productivity improvement for our drivers in the fourth quarter of 120 basis point improvement and loaded miles. So we are running the tractors better and.
From a repositioning and cost perspective, that's another area, we're really targeting and focusing on this year is to create more balance and the network reduce those costs.
And our reliance on empty repositioning and in particular during peak season. So.
Two buckets alone can can help us significantly and continuing to close that gap and then lastly, as we do agree that we need to continue to take more control of our drayage and we're investing as Jeff mentioned earlier in the tractor fleet.
And to drive that.
Thank you for that I appreciate the the.
And the walk through of the different drivers, there and maybe tops down and follow up to that you've talked about it going to be pretty challenging to get to that 5% operating margin target for the year of given when the price and kicks in and what that means for margin.
And it still feel like you could exit the year on a run rate basis and.
Potentially breach that level and 22 or and if.
The answer is maybe can you talk about what the levers are that could get you above or below that depending on how things shake out this year. Thanks.
Yes. This is Jeff I think we could certainly it's in the realm of possibilities that we could be at that level exiting 2021, and with another strong pricing environment.
The stable truckload capacity market.
And favorable economic conditions I think we can get there we're focused on.
Driving margin expansion not only through price with the operating better and more efficiently, both and the and the transportation costs.
Of the P&L as well as the operating expense side of it.
We've said the last two years really optimizing the operating expenses side of the business and.
As we continue to grow and we're going to look to leverage those expenses, which we did in 2020 and we're going to continue to focus on that and.
And the future.
Thank you.
And the next question comes from Brian and Bob.
<unk> from Jpmorgan.
Hey, Thanks, good afternoon.
Ask the question about where you see the current GAAP between truck and rail pricing.
As it stands the guest squarely in the east.
And they are down and I guess in the next two quarters clearly there has been one of.
Two of the and the freight market, but do you expect the conversion to start to pick up.
As you go into the into the next year and the restaurateurs, maybe improves and business.
And if it gets a little bit more balance and me.
Maybe.
Who is the conversion and just in general strength.
Because of your expectations, maybe that moving.
Moving east is and the best Barometer, So I think and put some context around that and then the also some conversations about.
Looking forward too much for you do you expect to be able to pick off the highway.
Sure. So I would tell you that obviously continual service improvement is going to allow us to convert more and more business off the highway and and we are targeting that very aggressively I think the.
Current differential.
Certainly expanded given where spot market rates were and where.
Some of the obviously rates are going up faster and the truckload market and we will be catching that very quickly. So I do I do anticipate that GAAP, which is probably in the 20% to 25% range right now would will close throughout the year, especially as renewals come online.
And we are seeing a very nice and strong pipeline of conversion opportunities both outside of RFP events, but also in RFP events a lot of our customers are very seriously looking at large conversions back to intermodal given those constraints and the and the lack of commitment from contractual rates during.
What was the very busy times day.
So we see significant opportunities and I think as.
As you mentioned the crude service.
Once again that opportunity to continue to expand and it doesn't need to necessarily be the fastest trucks, but just as consistent as really what we're looking for so so.
And there's still massive.
Conversion opportunity and we're targeting that with our rail partners.
Sure.
Okay got it and then in terms of the containers.
And the purchased last year, so assuming that that helps me of having that gave the turns that you would like at this point do you feel like that's helping.
Two of the bit more than more than you would've seen otherwise and then maybe a couple of quarters ago, you talked more about.
I think the group.
A little bit harder so the timing seems to work the way, but you.
And you feel like you've got and the full benefit of those considering kind of things that are congested right.
Right now, we're actually adding a little bit more.
Two of the network regarding some balance because you have this extra containers.
Yes, I would tell you that we arent getting the terms that we would expect or desire long term.
But we're seeing sequential improvement and that both and rail transit there as well and customer and loading times those are the.
Both of those can be challenging if you see sporadic changes and that and particularly with winter weather and things like that staffing levels can go down and you see box instead of a little bit longer and especially with some of our large retail clients. The amount of volume that we're seeing certainly led to some congestion but.
But we are seeing really really nice sequential improvement and I would tell you that the investment that we made certainly enabled us to grow above the market in particular, taking advantage of the volumes off the west coast and right now and given US an opportunity I think to continue to grow at that level.
And.
Okay, great. Thank you for the time.
Okay.
And the next question comes from Tom <unk> from UBS. Your line is open.
Yes, good afternoon.
Wanted to ask you a little bit about where you see the stronger volume growth and intermodal do you think.
Can you think of kind of balancing the eastern west or are you more optimistic about the level of.
Growth opportunity and one region versus another.
Sure.
I would tell you that initially and the first half of the year, we're anticipating until bid awards go into effect, we're going to continue to see similar trends with local west and transcon volumes, increasing at a higher clip, but as the awards come online I would tell you. We are also anticipating that local east volume will start to pick up of conversion is really come into place on a more permanent.
Basis.
Right, Okay and.
And then I wanted to ask you a little bit of at the brokerage business I think your brokerage business might move a little bit differently than what we typically think of but just wanted to see if you could give us some thoughts on.
How did brokerage net revenue perform in the quarter I apologize if I missed the comment.
And how do you think that business performs as you get the strength and contract rates in 2021 do you see pretty.
Strong improvement.
And in general we're expecting a.
The good environment for brokers, but maybe you could just give us some thoughts on how your business.
Response to the the rising rate environment and in truckload.
Yes.
That's a great question. So I think traditionally we run at about 80% contract and the fourth quarter were 64%.
So we did shift into the spot market more to support our customers and that's really why you saw the 27% revenue growth on a year over year basis is the the increase there. We did have some margin compression and 400 basis points, obviously that was tied to still our contractual business, we wanted to with our strategic customers maintain.
The commitments that we have obviously, making sure. They are aware of that so that going into bid season worried of very good position to take advantage of that price up or our incumbency, but also our lineups for growth as they see us as the partner that they can rely on and I would tell you traditionally that that would not be something we would we would have done.
And.
And so I'm very pleased that we are going to in my opinion and see double digit growth.
And the brokerage space. This year traditionally we were very reliant on our logistics segment to drive that what we're really focusing on now is building our inside sales force, which traditionally we did not have and and we're seeing a lot of success and cross selling to our traditional intermodal customers. The other area that we really like that we have a lot of opportunity in is the.
The LPL brokerage that we.
Acquired through the <unk> acquisition and that is an area, we're investing and as well and it's a very automated and streamlined process and one that we think we can continue to leverage and growth. So as you look at those segments of.
And of full truckload and <unk>, both have strong tailwind I think this year and then we're continuing to focus on giving our customers High service project support as well as they see surges in demand or inclement weather of Hurricanes, we do a phenomenal job and servicing that too. So we have a lot of opportunities and.
I think give.
Given the investments we've made and technology, we're much and what we've done and aligning more on a regional basis and structure and as a more of the traditional brokerage I think we're in a much better position to win and this market.
So is it fair to think that your net revenue growth.
With accelerated pretty coincident with contract pricing and truck is that when you really obviously you had the top line, but the gross margin compression and fourth quarter. So it's kind of like you get contract rates up and the net revenue really kicks and harder that's a good way to think about it.
Yeah, Okay. Thanks for the time, Inc.
And just as a reminder to enter the queue. Please press Star then one on your Touchtone phone and our next question comes from Brandon <unk>.
From Barclays. Your line is open.
Hey, good afternoon, and thanks for taking my question Jeff.
Just remind me I think you guided first quarter cost of like 85% or 88, I think thats what I caught.
It does seem to be a little bit of a step up from where you are and the fourth quarter, especially if we consider some of those discrete items you called out so can you talk to potentially.
Essentially what inflation youre seeing and the business and is this potentially.
Wired business cost that we just haven't seen yet.
Yes, it's a couple of things so the acquisition.
Took place in the middle of December So, we'll have a full quarter of.
The operating expense there.
The bigger driver of that was going to be a couple of really on the on the personnel cost side.
We missed.
Our bonus targets for 2020 so of.
For 2021, and we're going to be accruing at a more normalized rate of variable compensation expense, we do expect that to ramp up throughout the year and commensurate with our profit improvement throughout the year.
And.
And then there is a couple of kind of typical Q1 items. We of America annual Merit increase goes into effect mid February.
And there's some other payroll and it tends to be higher in Q1 as well. So those are the biggest drivers from the Q4 number.
Okay I appreciate that and then and my second question I, just wanted to talk about longer term capital spending because I know the budgets up quite a bit this year.
Can you speak to what you think would be a more normalized here or is this more normalized year for hub.
I'd say, it's going to be.
Year is more representative than last year last year also did have a.
The $22 million for the the headquarters building.
The year is that more normalized level of spend we've seen the benefits of growing our container fleet, having those assets available to serve customers also of growing our drayage fleet.
And both this year as an upgrade cycle as well as just pure growth and in the <unk>.
Tractor count to drive it.
The amount of drayage that we could do on our equipment.
Alright. Thank you thank.
Thank you.
And our next question comes from Charlie <unk>.
From the.
Evercore ISI your line is open.
Thank you for taking my question.
My question is around the <unk> and your rail partners. Both of your rail partners made significant progress implementing the SAR. This year could you just think about the changes that you saw throughout these implementation efforts and.
And the efficiencies that they contributed to you throughout the year.
This is Dave I can't speak specifically to the impact of <unk>, but I would have to comment that during the fourth quarter and even prior to that and in January as well, we've been seeing that the the railroads when there is issues that occur and they are.
Always occur, particularly and the high growth markets such as of this but the railroad's ability to recover.
And to manage issues that come up is improved dramatically its much quicker than it had been in the past I do think possibly of part of that is as a result of the <unk> investments that they've made.
Okay, great. Thanks for the answer.
And that concludes our question and session of strength.
Call back over to Dave Yeager for final remarks.
Once again, thank you so much for of.
Joining us on our fourth quarter conference call as always fill Jeff and I are available. If you have any additional questions. Thank you have a good evening.
Thank you ladies and gentlemen, this concludes today's conference call. Thank you true paving.
The now disconnect.
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And.
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