Q1 2021 Hub Group Inc Earnings Call
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[laughter].
Hello, and welcome to the hub group first quarter 2021 earnings Conference call, David Yeager hub, CEO until Yeager hubs, President and chief.
Operating officer, and Geoff Demartino hub CFO are joining me on the call at this time all participants in a listen only mode.
Brief question and answer session will follow the formal presentation.
In order for everyone to have an opportunity to participate. Please let me 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 company's best 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 believe expect anticipate and project and variations of these words. Please review the cautionary statements and the relief and.
In addition, you should refer to disclosures in the company's form 10-K, and other SEC filings regarding factors that could cause actual results to differ materially from those projected in these forward looking statements.
As a reminder, this conference is being recorded it is now my pleasure to turn the call over to your host Dave Yeager you may now begin.
Good afternoon, and thank you for participating in hub group first quarter earnings call.
Im joined today by Phil Yeager, Hub's, President and Chief operating Officer, and Jeff <unk>, Our Cheetah hub Chief Financial Officer.
On April eight T hub group celebrated the 50th anniversary of my parents, starting the company in a one room office over a flower shop in Haynesville, Illinois.
Over the decades thousands of people who have worked to ensure that hub group and prosper. My thanks go to each and every one of them for their contribution to physician hub for future success.
The first quarter continued to exhibit strong demand as our customers are aggressively replenishing inventories.
Going forward, we expect positive economic conditions that will continue to benefit our customers.
The macro outlook remains favorable with GDP growth of 6% strong retail sales and historically low inventory to sales and strengthen imports.
On the supply side the outlook for truckload capacity continues to be constrained due to a shortage of drivers issues with truck production rising insurance expenses and driver of regulatory changes.
We believe that the combination of strong demand and tight supply of transportation capacity creates a positive pricing environment that will be partially offset by increased costs with.
That I will turn the call over to Phil to review our business lines.
David.
Congratulations to the entire hub group team on 50 years of success through our focus on service innovation and integrity at all.
I'd like to congratulate our chairman and CEO, David Yeager, and its 25th year as our CEO and its 100 earnings release.
As drive the termination and Steady-handed leadership has enabled us to be successful for 50 years and will set us up to continue to succeed from 50 more.
For the quarter, we continued to prove the strength of our model through dynamic market delivering strong results with significant improvement opportunities ahead in particular in our intermodal segment as we move past weather disruption and realize the benefits of enhanced pricing.
For the quarter intermodal revenue was up 6% and volume was up 2% year over year Transcon volumes increased 9% local west increased 11% in local east declined 11% year over year as the impact of weather and network disruptions impacted volume.
Gross margin as a percentage of sales declined 190 basis points year over year as our intermodal segment was most impacted by the weather disruption with a 6% volume and a $3 million gross margin impact in the quarter.
The dislocation of the network created inefficiencies, leading to increased repositioning costs and outsourcing of drayage, which along with slower fleet turn could not be offset with our higher pricing surcharges and enhanced productivity of our trucking fleet.
As we look ahead, we see robust demand through the end of the year, along with our continually improving pricing environment.
We continue to invest in our fleet by adding an additional 500 containers on top of our previously announced 2500 order.
Along with our purchase of 3300 containers last year and investments in our trucking fleet will allow us to meet the strong demand for our service and reduce our costs.
Logistics had a strong quarter with revenue, increasing 8% and gross margin as a percentage of sales increasing 180 basis points year over year.
We executed on gross margin improvement and our outsourced logistics segment, which along with new business Onboarding negated losses of business from last year.
This improvement was offset by customer mix, whether in cost increases. The haystack, we are addressing that through several internal improvement initiatives that we will see benefits from throughout the remainder of the year.
NFC has been an extremely successful integration.
We are executing on our cost synergies and our onboarding new wins from hub customers, while continuing organic growth from existing clients by leveraging our great service.
We have a very strong pipeline across logistics and with our value proposition to help reduce cost and improve service, we anticipate strong demand going forward.
Brokerage performed well with 30% revenue growth on a 6% decline in volume as well as a 110 basis point decline in gross margin as a percentage of sales.
We continue to support our clients from the spot market as our mix moved to 51% contractual 49% spot during the quarter.
We grew our LPL volume and our team's strong win through our enhanced value proposition.
Lastly, we have made great strides in our dedicated business we.
We have enhanced our operational discipline and go to market strategy, which resulted in 11% revenue growth and a 90 basis point compression in gross margin as a percentage of sales.
The enhancements, we continue to make to our processes cost structure systems and management team will allow us to further improve our service product and ensure we continue to enhance our returns in that service line, which are now at much improved levels.
With that I will turn it over to Jeff to discuss our financial performance.
Thank you Phil.
We are pleased with our Q1 performance despite the challenging weather impact during the quarter.
Revenue grew in all of our service lines with total company revenue up 10%.
Gross margin was $109 million or 11, 8% of revenue, which is an improvement over our Q4 2020 rate of 11, 1%.
We continue to exhibit strong cost control with quarterly costs and expenses equal to nine 2% of revenue as compared to 10, 1% last year.
Cost and expenses were flat year over year. Despite the acquisition of NFC in December of 2020 salaries.
Salaries and benefits expense for the quarter increased primarily due to incentive compensation expense, partially offset by lower salaries and lower head count or non driver head count is down by 9%, excluding the impact of the NFC acquisition.
Due to our efficiency and technology initiatives.
Q1 general and administrative expenses declined by over $7 million as compared to the prior year due primarily to lower professional fees lower travel expense and higher gains on sales.
Hub group's diluted earnings per share for the quarter was 51.
This compares to <unk> 40 of diluted EPS in the first quarter of 2020 our.
Our tax rate for the quarter was 21, 9%.
We generated $56 million of EBITDA in the quarter and ended with $226 million of cash on hand.
We continue to have solid liquidity and low levels of net debt.
We view our capital structure as an asset and our priority is to reinvest in the business through capital expenditures and strategic acquisitions.
We are raising our 2021 EPS expectation to $3 20 to $3 40.
Up from $3 10 to $3 30 that we announced in February.
For 2021, we expect revenue will grow in the mid teens percentage range with intermodal volumes up high single digits and revenue growth across all of our business line.
We forecast gross margin as a percent of revenue of 12, 5% to 13% for the year increasing throughout the year as we progressed through the bid season and.
And realized rate increases.
Our outlook is based on the assumption of positive economic conditions will continue to benefit consumer demand and that low customer inventory levels will drive the need for restocking.
For the year, we expect costs and expenses of $355 million to $380 million.
For Q2, we anticipate cost expenses will range from $92 million to $94 million and will.
To increase throughout the year as we book more variable compensation expense in line with growth in overall profitability.
We expect our tax rate to be 24% to 25% for the full year.
Our 2020 line capital expenditure forecast is $165 million to $175 million.
We increased our container order for 2021, and we'll be adding 3000 containers, which will result in net growth of 2750 after retirements.
We will also be adding 150 refrigerated containers.
We have ordered approximately 700 tractors the majority of which are for replacement of older units and the remainder will support growth in our drayage and dedicated fleets.
David back to you for closing remarks, Thank you, Jeff our outlook for the remainder of 2021 remains very optimistic demand is strong in all of our business lines as our customers continue to need cost efficient solutions that offer high levels of service with that we'll open up the call to any questions.
Thank you we will now begin the question and answer session. If you have a question. Please press Star then one on your touch telephone if.
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And our first question comes from Justin long from Stephens.
Thanks, and good afternoon.
So I wanted to.
I wanted to start with a question on whether you mentioned the volume headwind in intermodal until you pointed out the $3 million of cash.
As well, but all in do you have an estimate for the EPS headwind from weather and <unk> and then Jeff would love to get any thoughts around second quarter and what's baked into the guide from EBITDA margin or EPS perspective.
Sure Yes.
Yeah, Great question I.
I think I highlighted it in intermodal first because that was the most impacted business unit that we had obviously we had three days of it.
Intermodal network shutdown in our in our Western network and.
Obviously, some challenges in the eastern portion as well so that was really the largest impact we did see some benefit.
In the truck brokerage side, where we were able to maintain some of the freight that was delayed or needed needed support.
In the spot market. So that certainly was an offsetting benefit case tax had some headwinds as well, but I think really wanted to highlight it in intermodal because thats, where the biggest challenge was as you look at volume.
We're up 6% in intermodal in January and Thats.
Not adjusting per business days down 8% in February and then up eight in March.
We've seen that trend improve in April with sequential improvement, there, which came in around a 19% volume growth.
Just wanted to make sure I highlighted that and Jeff if you want to hit on the <unk>.
<unk> from the weather impact.
Sure I think.
You've kind of got it most of the pieces of our adjusted net.
Okay.
Low to mid twos, probably net after you capture the pieces that Phil talked about.
Okay in terms of the second quarter, Jeff any color you could give there.
Sure, we obviously faced a pretty easy comp relative to last year, but no we expect.
We will have sequential growth over even over Q1.
Phil mentioned the April intermodal volume growth up 19% year over year, just sequentially April from March up 4% on a business day adjusted basis, So that we have.
We expect we will continue to grow based on the demand profile and we're starting now to with about 40% of our volume of intermodal volume repriced starting to get some of the benefit of those price increases and obviously more to come but.
Another 25 or 27% in the second quarter will be group price as well.
Okay.
Second question.
On a more bigger picture.
Had their investor day, there was clearly more of an emphasis on growth that commentary seemed to suggest that intermodal would be leading the charge on that Brian would it be fair to say that you've seen an inflection point in that relationship as it relates to the growing together and providing better cost visibility.
And if that is the case, how does that change your longer term framework for hub intermodal volumes and margins.
Hi, Justin this is David and I'll leave the last part of it too.
Jeff and Phil.
The relationship with Union Pacific I don't believe has ever been better or stronger.
We're working very collaboratively.
And.
So it's really a very very strong collaborative environment whereby.
We are focused on growth.
Investing in our intermodal product and they certainly.
Our encouraging us and supporting us in doing that so.
We've never been in a better position with both of our rail partners.
This will really act as a major driver for us to be able to continue to grow in the future and this is Phil I would just add I think we have a really constructive contractual framework at this point that helps with that relationship that's been phenomenal for us.
And having better visibility to costs, but also to.
So work more strategically on other items, where we can drive growth or improve our operations together, we're really excited about the investments in Colton and in Minneapolis. We think both of those are great growth avenues for us. So we love seeing that and being able to bring new lanes to our client Colton in particular is a gray.
Right.
Net up with our current infrastructure in southern California, as well as just where our customers are dominant dialing their distribution centers. So really a great opportunity for growth. There as we look ahead in intermodal I think you have a driver shortage you have tight truck capacity delays in delivery of trucks, I don't think thats going anywhere anytime soon.
You also have escalating fuel prices and I think a great backdrop with larger corporations with their focus on carbon emissions and have lowering net carbon footprint and we think intermodal is a great way to do that all of the kind of.
Qualitative and quantitative factors are pointing towards kind of prolonged growth for intermodal and so that is a big part of why we're going to continue to invest in it and make sure we're generating a strong return as well.
Okay, Great I'll leave it at that thanks for the time.
Thank you.
Our following question comes from Scott Group from Wolfe Research.
Hey, Thanks afternoon guys.
I'm going to start on I want to start on gross margins. So I think you beat the first quarter your guidance by about 50 basis points, but.
Left the full year guidance unchanged, but what's the thought there, especially given the pricing environment just keeps getting better.
Yes, we didn't we didn't guide specifically for for Q1, I think we've said we'd be up from our Q4 adjusted rate of 11, four so I think we're on track we think we can get to the upper upper 12.
Even up to 13.
As more of that pricing take hold we are seeing very strong.
Pricing dynamics.
That has to work its way into our volume and revenue as business has repriced.
So we expect to continue to stay on that path throughout the year.
If I look back at eight and 18. The last time, we had that really good pricing you started the year and an 11% ended the year nearly 14, if we're starting the year now almost 12 is it realistic to end the year, perhaps over 14, maybe closer to 15 on gross margin.
I'm not sure we would go quite that far I think.
With a strong pricing environment this year and if conditions kind of stay the way. They are we certainly think that will be possible into next year, but I'm not sure we're going to end up quite that high for the current year.
I think a lot of it also depends on peak, we're getting peak plan setup right now feeling very good about the plans we are getting in place. So that certainly gives us some upside I think versus.
Our forecast that really comes to fruition.
I would just highlight that as a potential upside.
And based on what we're hearing from clients from the discussions that we're having we're anticipating a really strong west coast peak season.
Okay and then just lastly, do you have thoughts on reemergence of AB five and what the potential impact could be.
Hi, Scott. This is Dave we were watching that very closely as obviously.
We do use a fair amount of independent contractors.
So it's something that definitely we are making a lot of different plans.
In case certain actions are taken particularly out in California.
We do have a large company driver fleet in California.
But it doesn't support 100% of our needs. So it's something that we.
We're working through just in anticipation.
But legislature in fact, we'll continue down the path are going.
Any way to sort of ballpark, what a cost impact could be if any.
I think that would be pretty tough to quantify.
Obviously, the independent contractor model and the integrated network is very important but we also know that our partners, who we keep very close contact with are migrating their model.
To be able to continue to operate and be successful regardless of the overall regulatory environment whether that.
Shifting to more of a broker model or two.
A company driver model so.
And I think we've done a great job of building out an infrastructure ourselves, where we've taken more share of our own dray edge out there and have a infrastructure going forward to support more volume.
I would say at a very competitive driver market that one of the markets, where we've been very successful in adding drivers.
I don't see that there is a cost impact because I think our our our vendor base will continue to navigate through the regulatory environment very definitely.
Thanks for the time guys I appreciate it thank you.
Our next question comes from Todd Fowler from Keybanc capital.
Hey, great Thanks, and good evening.
I apologize if I missed this but I think that last quarter, you talked about expectations to realized pricing in the mid to high single digit range and on the intermodal book It sounds like Youre about 40% implemented do you have updated thoughts on pricing and can you speak a little bit to where contract renewals are currently.
Yes, I would highlight this is Phil I would highlight that we had after the weather disruptions, we saw a even greater inflection point in pricing.
I think with the chip shortage and continued delays in new production.
A base vehicles as well and the continued driver shortage.
The pricing environment has continued to improve we're renewing at double digits.
At this point anticipate that's going to continue.
Okay. That's great. Thanks, Phil and then just.
A follow up on your comments to Justin about the environment, the constraints and kind of looking at the environment, a little bit more longer term.
You are taking up the container fleet additions here this year modestly expectations for high single digit intermodal volume growth.
Is this an environment, where I don't want to say, you're turning down volume, but there is an opportunity to even get more volume and so just given some of the constraints to line the ability to add capacity that there could be more of a tail, where we see from sustained.
The sustained growth on the intermodal volume side for a couple of years at this point or how do you think about balancing the pricing that youre able to get and volume growth in this market.
Yes.
With the renewals that I was just referencing we are seeing growth as well so that I think the conversion to intermodal and continuing customers want to lock in capacity. They don't want to have another peak, where they are buying in the spot market and I think that that will continue through the remainder of the year end and into next year.
I think that the weather, we certainly missed volume opportunities and the recovery from that took us a little longer than I would have liked.
We had a 15% lower fleet turn.
In the quarter a lot of that was rail transit, but also delays in unloading at destination and sourcing.
Enough dray capacity to dig out quickly. So I think all of those factors in April and now in May have trended positive, we're seeing transits really tighten up which is great and that alone will generate incremental capacity even on top of the orders that we've done we think that there will be we haven't modeled.
So we think there is upside in our turns in the back half.
And that we could create incremental capacity to handle more demand.
Then we are today, but certainly the demand is there and as we can create capacity with our deliveries will be taking place really from June going forward, which will really benefit us earlier as well so.
Very bullish on our ability to take more.
Yes, okay that sounds good and that makes sense on the velocity plus the container additions, helping the ability to handle more volume. Thanks, a lot for the time and congratulations on the milestone this year.
Thanks, Doug.
Yeah.
Our next question comes from Elliot Alper from Cowen.
Great. Thanks for taking my question I wanted to stay on intermodal.
<unk> talked a lot about volume growth I guess, how should we think about.
Intermodal in the second quarter and for the full year on a margin perspective, and kind of what may be baked into guidance and then any other color. The rails are telling you about congestion right now.
Sure I can this is Jeff I can speak to the margin.
Improvement.
Much like we saw kind of Q4 into Q1, we expect.
<unk>.
Spansion of the margin.
Intermodal in particular.
Increased throughout the year again as more and more of our business gets re priced for us pricing very big.
Big lever to our gross margin percentage.
So maybe slight improvement going from Q1 to Q2, but we'll continue to ramp up throughout the course of the year.
One of the key drivers in our.
The increase in our guidance for the year with.
Anticipate pretty strong intermodal pricing.
Throughout the course of the year, we do have some costs that come into play as well.
Particularly in the short term, but I think we'll see that margin expansion throughout the rest of the year.
Yeah, and I would just add around from our rail discussion where certain and we're seeing it in the numbers. We are seeing improvement in fluidity I think part of that is.
Getting past some of the weather events, making sure that congestion down and that also from a chassis availability perspective, we're seeing improvement there and that's been part working with our clients to help and unloading times and making sure that we have.
The capacity available to pull it off.
All of those factors are heading in a positive direction and we anticipate really heading into peak season.
To be in a much better position and so we are seeing the sequential improvement.
Okay. That's helpful. And then secondly at the E&P Investor Day yesterday, they talked about some drayage operations.
Investing in leveraging autonomy in the future curious if thats something you would consider in the future.
Sure, Yes, I think we're going to continue to.
<unk> with different technologies, so we actually just launched.
An electric vehicle pilot I was really excited to take place and I think that's a great step for us in the short haul configuration that we have there is some weighted infrastructure.
Cost challenges that need to be overcome but really exciting step there.
Thank you.
<unk>.
So very close to our confined sort of area.
Autonomous technology can be applied.
And that's something that we're looking at very much as well I don't think youre going to see that in long haul trucking anytime soon nor nor in short haul I think youll continue to have a driver in the truck, but could have a much safer vehicle, which I think would be a big win for everyone. So but in those confined.
<unk>.
Terminals I think there is an opportunity to to really utilize autonomous technology and thats something that were.
With EPS.
And other partners continuing to research and look for opportunities to deploy.
Great I appreciate the time.
Our next question comes from <unk> majors from Susquehanna.
Okay.
Thanks for taking my questions here.
You made a comment earlier about sequential increases in the costs and expenses relative to incentive comp is that just leaving some cushion in the cost guidance in case.
Revenue and potentially income guidance tends to move higher just trying to understand the cadence of those accruals and how they were sure yes, and we talked about this a little bit on last quarter's call because in 2020, we did not meet our.
The criteria paid bonus that we were anticipating and budgeting that payable in 2021.
We pay per performance and we accrue bonus as we start to recognize more and more profit throughout the year. So we're starting off low and we anticipate continuing to build that up throughout the year.
As our gross margin and other.
Operating profit contribution is supportive of the level that would allow us to pay a bonus for.
For the year.
Thank you for that.
Back to <unk> on the exit rate I mean is there an opportunity for you to be above your kind of 5% long term target.
Either seasonally in the fourth quarter or exiting on a run rate assuming things.
Stay that way into early 2022.
Yes.
Certainly think it's possible.
We've done a really good job I think in the last 24 months or so to take out operating expenses and really improve the cost structure through efficiencies and technology and we're I think we saw in the Q1 numbers were able to leverage those expenses and we anticipate to continue to do that and.
We will add back some head count and incur some additional costs as we grow but with mid teens revenue growth.
We certainly don't expect to be growing our operating expenses that rates will be leveraging those costs.
We could be exiting the year that 5% range.
Could take place in the next year, a little bit of a swing based on how strong pricing is that at the end of the year.
I think we might.
Might have mentioned.
The renewals that are coming and we've certainly seen an improvement in the pricing environment, but we're also coming off of a lower base, where a lot of the customers that bid at this time last year got a benefit from.
Early concerns around what we're going to happen with the pandemic right. So the opportunity to bring those rates up and back into line with market is a large percentage swing. Obviously, we've maintained the commitments I think the other swing factor that we have is once again Pete.
And the surcharges that will be out in the market to provide capacity, obviously, we have additional cost.
<unk> to make sure that the capacity is available, but we think that that will be higher than last year.
Well and give us some upside.
Potentially be on a run rate on that target what I like about some of these renewals that are coming in now is that pricing will be effective through the first half.
Our first three quarters of next year, which will give us a.
Benefit through.
Really the first half of 'twenty two.
Last one on a similar topic.
Rail inflation can you talk a little bit about how much visibility you have into 'twenty. Two at this point and how you think net of compare to what you are feeling this year on the beauty side. Thank you.
Yes, we have very good visibility and anticipate it will be similar to this year.
Similar to last year.
And our next question comes from Tom <unk> from UBS.
Yes, good afternoon.
Wanted to ask you a bit about.
I guess the fluidity and.
Tim strength that you see in the system.
What are the most important tinge points and how do you think that they could potentially.
<unk> as you look forward.
I guess, maybe east west rails.
How much drayage is constrained at the present time.
Sure.
This is Phil.
We have seen obviously during the storms and at the beginning of the year transits were elongated on the rail side.
The unloading times were up which was constraining capacity and.
Dray capacity was at a significant premium given some of the searches that were out there we've done a nice job I think of making sure that we are sticking with our rail partners and understanding where they have congestion both at at the terminal level as well as on online.
And in making sure that we're proactively working through that with them, which I think is part of why we've seen an improvement in transit on the street, we've done a good job in a very competitive driver market of maintaining our driver force.
We haven't added as many as I would like but.
We have done I think a very good job there and we've done a great job in my opinion of continuing to align with our third party carriers.
And ensuring that we have available capacity there are some constraints on the drayage side on <unk>.
<unk> and weekend sort of work right I think thats, where we've seen constraints as we move to a more 27 supply chain.
That has certainly been something that has been a challenge, but once again working with our drivers and our third party partners.
Really overcome that and then lastly.
Last year, our customers then early this year, we are really struggling.
With getting folks into work for warehousing.
That was it.
Certainly a constraint on capacity a constraint on chassis availability, which downstream impacts terminal fluidity and online fluidity as well.
As the vaccines have been rolled out more broadly we've seen a significant improvement and folks coming back to work something that is still out there and I think this is a challenge for all industries at the.
The continued government subsidies were.
My non incentivize work long term, it's a good thing for the consumer but not necessarily for four are unloading time so.
That is something that were.
Closely monitoring with our clients every day and.
And we once again has seen significant improvement from where we were in the fourth quarter and even the first quarter of this year. So all of those I would say are heading in the right direction I don't see a negative out there for US just want to make sure that we continue down that path and I think we'll be in very good shape to have a strong peak.
Great. Thanks for the detail on that what about I think the numbers you offered I didn't catch them all in terms of like <unk>.
Transcon Eastern West, but I think the number was down a lot for intermodal volume.
And Westwood.
That's something you think would normalize or is that.
Big spread and volume performance will likely to persist through the year.
That was really a it's something to do with our bid wins, we did win a lot off the west coast and then saw significant demand even beyond that so.
Given the commitments that we had made it pushed more capacity to the west coast.
But we are seen as the year progresses, more and more of a normalization on those growth rates.
Should continue to see that for us a big focus is making sure we take out empty repositioning costs trying to create more balance in the network and through growth in the local east. We can have more of that now I don't see the demand on the west coast really stopping any anytime soon.
Or at least in 2021, but we have been successful through bid season, and creating more loaded inbound.
Inbound into those markets, which will benefit us in the available capacity and cost.
Forward.
So would you think east volumes are up or that's just a function of the repositioning containers out of the east.
I would say each volumes will trend upward on a year over year basis going forward.
That would be my butt.
Maybe not at the percentage that we're continuing to grow off the west, but we did obviously our growth last year was mostly off the west coast. So we will have somewhat easier comparable in the east. So I would anticipate I would anticipate that if you look at the remainder of the year Youll see Easter growth per month.
Great. Thanks for all the perspective.
Our next question comes from Jon Chappell from Evercore ISI.
Thank you good afternoon from.
So we're approaching about a year now anniversarying some of the customer losses that you noted in logistics brokerage and dedicated you had said in your prepared comments that logistics are onboarding, a lot of new customers that you're offsetting customer losses, but where do you sit with all three of those business businesses in kind of resetting the customer base and getting it to the point where.
Your capacity to handle it efficiently.
Yes, so I would highlight.
From a productivity perspective, maybe I'll go there first so and our brokerage we had 8% productivity improvement year over year in the first quarter and we've really improved productivity 30%.
The implementation of our brokerage workbench, so really pleased with that and logistics from the first quarter, we had a 28% productivity improvement, which is which is great and that is <unk>.
Largely attributable to changes, we've made to our workflow and making sure we have the right customers and that we're really pushing automation.
The business. So all of that has been very positive on the dedicated side I really pay attention to our revenue per truck per day, which was up 12% year over year in the first quarter. So as we look at those items. The increases we're continuing to get in dedicated and the improvement in operational practices, we're very bullish on.
Our ability to continue to improve margins, there and bring on profitably knew when theres a lot of demand out there for dedicated so we're actually being very selective in what we are bidding on and where to ensure that it is going to meet our return criteria and brokerage given how efficient we become I feel and the investment.
We're making continuing into technology into working with our carriers more proactively.
I feel as though we're going to continue to be able to grow there, but we're also growing our inside sales force.
Which is which is going to allow us to sustain growth even as the market starts to cool off a little bit.
And then lastly on logistics, our pipeline across our outsourced transportation management.
Home delivery encase back.
The best that I've seen it.
And there are some large revenue, but much better operating margin wins coming on in our outsourced transportation management segment K stack, we're bringing on new wins, some bigger customers, but we need to focus on the small ones as well that have a little bit of a higher profitability and then lastly, just within SD.
The cross selling to our.
Hub clients has been great. It's opened up doors that the NFC team could not have gotten into before and we've improved the pricing structure by removing layers of margin that were in there before to be more competitive and so that's bringing on new wins, which is allowing us to beat the forecast on growth I feel like the non intermodal segment all have great up.
Syed.
And we're in a very stable and strong position right now.
That's great great input, thanks, Phil and I was going to ask about the cross selling and NFC, but since you addressed it let me ask another question, it's pretty noticeable how much your cash balance continues to increase and obviously you guys have a track record of making some well timed acquisition and I'm sure. The pipeline is full and I am sure Youre looking at a lot of things right now, but just curious with the <unk>.
Across the entire supply chain.
Would think maybe the valuations are also getting a bit stretched. So is there any general comments, maybe David can make about <unk>.
<unk> as you look at inorganic growth and if Theyre just not there right now and Youre not willing to chase anything is there any other uses of capital that you would think about in addition to <unk>.
Normal capital spend.
I can answer the one part I think Jeff would be more qualified on the overall valuations, but we do review with the board every quarter.
They are not we do any stock buybacks dividends et cetera.
Honestly, we do believe that the most efficient use of the cash is to continue to expand the business into a variety of other verticals while investing.
In our more asset based our asset intensity businesses of intermodal and dedicated.
Jeff did you want to sure David.
David.
We've got some pretty stringent criteria.
We don't feel like we should be chasing every last dollar when it comes to the acquisition, but we are pretty selective.
The criteria and then when we do find something we like we do.
Spent a pretty good amount of time on diligence and making sure there's a cultural fit.
The acquisitions, we've done I think.
Pretty reasonable valuations just given the growth profile both.
What that business has been doing on its own but also probably more importantly is what we can do with that business under our we've had really good success with both up well actually all three of our recent acquisitions in terms of the cross sell.
Non stop we're very very pleased with that.
That business has been doing very well even with existing.
Existing customer base, but also the opportunities that we're able to bring to bear with our customer base and our sales force as well. So we can we can kind of make that work if the potential is there, but we're not going to certainly chase and go after a.
Highly competitive auction type situations.
Okay that makes sense. Thanks, Jeff Thanks, Dave Thanks, David Thank you.
Just a reminder, if you have a question. Please press Star then one on your touch telephone and once again Thats Star one.
Our next question comes from Brian I will come back from J P. Morgan.
Hey, good afternoon, thanks for taking the question.
Sure.
One of the other themes from the Investor Day yesterday with Union Pacific was ESG and you mentioned earlier the focus on conversion lowering carbon footprint, maybe you can just give a little bit more color into it.
Actually happening.
Thank you for your basis, so part of the conversation hub.
How thats been working coming to the bottom line and actually making those conversions and then separately can you talk about the spread between truck and rail as you see it now in the east and the West.
Sure.
<unk> front, we have a great story much like our rail partners do.
Last year for example.
The use of our intermodal.
Product sales at about $1 6 million metric tons or about 70% more efficient than over the road.
And increasingly we're hearing more and more customers.
Request that and look for that type of support as they are trying to achieve their own.
Their own environmental goals with respect to their carbon footprint.
On your question on the spread between.
Rail and truckload I have that here.
So in the west and Transcon north of 60% on a per mile basis.
Intermodal contract versus truckload contract in the east.
In a low double digit percentage GAAP.
I would just highlight on.
Intermodal versus truck pricing I think that gap will close pretty dramatically.
Changes are put into place than renewal, but.
There is a premium on capacity in service right now and so that's certainly something we're looking at.
And we.
We have a good understanding I think of where the market is and where we can price.
But that will be important going forward.
Okay got it and just on the follow up on the ESG is it something that shippers have unions, it's nice to have.
And you can get to the support for it and get the that gets credit in their reporting where do you feel like it.
It's starting to be monetized or quantified in some way that you are seeing it actually be that.
Triggered from new business, describing for you Herbert now consume capacity, so tight but I guess, how is it coming up in the conversations.
Maybe now versus the last 12 months, and where you see it going up.
I would say that it certainly moved to be a much higher priority I don't know that it is the deciding factor, although I think that varies by customers.
There are some customers that are taking it extremely seriously and really making a conscious decision based on that obviously cost is always going to be a factor as well right. So I think given the capacity environment, it's tough to say.
Weather.
It is cost or if it's actually the carbon emissions decision, but it is certainly a much larger factor and once again that the escalator, especially with a lot of the companies that we work with who are out making commitments on carbon emissions. This is a.
This is a really easy way.
To make a lot of.
A lot of headway towards those goals.
We are outselling it very aggressively we are establishing automated reporting for our customers. So that they can factor it into their scorecard.
Which has been I think a great win and ensuring that they understand every week.
They are getting value out of that and doing their part in the transportation and logistics group to help the company achieve their goal.
Okay. Thank you for your thoughts there.
Growth.
Our next.
Question comes from David <unk> from Barclays.
Hey, Thanks for taking the question.
Maybe four.
Phil or Dave just a question on Big picture.
Drayage strategy, just as you've seen kind of a cycle.
Increased intermodal demand kind of coming up and the ability of your systems to handle any thought on how you want to try to reposition your training systems.
A split from company versus outsource.
Other ways to look at tranche to better position yourself for the next cycle.
Sure Yeah, I think it's a great question so.
We traditionally in the past had been about 30% owner operators, 70% company and it really shifted to be about 60% company 40%.
Operator at this point in our own Dray account work, we're being much more successful in adding company drivers I think we have a great.
Value proposition with new equipment, great benefit great pay to be out in the marketplace with <unk>.
We are continuing to add independent contractors in the right markets.
Where we think there is a sustainable model there, though so.
So for US we do believe that continuing to invest in the fleet putting capital towards that it's going to be the most cost effective and highest service solution for us, but we also maintain extremely strong.
Partnerships with with outside capacity and third party that we've been working with for many years and will continue to work with.
I don't have a percentage in my head it would per our fleet I think we want to get to 80% company driver over the next several years, but as we grow we need to be nimble in our ability to.
Take on more third party or contract that as the market changes, which has been allowed us to maintain margins more effectively.
Throughout cycles. So so that would be my view, we don't really have a target in mind, but do want to continue.
Two invest to allow us to grow our footprint.
Great. Thanks, and then just as a quick follow up with kind of the brokerage market being as hot as it is you mentioned the 50 149 split are you looking to be a little more aggressive into the spot market or try to take the contract percentage up to try to capture the current market.
So we traditionally run.
Somewhere between 70, and 80% contract, sometimes even north of that.
So this is a little abnormal for US part of it is some of the changes we've seen we have some lower project long term project freight.
Well as some lower logistics volumes, which fall into our contractual bucket so long term.
One of our customers do annual Rfps in the spot opportunities are are going to be outside of that the long term I don't see the split I think it'll move back closer to that sort of 60% to 70% contractual on a longer term nature, but.
I think that this.
This year.
Has it been an aberration in our spot market exposure, but we're certainly going to continue to step in to support our clients.
Thanks Scott.
We have no further questions I'd like to hand, the call over to Mr. Dave Yeager for closing remarks.
Great well again, thank you for joining us on the earnings call today.
As always.
Phil Jeff and I will be available for any questions. If you have some additional comments. Thank you again.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect.
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