Q1 2022 Hub Group Inc Earnings Call
Okay.
Hello, and welcome to the hub group's first quarter 2022 earnings conference call, Dave Yeager hubs CEO , Phil Yeager hubs, President and Chief operating Officer, and Geoff Demartino Huff CFO are joining me on the call.
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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's first quarter earnings call.
Joining me today are Phil Yeager hubs, President and Chief operating Officer, and Geoff Demartino clubs Chief Financial Officer.
I'd like to thank the hub team for the hard work and focus on delivering great service to our customers as we achieved record earnings for the first quarter of 2022.
Our non asset based logistics and truck brokerage business units experienced accelerating growth as they provide reliable and economical services.
And intermodal gained momentum throughout the quarter with continued focus on the customer and delivering excellent service.
There has been a great deal of discussion of Blake on spot rate declines and a looming recession.
While no company is immune to an economic downturn.
We believe that health is well positioned for growth through 2022, and then to 2023 and beyond.
Each of the business units has built in defenses that will assist them if a slowdown should occur.
Dedicated consists of long term agreements that commit capacity to a customer at a specified price.
In today's environment and many customers are focused on securing consistent capacity after experiencing the shortages over the last several years.
Both of our non asset based businesses can adapt to the vagaries of the economy.
Brokers are able to perform well in both tight or loose capacity markets.
Advantage of the arbitrage through pricing.
Our logistics business is focused on bringing value added services to our customers in high growth areas, whether it's transportation management that brings technology to customers, allowing them to better control their supply chains home delivery or LCL consolidation offering enhanced control with reduced cost for the customer.
Lastly, intermodal represents 55% of hubs revenue.
Our model is the growth engine for the rail industry as well as for hub.
The advantages intermodal offers to our clients include dramatically better economics than over the road four times more fuel efficiency than over the road, thereby offering ESG advantages significant capacity and generally consistent service.
As the price of fuel remains at elevated levels and the driver shortage continues intermodal is now experiencing more truck conversions than we've seen in several years.
Hub is very well positioned in this growth business with 45000 containers and 6500, new boxes being added to the fleet this year.
We have excellent relationships with our rail partners and have differentiated ourselves as a superior service provider.
Through our strong balance sheet, we've made significant investments focused on growing intermodal, while diversifying our service offerings, improving our efficiency through technology and continuing to enhance our operational discipline, which will help set the company up for growth in a variety of market conditions.
With that I'll turn it over to Phil to review our performance.
Thank you Dave.
I wanted to start by thanking all of our team members across North America for their constant effort and focus on delivering a world class customer experience.
Before I begin discussing our service line performance I wanted to highlight a change to our reporting.
Given the integration of our intermodal and dedicated organization systems equipment and drivers we have adjusted our reporting to discuss our asset based operations as one business unit intermodal and transportation solution.
We believe this will appropriately reflect our performance in our asset based operations in the future as we continue to leverage our density and improve the utilization of all of our resources.
I will now discuss our service line performance for the quarter.
Intermodal and transportation solutions revenue increased 35% in the quarter with 790 basis point improvement in gross margin as a percentage of sales.
Our revenue growth was driven by 4% intermodal volume growth and a 35% improvement in revenue per unit, which was partially offset by a decline in dedicated revenue. Despite an increase in revenue per truck per day.
Our intermodal revenue per unit improvement was partially driven by mix as we grew transcon moved 11% local at 7% in local east declined 5%.
We experienced a decline both year over year and sequentially and rail service, but it has seen positive trends at the end of the quarter and into this current one as our rail partners make progress in improving staffing chassis availability and terminal congestion.
Despite those headwinds, we executed well driving a slight sequential improvement in utilization due to enhancements in customer at St well as well as the large increase in year over year on time performance to our customers.
We've seen a very strong bid season, thus far and anticipate continued growth in intermodal volumes and pricing, which will be supported by a great pipeline of new dedicated onboarding.
Logistics revenue increased 6% year over year, driven by strength in final mile and consolidation as well as new Onboarding the managed transportation.
Gross margin as a percentage of sales increased 240 basis points year over year as we continued our strong execution and yield management across all of our offerings.
Our value proposition of Great service continuous improvement technology and supply chain savings is resonating with our customers and leading to a strong pipeline of wins, we have brought on in the first quarter and we will continue to see throughout the remainder of the year.
Brokerage revenue improved 132% year over year, driven by a 51% increase in volume and 54% improvement in revenue per load, mostly due to the acquisition of <unk> as well as organic growth in our full truckload and <unk> offer.
Gross margin as a percentage of sales declined 360 basis points year over year, as we executed higher revenue per unit spot shipments, which comprised 59% of our volume in the quarter.
We continue to see success in our integration of <unk> and are performing well on our cross selling synergy.
We are continually identifying ways to leverage our increased scale and generating large wins in bid season, which we anticipate will drive ongoing strength in this service line.
With that I'll hand, it over to Jack to discuss our financial performance.
Thank you Phil we are pleased with our Q1 results, which featured record quarterly revenue and profitability.
Revenue grew 41% with strong growth across all lines of business.
Our yield management cost recovery efforts and focus on operating efficiency led to gross margin of 16, 6% of revenue and operating income margin of eight 9%.
We continue to leverage our gross margin performance against our operating expenses, which were seven 7% of revenue down from nine 2% last year.
Salaries and benefits increased due to our recent acquisition as well as higher incentive compensation expense.
<unk> was up slightly as higher gains from the sale of transportation equipment were offset by higher expenses related to the acquired business.
Our diluted earnings per share for the quarter was $2 58.
Which is over five times the prior year with.
We generated $150 million of EBITDA in the quarter.
With cash of over $200 million and net leverage of close to zero, we have substantial flexibility to invest in our business through capital expenditures and additional strategic acquisitions.
We continue to have a bullish outlook for 2022 and are revising our guidance upward.
We see further demand from our customers driven by strong macro trends growth in consumer spending and low inventory levels.
We expect supply chain conditions, we will continue to be constrained and that our yield management and operational efficiencies will lead to further growth in earnings.
For 2022, we're expecting diluted EPS of between $910.
Which is a wider range than we would typically provide as the outlook becomes less clear towards the end of the year.
We expect to grow revenue to over $5 billion.
Putting us well on our way to achieving our goal of five five to $6 5 billion of revenue by 2025.
We expect intermodal volumes to grow throughout 2022.
<unk> by our container deliveries and improving rail service.
We forecast gross margin as a percent of revenue up 15, 6% to 16 point over the year as rate increases surcharges in essence oil revenues offset higher cost for rail transportation third party drayage.
And driver wages.
For the year, we expect costs and expenses of $420 million to $440 million.
We expect our earnings for Q2 will be similar to that of Q1.
In the back half of the year, we expect seasonal strength in yields will be offset by rising transportation costs.
Our capital expenditure forecast is essentially unchanged at $240 million to $255 million.
We have been receiving our 2022 containers and expect to grow our fleet by 6000 or 14% this year.
In 2021, we introduced our long term revenue and margin targets.
Our recent acquisitions of chop tank and Ft, Encase Tac and the significant investments in our fleet are illustrative of the types of strategic investments, we will make in our business, adding scale, while also introducing new service offerings with strong cross sell potential.
Dave back to you for closing remarks, Thank you Jeff.
We're very pleased with our first quarter results as well as our April performance at the bid results. We've seen thus far we look forward to continuing to deliver solid results for the remainder of this year and into 2023 at this time, we will open up the line for any questions.
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And our first question comes from Todd Fowler from Keybanc. Please go ahead.
Great. Thanks, and good afternoon, I guess whats the big step up in the outlook here for 2022.
I don't know who wants to take this but maybe if you could put some framework around whats driving the big step up relative to where we were in February and kind of your your confidence around how the year is going to play out the visibility that you have and so probably some of the contract wins in the pricing and some of the differences between the high and the loan at the guidance.
Yes.
It's Phil.
And thanks for the question I think we do feel confident in the updated guidance, we performed very well in bid season, thus far.
We're about halfway through with awarded volume cadence.
As a reference point is about 38% was done in Q1, we will see 40% done in the second quarter, and then 20% in the third quarter.
We've seen very strong pricing call it mid to high teens to start bid season on renewal.
And are seeing volume growth as we convert truckload volumes back to intermodal so really.
Feeling very good about the demand outlook, our customers I think are looking to lock in capacity we have.
Really stepped up for them over the past couple of years and so we're seeing some great opportunities to continue to drive growth I think we've been hopefully continually improving service product as well we're seeing some momentum in rail service, we think that's really going to help us.
Look at where fuel prices are that's a tailwind.
Our customers continue to look for opportunities to enhance their sustainability goals, which.
Which we are supporting as well I think the unknown is what happens with imports from China, I think that the bubble of freight that is going to.
Impact back half demand actually in a positive way.
Hopefully that congestion eases.
And once again put us in a position where I think with the investments we're making in the fleet. The cross selling that we're doing to get deeper with our customers sets us on a good trajectory to hit what.
What we've laid out in the press release and in our remarks.
Got it.
That's helpful. That's a good overview and just as a follow up.
Do we think about the sustainability of some of this going forward I'm kind of backing into the guidance implies operating margins in like the 8% range you've talked about four to five 5% in your 2025 targets. So.
How do we think about kind of the run rate off of this going forward.
Obviously, taking into consideration that we understand that there is some limited.
Visibility around the economic environment, but just the sustainability of the margins at this at this level.
Yes, so when we gave the long term guide.
Guidance for both revenue and the profitability. It was meant to encompass periods of strength, which were clearly and as well as softer times as well.
Just think of the outlook for 2022 is going to continue to stay strong we up the guide just based on the strength. We saw in Q1, we we don't give quarterly guidance, but we have our internal forecast, which was exceeded really due to strength in yields preliminary primarily driven by intermodal as the other businesses are performing as expected, but we really saw it outperformance by.
By intermodal, we expect that will continue.
For the foreseeable future.
I'd just add into it I think Dave hit on it really well in his prepared remarks that we have done a nice job diversifying the product offerings getting deeper with our customers.
<unk> really seen a lot of momentum on in sourcing more of our own drayage, we have a lot of tailwind in intermodal.
So it feel as though we're well positioned to Dave's point I think in a variety of market conditions.
Youll continue to see that momentum.
My model goes back over to taken several years to add up to a $10 number. So congratulations thanks for the time thanks.
Thanks, Patrick.
Next question comes from Scott Group from Wolfe Research. Please go ahead.
Hey, Thanks. Good afternoon, so just staying on the guidance would imply I guess lower earnings in the second half of the year than the first half of the year based on what you are saying is that.
Is that something you are seeing that you would expect is this strength.
It's so good and who knows how long it lasts and what we're not we're just not sure what should we make of that you.
You would've implied lower second half than first half.
Sure I would say that again, we expect Q2 will probably be similar to Q1 and so at the upper end of the range. It implies that the quarters are going to be.
Even throughout the year, we did have a lower end of the EPS range.
We don't know what things are going to look like when we get to Q4.
If it stays like this.
We expect we'd be at the upper end of the range, but wanted to just to build in some flexibility. We do have rail costs and other transportation costs going up sequentially in the back half of the year, there will be an offset typically we would see higher profitability levels.
In the towards the end of the year.
We don't expect it in other words, where we're at kind of the yields we would expect to be at for the full year. We're at now so we do have the rising transportation cost that could weigh on margins slightly in the back half.
And do you have visibility or are those rail cost increases higher than normal this year that come later this year.
They are in line with what we're expecting.
Okay, and then if I if I could just going back to that last question about the operating margins of 9% can you just directionally.
Just rank for us now.
Which businesses are doing best on the margins which were to.
To your point you've changed the business.
So just wanted to understand what's performing best.
We are right now.
You mean from from sort of a yield.
Perspective, yes, I think.
Intermodal transportation solutions.
Our highest yielding business, obviously, the highest asset intensity that would be followed by logistics, which is completely non asset based but.
More customized solutions, including consolidation in final mile and managed Trans which we think are.
Our our demanding somewhat of a higher operating profit operating margin profile and then brokerage would be the last obviously are.
Fully non asset and probably the most competitive.
Space.
We do believe that we're in a very good position there with the return profile, we're generating I think the investment we made in shark tank and moving into the <unk> space and continuing to build scale and full truckload.
<unk> has been really positive.
Have a great runway there.
I think something we haven't highlighted quite enough is probably the fact that 20% of our brokerage business is it's drop which gives us we think advantages to go out and win with the acquisition of chop tank on top of that in.
In a variety of ways with our customers and we're seeing that take hold so.
That would be the ranking though.
Once again, though feel feel very good about the progress in each business unit.
And just really quick what this new consult new reporting structure, youre still going to give us intermodal volume and yield trends and revenue trends going forward Greg.
Correct.
Okay Alright.
Thank you guys. Thanks Scott.
And our next question comes from Tom <unk> from UBS. Please go ahead.
Yes, good afternoon, and congratulations on the results Martin obviously.
Remarkably strong earnings.
Let's see.
The revenue per load number is also pretty off the chart Big I think you said like 35% growth.
In intermodal revenue per unit, how do you think how should we think about the progression of that I mean, I know the comps get I think you can probably pretty pretty hard and <unk>, but.
Do you assume that some of it maybe <unk> or whatever.
Fall off through the year or do you assume that they persist and you kind of.
You get the contract pricing true just coming through just wanted to get some some thoughts about how you're thinking about the pieces of that revenue per unit on intermodal.
Yes, the revenue per unit, obviously to your point the comps do start to get tougher later in the year.
But we do not have a feeling that.
Surcharges or surge capacity solutions or accessorial revenue will be dipping off.
Just from a comparable perspective will be somewhat more.
Moving off of a higher base so.
But we are still seeing very strong pricing I think you look at the differential of intermodal versus truckload pricing theres still a large gap there you factor in fuel prices.
As well in an elevated level, there's a lot of value for clients out there to continue to convert business to intermodal. So we're feeling very good about the pricing opportunity and think there's a lot of runway to continue to convert business. So we're.
We're pricing to that and it will be in excess of our cost inflation.
Okay. So from kind of an absolute perspective, you wouldnt expect revenue per load to fall off sequentially like later in the year.
No.
Okay.
How are you thinking about.
I mean, maybe a comment on what rail.
Service was an <unk> container turns and then how you think about the opportunity for turns to improvement.
Expanding the fleet so that gives you some volume growth.
From the start but I guess.
It turns in the quarter and how much confidence you have that can improve.
Sure.
Sequentially, we saw a very slight improvement in <unk>.
Utilization, we actually saw a sequential deterioration in rail service, but it got better throughout the quarter and we've seen thus far moving into Q2 actually some more sequential improvement in particular in the eastern portion of our network and we're pleased to see that in and I think it is a great story to go to our customers to talk about that improving rail.
Service products.
On the street and customer side, that's really where we saw the improvement sequentially that helped us.
Get an overall improvement in turn times.
And we think thats going to continue to progress we're doing a really nice job, adding drivers our customers are not back to fluid, but we're seeing that.
Starting to get some some improvements there.
Not not anything once again to write home about on either of those we still have a lot of work to do but but progress nonetheless.
I'm hopeful that as rail service continues to improve into the back half of the year. We continue to add more drivers to our fleet our customers get better staffing at their warehouses and theres less congestion that we will see better turn times and I think the volume is there to unlock that latent capacity and in turn our fleet even faster so so.
Sure.
Bullish, but but working hard to improve.
So you think like sequential improvement in utilization as is reasonable when you look the next few quarters.
Yes, absolutely and I do believe also that our western partner will start we'll start to see some enhancements in their service levels by the end of this quarter.
Okay, great. Thank you for the time.
Okay.
Next question comes from Jason Seidl from Cowen. Please go ahead.
Thank you operator.
You guys, taking the time here.
Just curious.
Sort of piggybacking on that last question, what's baked in in terms of.
Congestion in the supply chain in the back half of the year I mean, if we go into sort of.
Meltdown to point out about like we had last year is this something thats going to put you towards the bottom of your range or are there sort of lessons learned from the last time that you can do even better than that.
Yes, we think that with the solutions that we have to offer our customers.
And what we experienced before that that congestion, although it can add incremental cost can add incremental pricing power as well, which which has a strong flow through to the bottom line for us. So.
Our estimate would be that.
That did take place.
We would have even more enhanced pricing power and would be able to utilize that to our benefit.
Benefit.
That being said, we're going to live up to the commitments, we've made to our customers as well.
We feel as though that's a really important thing for the long term so.
Things would come up for renewal, we would be taking actions to ensure that we're getting our market base.
Sort of rate and return on our investment that we're making.
Yesterday.
No <unk>.
Point, Jason we do we are sort of factoring that into our planning, we think theres a little.
A little bit of a bubble right now in China, but a lot of that freight is going to be hitting the water soon and we'll be showing up just in time for the west coast Port negotiation. So certainly in the cards for second half.
Should be interesting nonetheless.
Yes.
So on the rail.
Service.
Just curious I mean has there.
<unk> talked to you guys about their service plans.
To the extent that they have been all dragged in front of the STB and sort of been chastised publicly about this.
And do you think that actually could work in your favor.
Sure. So we know that our rail partners have been working very hard on their service product for quite some time now I think you heard on on both of their calls that both of our partners call the focus and emphasis on it I think it's been there for a while.
And.
It is.
Cross the board sort of sort of effort, including capital investment, bringing on more resources.
And.
Getting terminal congestion and contractors.
In the right place. So I think it's taken some time, but we are seeing.
Mentum that we hope is going to continue and I think you heard on probably both those call.
The level of detail and metrics and focus that they have on it to get it right and that's something we're going to our customers web to show Hey, we do think that there is a.
Real run rate year for service improvement and an opportunity to convert more and.
So we're sharing those statistics on a daily weekly basis, and hoping to garner more more volume from trucks.
Feel feel very good about.
The plans and effort an improvement that's coming.
Just add to that in the air in the room is our railcar.
<unk> partners are in fact working on their service, we were putting in a lot of effort.
<unk> outlined earlier <unk>, so for us to improve on our term tons.
Working with our clients to load faster.
Once again that just makes the fleet better and makes it more fluid.
So it's.
The rails are improving and I think that we are also at this point in time.
It's a really good point, our on time performance to our customers in the quarter was up pretty significantly on a year over year basis and that has continued into the second quarter and we think we'll be better for the full year.
Really appreciate the color. Thanks again for the time Jason.
Jason.
Your next question comes from Jon Chappell from Evercore. Please go ahead.
Thank you good afternoon.
Phil you had mentioned customers looking to lock in capacity.
Im guessing that was under the premise of the first quarter as we got into April and the rest of the.
Capacity bottlenecks, so to speak of kind of eased a little bit have you seen any slowing in willingness to lock in proactively and also what's been the trend kind of on contract duration and pricing momentum as we've kind of gone through an incredibly tight.
Supply chain to one that maybe we see the light at the end of the tunnel.
Yes, sure. So duration has remained very similar mostly year long contracts or customers are large organizations. They don't want to be running constant rfps, but we haven't seen some customers do six month rate.
That's not totally uncommon, but I would say the vast majority are locking in for one year.
I don't think.
Lot of people are looking at what's happened recently in the spot market and.
Calling that to say that's going to be the remainder of the year I think everybody.
Thinking, especially after the last two years that it will once again be a challenging peak season that.
Disruption in China right now.
Pending potential labor challenges in southern California that is going to lead to some bottlenecks and locking in with providers, who are going to bring capacity and commit.
It's a really smart thing and I think everybody also understands the incremental costs that are coming into the system.
Round hiring drivers and.
Rail costs and all of those and so we've been having very active discussions with our customers.
And I would say.
Pretty much everyone has continued to stay focused on how do I make sure I lock in capacity and mitigate risk and my supply chain.
Okay that makes complete sense and then second.
I didn't know this was coming when you are talking about an EPS range of nine to $10 and the type of cash that throws off to your business.
Generated pretty good track record recently of a good.
Accretive acquisition or two annually what that environment looks like right now do you still focus on the logistics and the truck brokerage as a way to continue to grow out in that business.
And.
Have valuations kind of changed at all.
Maybe a little bit more.
Looking to do more organic growth given the cash buffer.
Yes, great question, John Thanks for that.
We announced our long term targets last summer.
Said that about half of that growth to be organic and half through acquisition.
Our plans for capital deployment.
Centered around adding assets to our intermodal business and then looking to do acquisitions in the non asset parts of the market.
And to your point building onto our logistics platform by adding new lines of service things that we think have high cross sell potential chapter and it was a great example of that in brokerage we were able to both scale up and added a refrigerated transportation.
Capability that we're frankly lacking in the past and that has.
<unk> been very successful so far in terms of cross selling that to our customer base. We're going to continue to look for those types of acquisitions, we have probably the most complete pipeline that I've seen in my time here at hub.
And then.
We have several active opportunities were pursuing them.
Uh huh.
Hopeful that we're going to get at least one acquisition done in 2022.
Got it and it looks like Youre getting all of that organic growth in one year or so.
Thanks, Bill Thank you.
And our next question comes from <unk> majors from Susquehanna. Please go ahead.
Yeah. Thanks for taking my questions here could you talk a bit about what the EPS range would would translate to from a free cash flow perspective.
Sure.
Yes, so that range is going to result in.
EBIT.
Bear with me one moment.
EBITDA of around 600 or so million.
We don't have a lot of interest cost and.
Cash taxes, probably in the $50 million range.
We are financing the majority of our pretty much all of our Capex is financed.
Alright, so that would translate to something in the call it.
250 to 300 million free cash flow at least.
Correct, yes.
Alright.
If we walk that forward to next year, I mean, I hate to ask what.
What about the other side of this question when you just raised your guidance, 50% in the fourth months of the year, but.
There's obviously a lot of concern about the cycle even for businesses that are doing really well as yours can you walk us through how you stress that's the model if the environment does change like a.
2014 to 15 shift or a 2018 to 19 shifts.
How do you get hurt and how do you mitigate that what does the downside scenario look like.
<unk>.
$23 24, and if we had that type of timeframe. Thank you.
Sure, we havent gone that far out in our in our planning yet.
We do we did it play in 2018.
Thinking through it now but.
Or do we need to do in the event of a downturn I think we took a lot of cost out in 2019 in early part of 2020 in anticipation of a downturn that frankly, just really didn't happen.
Take the costs out which is I think one of the reasons why we're seeing such.
Attractive operating cost leverage as we were able to reduce those costs.
Into what we think is a permanent state we didn't add a lot of cost in on the way up here.
So we think we're going to have some cushion there.
Our model is we're benefiting from price, but having a strong impact on our yields.
We do have with <unk>.
All of our business in intermodal being contractually, we will have a tailwind carrying us through.
Into a into a potential downturn.
But look we're going to do the same thing we did last time, which is watch our our bottomline carefully we also have.
Made some pretty big moves to diversify away from pure transactional business, adding the acquisitions in the logistics side.
And even in the brokerage side the acquisition there was a business that serving food and beverage type customers. So we think those two factors will also help to mitigate any downturn.
Driven by price.
I would say that I think we have a lot of momentum.
Our drayage operation, we're getting a lot more productivity, there and really getting a nice.
Driver add on a week to week basis.
Our retention numbers have come back in line.
So turnover is down significantly on a year over year basis, and we think that.
Can continue and we can make some serious progress on.
That in source percentage of drag and the only other thing I would highlight in intermodal is we've also done a lot of work with our rail partners to align our contracts.
So that in a variety of conditions, we're able to compete more effectively and so that would be something I would say.
Look out.
Is something we didn't have in prior.
Change in market conditions.
Okay.
You asked you mentioned that on the railcar side I'm a customer side do you have any commitments that are because of the situation and capacity constrained railroads do you have any customer commitments that are extending beyond 2022 at this point.
We do yes.
So in our logistics business I would tell you that the vast majority of those contracts as well as in dedicated right. So you look at both of those are multi year sort of engagements and then on the intermodal we do it selectively with the right customers, but yes, we have multiyear some as long as five.
Years on commitments for volume and pricing with clients in place so.
It's a really good question and a great point and something we're continuing to put an emphasis on.
Our marketing strategies right now.
Thank you for the time.
As a reminder, if you have a question. Please press <unk> one on your Touchtone phone.
Our next question comes from Justin Long from Stephens. Please go ahead.
Thanks, and congrats on the quarter.
I wanted to ask about revenue per load up 35%, obviously, a big increase there and you talked about pricing, but is there any way to help us unpack that number a little bit more and think about that number ex fuel and maybe provide any color that you can on the <unk>.
Packed from surcharges in accessorial.
Sure Yes.
The revenue per load increased in the quarter was 35%.
60% of that was kind of pure core price. If you will fuel was maybe 800 basis points.
Surcharge Accessorial mix would account for the rest of the accessorial, It's really we're not a big driver frankly.
Okay I would just add next.
Mix wise Transcon continues to be a growth engine for us we think that has a wider moat.
If we see a change in truckload pricing.
Okay helpful and it kind of leads me into my next question, Phil You said earlier that during the <unk>.
First half of bid season, you've seen mid to high teens pricing, what's getting baked into the guidance for pricing trend in the back half of bid season, I know that the comps are a bit tougher, but I just wanted to get your thoughts.
We're expecting low low single digits by the end of the year.
Certainly still positive year over year, but with 80% of our repricing is done in the first half.
The impact of the last quarter or two is not that meaningful in the overall picture for us.
Yeah, and I would say that is.
Looking at our Murkier picture right.
Probably conservatism, we're going to continue to.
Push for.
Pricing strong pricing and the value proposition that we have in.
Saving our customers' money on.
Converting truckload business.
Great and last quick one from me is on intermodal volume, so a 4% growth in the first quarter anything you can share on what's reflected in the guidance for for intermodal volumes the remainder of the year.
Yes, we're expecting sequential improvements.
As well as year over year improvements, we're modeling mid single for the full year.
And is that cadence pretty consistent I would guess, it's going to pick up significantly.
Significantly in the back half so any color on that you can provide it does pick up in the back half.
Yeah. So we would expect a 4% in Q1 to be the low point of the year from a year over year perspective.
Got it.
Thanks I appreciate the time thank you.
The next question comes from Brian <unk> from Jpmorgan. Please go ahead.
Hey, Thanks, Good evening I appreciate you taking the questions.
Maybe just on the demand side can you elaborate a little bit more on the truckload conversions you mentioned a few times on the call are these ones that.
Left the network and our back.
Because of the additional capacity constrains.
Constrains or is it ESG driven and is there any way you can kind of break it down into the different buckets, whether its by type.
Type of customer the type of contracts, you're playing a factor because it does sound like this is the first time, you've really emphasize that is actually happening as opposed to potential for it to happen.
Yes, I would say.
Earlier, the earlier portion of bid season tip.
<unk> more consumer products driven and.
Some retailers and and I would say both have been putting in both of those groups, which makes up the vast majority of our overall revenues have been.
<unk> focused on a couple of things I would say one piece of it is sustainability, but with fuel prices as high as they are.
With.
Truckload capacity, both in production of new trailers and tractors as well as attracting drivers.
Being.
What.
Mitigated and the growth that back but that can be brought on.
We're seeing a lot of customers look to intermodal for capacity issuances for a hopefully improving rail.
Rail service product and that's what I mentioned earlier is the momentum we have there right now and we think continued progress.
And so while while sustainability as a factor I don't know that its the deciding factor.
The other thing I would highlight is as inventories do get somewhat more stable.
Our supply chain can tolerate a couple more days of transit to take advantage of those transportation savings that are there. So.
I think a multitude of factors, but there are a lot of customers I think looking to make sure they mitigate that risk in their supply chain.
And when you think about some of the reasons theyre switching or maybe emphasizing intermodal more do.
Do you feel like it is.
Our business wins and opportunities you can can hang onto for for a longer period of time or.
Is there any way to kind of characterize what what might be a little less sticky than than not or any way you can make it stickier and keep that business going forward.
I think the.
Main thing is if.
If we do a great job for our customers.
Like to stick with us we never want to give them a reason to switch, especially around our service performance and.
I think we've built a great reputation with the customers that we're growing with and will get continue to get opportunities as I mentioned.
Earlier, I think the kind of one year contracted commitment has remained kind of a standard.
We are very active in conversations with our customers around what we define as baseload business, which helps us balance our network and locking those more into multiyear agreements and that.
It's something we're continuing to pursue but once again with the right clients. So we are focused on that.
As Dave and you had mentioned ESG several times I'm sure.
Sure Youre aware of scope III, which right now is up for comments.
If in fact that is does become a requirement.
Within our SEC filing I think that Youll see a lot of conversion.
Two intermodal just based upon the fuel efficiency.
And reduction of carbon emissions.
Okay.
That's a good 0.1 last just clarification, if I could on the equipment side, you mentioned drayage and how that's improving where you're at in terms of that.
At 90, 90% plus that Youre looking to get.
House.
And then also on chassis.
Any bottlenecks or improvements that youre seeing there.
And how that's expected to play out the rest of the year.
Yes.
We're at 50% of our own drayage, but seen progress into Q2, and we should see that number sequentially improved throughout the year on the chassis side, we have not seen.
Really any any challenges.
Note.
I think the main thing is turning the equipment more quickly than that.
And that creates more fluidity, so I wouldn't say, it's gotten worse in any way if anything it has gotten better as new chassis that come online.
And so we feel as though that's a part of the service product that is getting much better.
Yeah, and as you know Brian .
Investing $600 million this year and chassis.
Terminals to support intermodal.
Alright.
Okay. Thank you very much for your time I appreciate it.
Our question comes from Brandon <unk> from Barclays. Please go ahead.
Hey, this is David on for Brandon.
Phil if I could just ask a quick question about.
Sure.
Brokerage I guess.
With the way contact rates have escalated I guess, it's our assessment that.
The dollar margin.
Unit is relatively elevated compared to where it has been in the past I guess.
Contract rates come down I guess is that an outsized risk.
To your forecast in brokerage relative to what it has been in prior cycles.
Then I guess, yes.
Relatedly is your guidance kind of your affirmation that you think contact rates are going to remain elevated for the bulk of the year.
Yes. So we do believe contract rates are going to stay higher once again, our customers are looking to lock in capacity may commitment with providers that.
Have supported them throughout the last couple of challenging years.
So if contract most of them most of our bid on the <unk>.
Bid cadence of 38% and 40% and 20% is very similar for our brokerage as well.
So we don't see as much of a risk there were mostly about 50% of the way through that bid season, and it performed well on our cross selling targets with shark tank.
And.
The other point I think we made earlier, we've diversified our model to be in the refrigerated space to be an LPL to have a strong drop kick trailer program.
All of that gives us multiple ways to win in a variety of market conditions.
I think it would be very fast to see contract rates really start to move and we're once again in year long agreements with customers and.
Feel feel very confident in our ability to win in either market.
Great. Thanks, and then if I could just ask a cleanup do you have handy either the absolute non driver employee count or a change in employee count.
Yes.
Head count was.
2000.
2280.
Great. Thanks, very much appreciate it.
We have no further questions at this time I will now turn it over to Dave Yeager.
Okay, great well, thank you for joining us.
For the conference call as always.
There's further questions. Please feel free to call, Jeff, Phil or I or all three of US. Thank you very much for participating.
Thank you ladies and gentlemen. This concludes today's conference. Thank you for participating you may now disconnect speakers. Please standby for your debris.
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