Q2 2022 Hub Group Inc Earnings Call

August 3, 2022

Hello, and welcome to the hub group second quarter 2022 earnings Conference call.

Dave Yeager.

Oh sure.

Baker, <unk>, President and Chief operating Officer and Jeff.

F Dimartino hubs CFO are joining me on this call.

At this time all participants are in a listen only mode a.

A brief question and answer session will follow the formal presentation.

In order for everyone to have an opportunity to participate please limit your inquiries to one primary and one follow up question.

Any forward looking statements made during the call of 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 in the release.

In addition, you should refer to the 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.

Okay.

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Sorry for the.

And convenience, there, but a temporary slowdown.

This is Dave.

Good afternoon, and thank you for participating in hub group's second quarter earnings call.

Joining me today are Phil Yeager hubs, President and Chief operating Officer, and Jeff <unk> Chief Financial Officer.

I would like to first of all start by congratulating the Hep team for the hard work and focus on delivering excellent service to our customers, while achieving record quarterly revenue and earnings per share.

Our intermodal revenue continues to be strong with our non asset based logistics business is also showing revenue strength and earnings growth.

Over the last five years <unk> been focused on our strategy of diversification.

Today nearly half of <unk> revenue is now provided by our non intermodal businesses in.

In addition to the synergies created through the acquisition of non asset based logistics services. The diversification allows us to be more resilient during economic downturns and helps to mitigate the cyclical nature of the transportation market.

Intermodal continues to be the core business of hub group. This.

This year intermodal well has experienced some service issues.

But we're now seeing incremental improvements that have begun to lower our transit estimates to our clients.

Intermodal has significant cost and environmental benefits versus truck and as service improves we anticipate significant conversion opportunities.

Lastly, we will continue to invest in our intermodal assets as well as in information technology for all of our businesses, while maintaining solid internal cost controls and with that I'll turn it over to Phil to review our performance. Thank you Dave.

To also thank our entire team for their constant effort as well as their commitment to supporting our customers and each other.

I will now discuss our service line performance.

Ics revenue increased 41% driven by a 1% increase in intermodal volume and 44% increase in intermodal revenue per unit as well as the return to growth in dedicated trucking.

Intermodal volumes increased 10% in the local west 2% in Transcon and declined 14% in the locally.

We performed very well in bid season and continue to anticipate strong demand despite increased competition in shorter haul segment.

Gross margin as a percentage of sales increased 710 basis points year over year, driven by a 790 basis point improvement in intermodal along with growth in dedicated.

We have seen the labor market loosen and we have enhanced our driver hiring throughout the quarter delivering year over year improvement in our percentage of in house strategy, while enhancing our streets, well and service to our customers.

Despite these operational improvement our container utilization deteriorated both year over year and sequentially driven by continued challenges in rail service and longer customer dwell.

We are focused on delivering for our clients during the upcoming peak season and are collaborating with our rail partners and customers to enhance fluidity.

We will continue to invest in the business to develop deliver a superior service product that helps bring cost savings and sustainability to our customers, which in turn we believe will drive long term growth.

Logistics revenue increased 18% in the quarter with growth in all of our offerings as we continue to deepen our value to our customers through our integrated approach to supporting their supply chain needs.

Gross margin as a percentage of sales increased 380 basis points as we maintained our focus on operational discipline yield management and continuous improvement.

We have a great pipeline of new Onboarding and are continuing to see strong demand for our solution. You are focused on delivering supply chain savings visibility and continuous improvement through our best in class team and technology platform.

Brokerage revenue increased 90% year over year, driven by the acquisition of <unk>, which along with organic growth in our LPL and dry offering helped us deliver a 52% increase in volume and 25% increase in revenue per load.

Gross margin as a percentage of sales increased 30 basis points year over year as we improved our purchase transportation costs, which was offset by a slowdown in higher margin spot market activity.

Transactional moves represented 58% of our volume, but declined as a percentage throughout the quarter.

While the spot market has slowed we have executed on our cross selling synergies and performed well in bid season, we are well positioned to continue our growth through our integrated approach to our customers high service level and expertise and our capacity sites, including temperature controlled LCL and drop trailer.

With that I will hand, it over to Jeff to discuss our financial performance.

Thank you Bill once again, our quarterly results featured record levels of revenue and profitability.

<unk> grew 43% with strong growth across all lines of business.

Our yield management cost recovery efforts and focus on operating efficiency led to gross margin of 17, 6% of revenue and operating income margin of nine 8%.

We continue to leverage our gross margin performance against our operating expenses.

Each were equal to seven 8% of revenue down from eight 5% last year.

Operating expense dollars increase from last year due to the <unk> acquisition higher legal and outside services spend and higher compensation expense.

Offset by gains from the sale of transportation equipment.

Our diluted earnings per share for the quarter was $3 three.

Which is nearly four times the prior year with.

We generated $174 million of EBITDA in the quarter, we had cash of nearly $300 million at quarter end and no net debt providing for substantial flexibility to invest in the business through capital expenditures and strategic acquisitions.

We also continue to evaluate options for returning capital to our shareholders, including through the use of the 75 billion remaining on our share repurchase authorization.

We were expecting a strong finish to 2022 with diluted EPS of between 10 and $10 50 per share.

We expect to grow revenue to over $5 6 billion.

Putting us well on our way to achieve our goal of five five to $6 5 billion of revenue by 2025.

We expect intermodal volume will grow low single digits in 2022 supported by our container deliveries and improving rail service.

We forecast gross margin as a percent of revenue of $15 eight to 16 point over the year as rate increases surcharges and editorial revenues offset higher cost for rail transportation third party drayage and driver wages.

For the year, we expect costs and expenses of $415 million to $430 million.

We performed well during bid season, and we will have a tailwind of strong pricing, which will be offset in the second half by rising transportation costs and softer volumes as compared to the first half.

I wanted to take a moment to address the future beyond 2022.

While we acknowledge the potential for a softening economy. We believe hub group is positioned for success in a variety of market conditions.

We've taken several important steps to improve our resiliency in a down market.

With our recent acquisitions and organic growth are non asset businesses represent a growing part of our overall results.

Within intermodal our agreements with our rail partners allow for flexible market based pricing arrangement.

Through our asset efficiency initiatives, we have already begun to in source a higher percentage of our drayage, which has a substantial cost advantage relative to third party carriers.

Our profitability will benefit from the variable nature of our incentive compensation as well as our relentless focus on operating efficiency.

Finally, our entire business is supported by a pristine balance sheet and strong free cash flow generation.

In 2021, we introduced our long term revenue and margin targets.

Our recent acquisitions and our purchases of intermodal equipment 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.

With that I'll turn it back to the operator to open the line for questions.

At this time I would like to remind everyone in order to ask a question.

Dara and the number one on your telephone keypad.

Your first question comes from the line of Todd Fowler from Keybanc.

Hey, great Thanks, and good evening.

So maybe Jeff just to follow up on your comments on the sustainability of trends into 2023.

If I look at the gross margin guidance for the year and implies a deceleration in the back half, which I think you had anticipated based on the timing of rail rate increases.

But do you think that somewhere within that 15% type range for gross margins for 'twenty. Three is that a level that can be considered achievable or normalized or are you still kind of above what normalized range would be as you exit 'twenty two.

No I think thats, a good benchmark to use for next year.

We have not done our budget, obviously for next year, we need to go through.

Even in the strength of that part of the year will be a key determinant for next year, but I think thats a good assumption at this point.

Yes.

You heard from our customers are anticipating a strong peak season, and so we are preparing for that which we also are through the majority of bid season. At this point, we think we performed really well in those rate it will be locked in for another year for from this point so.

Still feel very strongly that there is a lot of tailwind in the business.

That's helpful and so maybe just a follow up on that so is there a way you can help us think about the 44% increase in revenue per load here in the second quarter. What can you share with us about kind of where core pricing is versus some things on top of that just to give us an idea of kind of where pricing is running on.

Kind of a same store sales our comparable basis.

So pricing is really strong.

<unk> has continued to be I think you've seen with us our focus has been on <unk>.

Longer lines for call and we think we achieve a more sustainable and higher margin per load day on that business.

We will continue to stay focused on that.

I think when we think about core pricing full.

Full year, we're still at a high single low double digit kind of fully realized price.

And.

Although we're overlapping kind of the highest prices from last year those were still positive and so I think those are all important factors to take into account don't want to give you anything.

Key specific around that but hope that can kind of set the framework right.

Yes, understood and maybe just my last one and I'll turn it over but.

With the cash balance at around $300 million again, no debt and and really with where the stocks at from a valuation perspective, I know, how you prioritize reinvesting in the business and M&A opportunities, but how do you think about kind of the credit that you're getting for the sustainability as earnings versus kind of your financial position right now.

Yes, I mean, the short answer is we don't think were getting credit frankly.

Our priorities for investing.

Our excess capital or to put it back first and foremost into the business through Capex and through acquisitions. We do have a very good pipeline of M&A opportunities. We've had good success with the deals we've done our third priority is to return capital to shareholders.

At these trading levels that it is a pretty compelling opportunity, we do have $75 million remaining on our share repurchase authorization.

Our intention is to put that to work.

Okay, great. Thanks for the time Tonight.

Yes.

Okay.

Your next question comes from the line of Scott Group from Wolfe Research. Your line is open.

Hey, Thanks, good afternoon, guys. So.

Some similar questions.

Look at the gross margin guidance.

Second half.

How much of the sequential drop that you are assuming as intermodal versus the.

The rest of the business and then what is the sort of.

Assumption for that.

That gross revenue per load in intermodal and volumes and rail service and how do you get to the to the guidance you guys are talking about.

Sure, yes for them from a forecast perspective, the primary drivers could be intermodal, which 60 plus percent of the business.

The key driver, we're seeing good success with yield improvements in our other lines of business.

And we're encouraged by our performance in bid season, and intermodal is just that we now have.

Throughout the year. This is the time of year when we start to take the rail cost. So that is the primary driver of the deceleration in earnings in the second half.

For the year, we are expecting.

Low single digit intermodal volume growth were expecting.

Flat year over year growth in the second half.

And then the Rev per load outlook for the back half.

It will come down so as we as we have more and more of our increases now.

And play the year over year improvement.

We will flow, but will be and as Phil mentioned high single to low double realized for the year.

Okay, and so should I think about when you talk about the.

The rail concert contracts are structured there is clearly still some degree of volatility in your gross margin and maybe it's that you're pricing leads and then the rail cost lag a little bit so there could be periods, where you're benefiting.

And then maybe when.

If at some point Youre pricing drops maybe youll get squeezed for a period of time, but but is your ultimate point that wherever the margin should settle out at a higher place.

What we're used to seeing them from them.

Years back.

Yes.

That's right.

You hit the nail on that they're.

Pretty much the mechanics, we will see it move a little quicker going forward.

The period of a of a change.

Change in profitability would be.

Much shorter than it would have been in the past.

So I think that's a positive.

But we are starting at a much higher baseline and we've been able to continue to improve our operations and so yes, we would indicate that the.

The margin profile through a full cycle will be much improved from what we've seen in the past.

And just add on Scott fill is addressing.

Australian other levers we have to address profitability, but we also have other levers we have the ability to in source more dray than we've done in the past you've already started to move on that that does have a cost advantage as well.

And then any other lines of business I would say generally if youre looking at.

Where hub was maybe four five years ago. If you look at 18 to 19 as a benchmark we do have more.

5% of our revenue comes from the non asset businesses and I think overall, we have a higher focus on operating efficiency than we have in the past you've seen that in the numbers. The last two or three years and we would expect that trend will continue and it's up environment as well I'll just add.

Our free cash generation.

Down cycle there'll be would still be significant so our ability to continue to return capital or port.

Through an accretive acquisition of an investment of the business, we don't feel would be hindered during that timeframe as well so.

Feeling strongly that we're going to be in a good a good position and a higher improved margin profile as well.

Okay, and just so I understand youre, saying that whenever the next up cycle and pricing is don't expect the same huge jump up in gross margin, but the starting point whenever that upcycle start should should be higher than where we started this cycle.

I would say, we would still expect strong improvement.

And another up cycle, but the floor would be much lower in a coming down cycle, yes, so just a through a cycle.

Much improved sort of profile I think we were able to garner a lot of the low hanging fruit.

This cycle, which has driven a lot of the improvement, but we still have ways to go on just our own internal improvements that we can drive as well. So I think we have the right disciplines in place.

But generally I think we feel will have a lower a much higher floor and a strong feeling as well in the next up cycle, which would be higher than that.

Okay very helpful. Thank you guys.

Thank you.

Your next question comes from the line of Tom <unk> from UBS. Your line is open.

Yes, good afternoon.

I wanted to get your thoughts on just free to activity and how youre thinking about the cycle.

And then I.

I guess the you could you could argue that local east volumes were pretty weak for you in the quarter, but.

I guess you could argue that broader shippers may have interest in and maybe it's more of a long haul lanes.

In doing more intermodal versus truck with I know fuel prices have come down but are still elevated in ESG considerations. Other things. So I guess, how do you think about how cautious are you on freight.

As you look to second half and how much is intermodal share gain versus truck.

Consideration that that could drive some upside.

In that volume outlook.

Yes.

I'll start with the local east question. If that's okay. I think what we saw there was a more aggressive spot truck market.

Aggression in intermodal I think if you've seen our growth where it's been focused the last several quarters and years and Thats really driven by our network model, which focuses on maximizing our margin per load day and so that's why you see us really focus on sustainable pricing in some of those longer length of haul where you don't see the conversion back and forth.

<unk> truck and intermodal, we don't feel as though it is necessarily the right thing long term given the contract nature of our business to chase the spot truck market.

So perhaps we're at.

Staying a little bit more discipline, there, but from a demand perspective, we did really well in bid season.

We are having with our customers are about peak and peak preparation.

And so that's.

Thats the focus that we have right now and do you think there will be a peak if we think more medium term I think inventories have improved but they're still at pretty historically low levels and a lot of that product as the incorrect product.

I think even if inventory to improve intermodal can be a benefit as the supply chain can absorb a couple more days of transit.

And then we're still providing really strong cost savings in particular in those longer length of haul lanes and when you take into account higher fuel prices that even more exacerbated.

You take in what Dave suggested at the front end.

We are tightening our transits and we're seeing sequential improvement in rail service and all the investment that's going on there as well as smaller carriers exiting the market I think it's a good backdrop in medium term for demand for intermodal as well. So I think all of that is a pretty good formula and so that's why we continue we're continuing to invest in containers.

Directors.

Hey, Nathan.

Okay, Yes.

Thank you.

Thank you for that for those for that perspective, what I guess for a follow up for a second question.

What's your position with respect to owner operators and I'm, assuming you're kind of well prepared for whatever AB five not not being rejected.

Again up by the Supreme Court, but just maybe can you kind of review.

What your position is for drayage in California, and whether you have bear any any risk.

Around potential kind of evolution of that market.

So we had transitioned to a full company driver model several years ago, we've maintained that and have actually grown quite a bit as an organization there and our trucking operations.

We have not and don't anticipate really any challenges to continuing to grow in the market and provide the great levels of service and flexibility that we have in the past. So we feel really prepared and have been preparing for this eventuality for several years, we are watching other market to ensure that we're putting the same preparations in place.

And mitigating any potential future risk that we may have if in fact similar regulations are put in in other states.

So we feel really good we still do have independent contractors.

Our.

Into the fold with about <unk> of our drayage drivers, maybe less than a third at this point and.

We have really engaged and focused on growing our company driver fleet, but.

I also want to continue to support our independent contractors as well so.

We feel really well prepared and honestly, it's been since the announcement actually an increase in our pipeline in dedicated trucking as I think a lot of folks are looking to lock in capacity and we are very heavily weighted.

Carrier in our dedicated model towards the California market, which represent about two thirds of our drivers and dedicated.

Probably more of a driver of business potential to tractor.

Okay great.

Great.

Thanks for the perspective I appreciate it.

Your next question comes from the line of Brian Awesome Beck from Jpmorgan. Your line is open.

Hey, good afternoon, thanks for taking the question.

So just wanted to ask.

More broadly with.

Pacific getting ready to welcome.

Some other ones.

Shifting previous already this year.

Also investing can you just give us a sense as to how that's playing out from your perspective, I believe that <unk> is making some <unk>.

Payor switches.

Here in the next month or so I don't know if it has any impact to your impact on you as well.

So maybe an update on that and how that's progressing would be helpful.

Yes. This is Dave.

We've obviously from a competitive standpoint.

Two new entrants on the E&P.

Competed with for years, so it's really nothing new.

I would suggest that the union Pacific is right now investing about $600 million into the intermodal product.

Their service thus far has been.

Under where in fact, they are on time performance under where we would want and we're certainly where they would want but they certainly are making a lot of investments in personnel, adding on locomotives.

And so we are hopeful that the.

The transition will be smooth.

And they certainly are working very diligently towards that from our standpoint, we're also trying to.

Enhance our service levels and also our operations, having less time on the street for containers when they are empty.

That type of thing, which helps with the flow of chassis et cetera. So.

Where the Union Pacific's largest customer.

We have a great relationship with them and they're a very good operating railroad. So we're looking forward to.

Continuing to grow on <unk> and Norfolk Southern.

And when it comes to expanding your dray driver.

Capacity in house can you just talk about where that percentage is now maybe versus the last couple of quarters and what those.

What those markets look like given just the overall driver market, but.

Again, just trying to rearrange the network I don't know if that has any overlapping impact and some of the areas Youre looking looking to add people.

And our problem in steel.

No. We haven't had the issue with delivery of equipment, we have seen some delays in some of our containers coming over but the commitment that our Oems major contractors have continue to be built so we feel very good about that.

From a driver hiring and percent of dray perspective, we have seen an increase in our ability to bring on new drivers part of that is the actions we've taken around wages, but also.

I think we are much better at marketing and recruiting to get any drivers as well and our percentage increase.

In house, Gray about 400 basis points sequentially quarter to quarter.

Feel really good about the progress, we're making there and actually we've seen an increase thus far in the third quarter as well sequentially from from that 400 basis point improvement.

All positive there.

And maybe just one clarification for Jeff It looks like in the other line, where I believe you have the gain on sale, which was up a bit sequentially. It looks like that was also went up a pretty decent amount I know if you have an accrual or something in there.

If you could just clarify that thank you, yes, we did have higher legal and outside services spend this quarter.

The implied guide for the rest of the year has that coming down slightly.

But those are the drivers.

Okay.

Okay I appreciate the time.

Thank you.

Your next question comes from the line of Jon Chappell from Evercore. Your line is open.

Thank you good afternoon.

Bill I think you had mentioned a couple of times customers looking to lock in capacity.

Okay part of there is that having any impact on your average contract duration youre getting more extended.

Content period.

And our customers look for more security and the part B to that would also be we're obviously hearing a lot about economic slowing et cetera, I think you've already addressed any question earlier, but are you seeing any recent scaling back in that kind of rush to secure capacity over a period.

Sure. So our contract terms generally are one year with our with our customers I would say generally.

In intermodal we.

With a few key clients.

Were those contracts really had some Keith we have elongated some.

Some of those commitments, especially in kind of core network lanes.

And we've gone as high as five years with some customers unlocking.

With market.

Market, driven price escalators or declines and so that is I think something we like to do but we like to do it with the right customers and partners.

We will.

Have mutual commitment to that over the long haul.

As we think about scaling back we haven't seen that yet I still think there and we've done really well in bids.

Still think there is.

A lot of feeling from our customers and the discussions that I have with them that we're going to have a strong peak in that it will be tight.

And.

I think some folks are trying to take advantage of the spot market more aggressively and most are trying to live up to the contract.

And ensure that they have capacity during this upcoming peak season and going into next year, because it really it hasnt become all that clear I don't think anybody.

Yes.

We're in a if we're heading into more of a down cycle or it's about the tightened again and I think we'll certainly see that over the next couple of months as peak season really plays out.

Okay. Thanks for that and then for my follow up on truck brokerage <unk> been in this period of really.

Elevated top line growth, obviously, some driven through acquisition I think you still have a quarter maybe plus.

Of the acquisition comps keep that revenue up you turn positive there on the gross margin side 30 basis points to build the first positive I think since the second quarter of 2020 are we starting to get to the point, where truck brokerage ex acquisition, where that volume growth starts to slow a little bit but some of those levers that you spoke about whether its cross selling.

Or whether it.

Efficiencies within the business you start to see continued positive gross margin momentum there.

Yes, so what I would tell you is when we acquired <unk>, we had a much lower gross margin profile than the rest of our.

Truck brokerage and with some of the changes that we've made in the pricing and yield management strategy, we've actually seen a massive improvement there and plan to continue that and so.

I think as you look out.

You will see improvements in yield as this sort of acquisition.

Is it settled into the numbers I think you will see year over year improvement there and that's what we're seeing in the core business.

That was there before.

Okay. Thank you Phil Yeah. Thank you.

Thank you.

Your next question comes from the line of <unk> majors from Susquehanna Financial Group. Your line is open.

As a housekeeping question can you share where you are coming out in your model the new forecast on EBITDA and free cash flow.

Sure EBIT would be just over $600 million.

Give you the.

Component, two 600 million to EBITDA.

Cash taxes is probably around $110 million.

$10 million or so of interest.

And then our Capex guidance to $2 40 to $2 50.

We do end up financing 90, or so percent of the capex.

We are.

Thank you for that.

In that light with the with the <unk>.

Buyback discussion from earlier I think the quote was at these levels, it's a pretty compelling opportunity.

When we can run the numbers on the cash generation power of the business.

Got a net cash position slightly.

Stocks traded as low this year is six times you recently updated EPS guidance. So.

Rather than talk about what the plan is specifically going forward I was hoping we could back it often think high level about the philosophy behind the buyback looks to you guys as a capital deployment opportunity in and.

Has this changed do you have enough where you can do both still diversify the business and buyback a needle moving amount of stock going forward given how successful the business is today. Thank you.

Yes, it's a great question, it's something we think about a lot we can talk about that with our board.

Our priority is to grow and diversify invest in containers do more more drayage in house, which requires some level of tracker investment we've.

We've had really good success with our acquisition in the last couple of years, the cross sell potential which is core to our thesis around M&A is real and we've proven that time and time again.

And we've been able to take out costs and drive up yields and we will continue to do that we think thats a really good financial return and also has the benefit of diversifying the revenue over time as well you have seen that now with our non intermodal revenue comprising close to half of our total revenue by the end of the year.

But to your point that the return on.

On return of capital on share repurchases.

It's a double digit free cash flow yield and it's pretty compelling.

So it's something we will continue to address with our board. We do have the authorization that we intend to execute on and we are considering additional levers that we have in that regard.

And the path forward for that is that a decision that you think will be made quickly or something that'll take time throughout the year.

I don't have an answer for that yet it's something rollout we will evaluate if there is if there is a <unk>.

Compelling case to be made and we have the support to do that it's not something we would wait on.

I would tell you we have a strong alignment with the board, but that will.

It will likely be.

Ongoing portion of our capital allocation strategy and.

Yes.

Especially at these levels.

To Jeff's point, a very compelling investment.

That's great to hear and thank you for the candid responses.

Thank you.

Your next question comes from Justin Long from Stephens. Your line is open.

Thanks for taking my questions I was wondering if you could share what the monthly intermodal volumes look like through the second quarter.

Any update on July as well and I think Jeff you mentioned back half expectation is for intermodal volumes to be relatively flat on a year over year basis, I was a bit surprised by that just given you'll be taking delivery of additional containers and it sounds like your expectation as rail service should get.

A little bit better so I'm curious if you could share what might be offsetting tailwind.

Sure for the quarter April was down 1% year over year may was up five.

June was flat, which led us to up 1% for the year for the quarter.

July on a business day adjusted basis is down.

4%.

I would just highlight I think in the last two weeks of July we saw sequential improvement and that has played out through the first week.

Few days of August here as well that we are anticipating sequential improvement offset that July .

Decline on the on the container side and the utilization I think I think where we're coming from on the flat volume is we saw a deterioration quarter to quarter of utilization of 4% year over year, we were down 8%.

And so as we we are.

<unk> been in the past kind of bet on improving rail service and improving customer dwell and that hasn't necessarily come to fruition and.

So maybe it's conservatism, but at the same time.

We have we haven't seen enough sustained improvement and fluidity to really adjust the volume guide if that makes sense.

Yes.

Understood and any update on the number of containers, you're expecting to take delivery of in both the third and fourth quarter.

Sure.

Around 6000 for.

For the year, which will give us growth year over year.

13% about 25% of those have come in to date and the rest will be here.

The first week of November .

And I had referenced this earlier, but we pushed out.

The remainder of the order that we had talked about on our prior call mainly due to delivery date, we weren't going to be able to get them prior to Thanksgiving and get them into the network.

It really prior to two that ended the year, so that would be.

Appropriately.

Okay.

Got it and last question quick one on the guidance, Jeff on EPS in the back half of the year are you expecting the cadence to be relatively similar looking at the third quarter versus the fourth quarter or do you think one quarter look better than the other and then on the buyback is that $75 million getting factored into the.

Guidance.

Sure. The 75 is not in the guidance. So there will be accretion further to that.

In terms of the cadence.

We do have a big rail cost increase on 91.

Q4 will obviously have a full quarters worth of that.

The Delta.

Okay very helpful. Thanks for the time Youre welcome. Thank you.

Okay.

Your next question comes from the line of Bruce Chan.

From Stifel. Your line is open.

Hey, This is Matt My Alaska, one for Bruce Congratulations on the extremely strong first half of the year and thanks for taking the question.

Thank you.

Could you provide a little bit more color on shark tank and perhaps how the integration is progressing.

Thank the business might perform moving into a potentially slowing economic environment.

And lastly, if you could also offer any comment.

And what youre seeing across the M&A landscape at the moment and how do you think the opportunity set there.

Thank you Bob over the next say six to 12 months. Thanks.

I'll start with traffic and I'll, let Jeff discuss the M&A pipeline, but.

<unk>.

We found a really great cultural fit there with chop tank. The integration has gone extremely well both from a systems cultural operational customer perspective, they are a great focus on refrigerated but are very good.

General dry truckload broker as well and so but I do think that refrigerated piece of the differentiation that we did not have before that we could bring to our customers that is a very tight capacity tightened as the high capital expenditure to get into that business and so we've been had a lot of success in cross selling that to customers, but also they have a phenomenon.

Our inside sales team that is really helping us grow with our core hub customers that we had not necessarily been successful in cross selling brokerage to the path that we continue to find each week, new customers to bring on board and.

I think we have seen the margin profile improved significantly since we purchased the business, which I think is sustainable in a downturn and will allow us to continue to generate significant free cash and continue to grow. So we feel great about the acquisition I think it was.

A big win for both teams because they are getting a ton of access to.

Large shippers that we have that.

Necessarily would have been able to get in with before so that's all beneficial to both.

Okay.

Yes in terms of the market environment.

We found success and the acquisitions, we've done have really been on one off.

Negotiations will we reach out to the owner we create a relationship.

Sometimes it takes six months or a couple of years to come to fruition.

Cultural fit is important to us to invest in that time upfront is important the reason I say that is.

Most of the commentary youre going to hear around the market really had more to do with sale sale processes kind of broad based options.

We'll look at those opportunities, but that's really not core to what we do I think those will probably slow just based upon.

Rising interest rate environment.

In our industry. So much of the M&A activity is driven by private equity rising rate environment, probably will put a chill on some of that activity but.

Not really part of the market we're playing in.

No that's really helpful. Thanks, guys.

Thank you.

Again, if you would like to ask a question Press Star then the number one on your telephone keypad.

Your next question.

Comes from the line of David <unk> from Barclays. Your line is open.

Okay. Thanks for taking my question.

Maybe you did specify that earlier, but.

Third the guide of Capex coming down for.

For 2022 was that totally driven by moving containers into next year or is there something else to that.

No. It was primarily the containers that we pushed to next year.

Okay, and then I guess with you and others bring containers on the market with the rails kind of bringing capital to bear hopefully.

And with turnaround time, hopefully improving.

Byrne broadly that.

We would go from a capacity short market to a market that's more Washington capacity.

Maybe give a little more color to the extent you believe that as a concern at all to your answer to Scott's question about how your cost and pricing model.

Success, if the environment changes.

We don't see that at this time.

I think we're in a very good position.

Continue to grow with our customers, there's a lot of demand out there and.

I do think that there is a ceiling on it.

OEM manufacturing.

Wow, so trailer adds in the truckload market are going to be somewhat constrained as well as new tractors and so.

We think intermodal as supply chains normalize we will be a good option and as our service improved as well.

We don't see that at this time.

Still feel very confident in our ability to continue to grow in the intermodal space.

Great. Thanks, and then just a cleanup.

Could you give the employee count for the quarter.

Sure.

2225.

Thank you very much.

Okay.

There are no further questions at this time, Mr de Jager I turn the call back over to you.

Okay, great well again, thank you for joining us on our second quarter call as always if you have any further questions.

Jeff Phil and I are always available. So again, thank you very much and have a good evening.

Okay.

This concludes today's conference call you may now disconnect.

Please wait conference will begin shortly.

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Q2 2022 Hub Group Inc Earnings Call

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