Q3 2023 Hub Group Inc Earnings Call
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Yeah.
Speaker 1: transcript
Speaker 1: Hello and welcome to the Hub Group 3rd quarter, 2023 earnings conference call. Phil Yeager, Hubb's president and CEO , Brian Alexander, Hubb's chief operating officer, and Jeff DiMartino, Hubb's CFO are joining me on the call. At this time, more participants are in a listening mode. A brief questioning of the session will follow the form.
Hello, and welcome to the hub group's third quarter 2023 earnings conference call.
<unk> <unk>, President and CEO, Brian Alexander hubs, Chief operating officer, and Geoff Demartino Hep CFO are joining me on the call.
At this time all participants are in a listen only mode.
Brief question and answer session will follow the formal presentation.
Speaker 1: transcript
Speaker 1: In order for everyone to have an opportunity to participate, please limit your inquiries to one primary and one follow-up question. Any for 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.
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 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.
Speaker 1: transcript
Speaker 1: They, as it are for looking, can be identified by the use of words, such as believe, expect, anticipate, and project, and variations of these words. Please review the questions.
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.
Speaker 1: transcript
Speaker 1: In addition, you should refer to the disclosures in the company's form 10K and other SEC following regarding factors that could cause extra results to differ materially from those projected in these four looking statements. As a reminder, the
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.
Speaker 1: transcript
Speaker 1: It is now my pleasure to turn the call over to your host, Phil Yeager. You may now begin.
It is now my pleasure to turn the call over to your host Phil Yeager you may now begin.
Yeah.
Speaker 2: transcript
Good afternoon, and thank you for joining hub group's third quarter earnings call.
Joining me today are Brian Alexander upgrades, Chief operating officer, and Geoff Demartino, our Chief Financial Officer.
Speaker 2: transcript
Speaker 2: Over the past few years, we have transformed our earnings, returns, and free cash flow profile through a clear strategy of organic investment into our core business while enhancing capital efficiency through technology deployment and a creative non-assubed acquisition.
Over the past few years, we have transformed our earnings returns and free cash flow profile through a clear strategy of organic investment into our core business, while enhancing capital efficiency through technology deployment and accretive non asset based acquisition.
Speaker 2: transcript
Speaker 2: In ITS, we have created a lot of asset intensive model that provides industry leading service and value while becoming more efficient for enhancements to our drainage and dedicated operations.
In Ics, we have created a lot of asset intensive model that provides industry, leading service and value, while becoming more efficient through enhancements to our drayage and dedicated operation.
Speaker 2: transcript
Speaker 2: In logistics, we have built a service leading end-to-end solution for our customers that provides best-in-class scale and technology.
In logistics, we have built a service leading end to end solution for our customers that provides best in class scale and technology.
Speaker 2: transcript
Speaker 2: This evolution of our business has resulted in Hubbard being a more diversified and resilient company with an improved customer experience as well as significant pre-cash generation.
This evolution of our business has resulted in <unk> being a more diversified and resilient company with an improved customer experience as well as significant free cash generation.
Speaker 2: transcript
Speaker 2: Our operating model changes improvement effectiveness. We have managed through this challenging freight cycle. With a full year forecast that we expect will likely be our second best year in our company 52-year hits.
Our operating model changes have proven effective as we have managed through this challenging cycle with our full year forecast that we expect will likely be our second best year in our company's 52 year history.
Speaker 2: transcript
Speaker 2: What's that performance in mind and what's the benefit of extensive feedback from our board, as well as existing and potential shareholders and equity analysts? We've taken the opportunity to reassess our capital deployment strength.
With that performance in mind and with the benefit of extensive feedback from our board as well as existing and potential shareholders and equity analysts we've taken the opportunity to reassess our capital deployment strategy.
Speaker 2: transcript
Speaker 2: I'm excited to announce the results, which are also highlighted in the investor presentation, which is available on our website.
I'm excited to announce the results, which are also highlighted in the investor presentation, which is available on our website.
Speaker 2: transcript
Speaker 2: First, we are establishing a long-term leverage target of 0.75 to 1.25 times net debt to
First we are establishing a long term leverage target of <unk> 75 to one five times net debt to EBITDA.
Speaker 2: transcript
Speaker 2: We are not in a rush to achieve this target, and we'll do some methodically as we continue to invest in our core business, grow via acquisition, and return to capital to SHELD.
We are not in a rush to achieve this target and we will do some methodically as we continue to invest in our core business grow via acquisition and return capital to shareholders.
Speaker 2: transcript
Speaker 2: Second, we have received authorization from our board for a $250 million share repurchase program. While retiring, our current offer revisions, which had $83 million remain.
Second we have received authorization from our board for $250 million share repurchase program, while retiring our current authorization, which had $83 million remaining we.
Speaker 2: transcript
Speaker 2: We believe this new and larger program demonstrates our commitment to returning capital to shareholders and the long-term value we've seen.
We believe that new and larger program demonstrates our commitment to returning capital to shareholders in the long term value we see in Hungary.
Speaker 2: transcript
Speaker 2: Third, our board has authorized a two-for-one share split. They will be effectuated early in 2024 through a share dividend, which we believe will enhance liquidity in our stock and support long-term investment.
Third our board has authorized a two for one share split that will be up actuated early in 2024 through a share dividend, which we believe will enhance liquidity in our stock and support long term investment.
Speaker 2: transcript
Speaker 2: Last, in the first quarter of next year, we plan to begin paying a quarterly cash dividend equal to 50 cents per share annually on our new share account.
Flat in the first quarter of next year, we plan to begin paying a quarterly cash dividend equal to <unk> 50 per share annually at our new share count.
Speaker 2: transcript
Speaker 2: The transformation of our business that I described earlier has provided us with the pre-catch flowing balance sheet profile that allows us to implement these four capital allocation initiatives, which will provide greater consistency regarding return of capital, while allowing ample opportunity to continue to invest in our report business and execute on our acquisition strategy. Now,
The transformation of our business that I described earlier has provided us with the free cash flow and balance sheet profile that allows us to implement the four capital allocation initiatives, which will provide greater consistency regarding return of capital, while allowing ample opportunity to continue to invest in our core business and execute on our acquisition strategy.
Now turning to the quarterly results and outlook.
Speaker 2: transcript
Speaker 2: As we discussed in our last call, we felt as though the third quarter would be our most challenging and that did come to fruition. However, we saw implemented demands throughout the quarter and increased tightness in the West Coast, indicating a need for some inventory replenishment. However, peak season has been muted and we do not anticipate a sharp inflection in demand in the fourth quarter.
We discussed on our last call, we felt as though the third quarter would be our most challenging and that did come to fruition.
However, we saw improvement in demand throughout the quarter and increased tightness in the west coast, indicating a need for some inventory replenishment.
However peak season has been muted and we do not anticipate a sharp inflection in demand in the fourth quarter.
Speaker 2: transcript
Speaker 2: Demand with soft-storage line, August , leading to volume declines in Intermoral. Grail service has remained strong, and we executed improved volumes for business day and September , while onboarding winds and shorter hallmarks.
Demand was soft through July and August we need the volume declines in intermodal.
Rail service has remained strong and we executed improved volumes per business day in September while onboarding wins in shorter haul market.
Speaker 2: transcript
Speaker 2: We continue to focus on improving operations on the street, reducing our cost to care and maximizing the efficiency of our team.
We continue to focus on improving operations on the street, reducing our cost and maximizing the efficiency of our team.
Speaker 2: transcript
Speaker 2: Although we've made significant progress, we still have opportunity to improve operational validity and reduce costs.
Although we have made significant progress, we still have opportunity to improve operational fluidity and reduce costs.
Speaker 2: transcript
Speaker 2: We believe there's considerable intermodal conversion opportunity in the upcoming bit season and our commercial organization is focused on returning to growth.
We believe there is considerable intermodal conversion opportunity in the upcoming bid season, and our commercial organization focused on returning to growth.
Speaker 2: transcript
Speaker 2: Our rail partners have remained committed to providing a great service product, and we believe that the combination of quality service, cost benefits versus truck, and greenhouse gas emission reductions will lead to share gains from over the road, and create improved balance and velocity in our network.
Our rail partners have remained committed to providing a great service product and we believe that the combination of quality service cost benefits versus truck and greenhouse gas emission reductions will lead to share gains from over the road and create improved balanced and velocity in our network.
Speaker 2: transcript
Speaker 2: Our logistics system has performed well once again, illustrating the resiliency of our model. We executed well in brokerage, leaving to share gains due to our strong service and value proposition while driving new winds and organic expansion in our warehouse and managed transportation and final mile service.
Our logistics business performed well once again illustrating the resiliency of our model, we executed well in brokerage leading to share gains due to our strong service and value proposition, while driving new wins and organic expansion in our warehousing managed transportation and final mile services.
Speaker 2: transcript
Speaker 2: Our pipeline for logistics and dedicated opportunities is very strong and we remain focused on excellent execution for our company.
Our pipeline for logistics and dedicated opportunities is very strong and we remain focused on excellent execution for our customers.
Speaker 2: transcript
Speaker 2: While we are experiencing some improvement in demand, the length of time it will be maintained remains unclear. With this season approaching, we are focused on returning to growth in intermodal, leveraging our strong service and cost structure to drive conversion from truckloads.
While we are experiencing some improvement in demand the length of time. It will be maintained remains unclear with bid season approaching we are focused on returning to growth in intermodal leveraging our strong service and cost structure to drive conversion from truckload.
Speaker 2: transcript
Speaker 2: As Federal order realization rates improve, capacity attrition accelerates, doodle, aspirates, and customer demand increases. We will be in a strong position to support those opportunities given our excellent team, creative solutions, and available capacity.
As bid award realization rates improve capacity attrition accelerates due to low spot rates and customer demand increases we will be in a strong position to support this opportunity given our excellent team creative solutions and available capacity.
Speaker 2: transcript
Speaker 2: We will maintain our focus on providing world-class service and efficiently operating our business while executing on our long-term investment plan. With that, I will turn it over to Brian to review our operating results.
We will maintain our focus on providing world class service and efficiently operating our business, while executing on our long term investment plan with that I will turn it over to Brian to review our operating results.
Speaker 3: transcript
Speaker 3: Thank you, Phil. I'd like to start by thanking our talented team for their efforts and dedication in leading and executing through a changing, great environment and positioning us for growth with our customers.
Thank you Phil I would like to start by thanking our talented team for their efforts and dedication and leading and executing through a changing freight environment and positioning us for growth with our customers.
Speaker 3: transcript
Speaker 3: I will now discuss our reportable segments starting with our Intermodal and Transportation Solutions.
I will now discuss our reportable segments, starting with our intermodal and transportation solutions.
Speaker 3: transcript
Speaker 3: As Phil mentioned, Antley anticipated, our third quarter was challenging with ICS revenue declining 30%. Driven by software and our motor volume, that declined 16%.
As Phil mentioned, and we anticipated our third quarter was challenging with Ics revenue declining, 30% driven by softer intermodal volume declined 16%.
Speaker 3: transcript
Speaker 3: Trant Cone volume declined 9% to local west declined 18% and the local east declined 14%.
Transcon volume declined 9% local west declined 18% in the local east declined 14%.
Speaker 3: transcript
Speaker 3: Continued soft import volume elevated seasonal inventory and an oversupply of truckload capacity generated softer volume in lower accessoral revenue in the third quarter, which led to a decline in ITS operating.
Continued soft import volume elevated seasonal inventories and an oversupply of truckload capacity generated softer volume and lower accessorial revenue in the third quarter, which led to a decline in Ips operating income.
Speaker 3: transcript
Speaker 3: Throughout the year, we have improved our cost structure and feel well positioned going into the upcoming bid.
Throughout the year, we have improved our cost structure and feel well positioned going into the upcoming bid season.
Speaker 3: transcript
Speaker 3: In retrospect, we held the line on price for too long in 2023, which has impacted our volume.
In retrospect, we hold the line on price for too long in 2023, which has impacted our volume.
Speaker 3: transcript
Speaker 3: We have made the appropriate structural and process changes that are focused on regaining velocity and balance in our network and feel confident in our timing and discipline approach for the 2024 bid.
We have made the appropriate structural and process changes that are focused on regaining velocity and balanced in our network and feel confident in our timing and disciplined approach for the 2020 for bid season.
Speaker 3: transcript
Speaker 3: We continue to be pleased with our dedicated trucking group in yield expansion, along with a strong pipeline of confirmed wins, scheduled on board in the fourth quarter, and early in the first quarter of 2024.
We continue to be pleased with our dedicated trucking growth and yield expansion along with a strong pipeline of confirmed wins scheduled to onboard in the fourth quarter and early in the first quarter of 2024.
Speaker 3: transcript
Speaker 3: As I've mentioned in our previous calls, we have been improving our intermodal constructions throughout the year.
As I had mentioned in our previous calls we have been improving our intermodal cost structure throughout the year.
Speaker 3: transcript
Speaker 3: Our new rail agreements are helping us move with the market to provide compelling volume for our customer base and rail service improvements that help us better manage our equipment.
Our new rail agreements are helping us move with the market to provide compelling volume for our customer base and rail service improvements have helped us better manage our equipment costs.
Speaker 3: transcript
Speaker 3: On the street, we have continued to improve our trade costs by increasing our in-source trade from 62% last year to 78% and have lowered our costs the third-party purchase trade.
On the street, we have continued to improve our dray costs by increasing our in source trade from 62% last year to 78% and have lowered our cost of third party purchase strip.
Speaker 3: transcript
Speaker 3: We continue to execute in the additional opportunity to improve our street economics through regional planning improvements and fixed cost reduction.
We continue to execute and see additional opportunity to improve our street economics through regional planning improvements and fixed cost reductions.
Speaker 3: transcript
Speaker 3: We will continue to defend our income and see and have incremental wins that will set us up for long-term success.
We will continue to defend our incumbency and have incremental wins that will set us up for long term success.
Speaker 3: transcript
Speaker 3: In addition, the recent expansion of our cross-border rail solutions have already generated new winds that will expand in 2024.
Operator: Hello and welcome to the Hub Group 3rd quarter, 2023, Ernest Phoenix Conference call. Phil Yeager, Hubb's president and CEO, Brian Alexander, Hubb's chief operating officer, and Geoff DeMartino, Hubb's CFO are joining me on the call. At this time, more participants are in a listenly mode.
In addition, the recent expansion of our cross border rail solutions have already generated new wins that will expand in 2024.
Speaker 3: transcript
Speaker 3: We'll continue to invest in our intermodal business for the long term and are happening at these investments, along with improved rail service will help support further conversions from over the road to intermodal.
We will continue to invest in our intermodal business for the long term and are confident that these investments along with improved rail service will help support further conversions from over the road to intermodal.
Operator: A brief question in his 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 four-looking statements made during the course of the call were contained in the release represent the company's best good faith judgment as to what may happen in the future. Statements that are for looking can be identified by the use of words, such as belief, expect, anticipate, and project, and variations of these words.
Speaker 3: transcript
Speaker 3: While the near-term results are impacted by low volume, we are confident that our actions will position us for growth and deliver high levels of service for our customers with sustainable profitability.
While the near term results are impacted by low volume, we're confident that our actions will position us for growth and deliver high levels of service for our customers with sustainable profitability.
Now turning to our logistics segment.
Speaker 3: transcript
Speaker 3: As we continue our diversification strategy to deepen our value with our customers, with our integrated approach to supporting and end-to-end supply chain, we are once again successful in expanding our logistics operating income as a percent of revenue by 40 base.
As we continue our diversification strategy to deepen our value with our customers with our integrated approach to supporting an end to end supply chain. We were once again successful in expanding our logistics operating income as a percent of revenue by 40 basis points.
Operator: Please review the cautionary statements in the release. In addition, you should refer to the disclosures in the company's form 10 pay and other SEC filings regarding factors that could cause extra results to differ materially from those projected in these four-looking statements.
Speaker 3: transcript
Speaker 3: Despite the challenging frame environment, our brokerage team continues to stand out with their own volume and margin expanded throughout the quarter.
Despite the challenging freight environment, our brokerage team continues to stand out with growing volume and margin expanded throughout the quarter.
Operator: As a reminder, this conference is mere recorded.
Speaker 3: transcript
Speaker 3: Our third quarter brokerage volume was up 5%. Led by share game with existing customers and continued new customer onboard.
Our third quarter brokerage volume was up 5% led by share gains with existing customers and continued new customer onboarding.
Operator: It is now my pleasure to turn the call over to your host, Phil Yeager. You may now begin.
Speaker 3: transcript
Speaker 3: Our overall logistics segment experienced the revenue decline of 12% in the third quarter, but as a strong pipeline of confirmed wins with onboarding in the fourth quarter in start of 2024.
Phil Yeager: Good afternoon, and thank you for joining Hubb's 3rd quarter earnings call. Joining me today are Brian Alexander, Hubb's chief operating officer, and Geoff DeMartino, our chief financial officer. Over the past few years, we have transformed our earnings, returns, and free cash flow profile through a clear strategy of organic investment into our core business while enhancing capital efficiency through technology deployment and a creative non-assubased acquisition.
Our overall logistics segment experienced a revenue decline of 12% in the third quarter, but has a strong pipeline of confirmed wins with onboarding in the fourth quarter and start of 2024.
Speaker 3: transcript
Speaker 3: In addition, we continue to harvest crop-delling synergies with our most recent non-aesthet logistics acquisition.
In addition, we continue to harvest cross selling synergies with our most recent non asset logistics acquisitions.
Speaker 3: transcript
Speaker 3: But we continue to drive logistics growth. We are also improving our costs as we leverage our ability to establish new multi-purpose logistics locations to support our growth and lower our costs.
While we continue to drive logistics growth, we're also improving our cost as we leverage our ability to establish new multi purpose logistics locations to support our growth and lower our costs.
Phil Yeager: In ITS, we have created a lot of asset-intensive model that provides industry-leading service and value while becoming more efficient through enhancements to our drainage and dedicated operations. In logistics, we have built a service-leading end-to-end solution for our customers that provides best-in-class scale and technology. This evolution of our business has resulted in Hubb's being a more diversified and resilient company with an improved customer experience as well as significant free cash generation.
Speaker 3: transcript
Speaker 3: As mentioned in previous earnings calls, these locations are strategic to our network of freight, as they enable the continued growth of our LPL, final mile in the E-commerce solutions, and support inbound and outbound, multimodal hub volume to service our customers supply chain needs.
As mentioned in previous earnings calls these locations are strategic to our hub network upgrade as they enable the continued growth of our LPL final mile and E Commerce solutions and support inbound and outbound multimodal hub volume to service our customers supply chain needs.
Speaker 3: transcript
Speaker 3: We saw the benefits of these new locations in the West and Central regions supporting the growth of our LCL solutions in the third quarter. And we expect this success to accelerate heading into 2024.
We saw the benefits of these new locations in the west and central regions supporting the growth of our <unk> solutions in the third quarter, and we expect that success to accelerate heading into 2024.
Phil Yeager: Our operating model changes improvement effectiveness as we have managed through this challenging freight cycle with a full-year forecast that we expect will likely be our second best year in our company's 52-year history. With that performance in mind and with the benefit of extensive feedback from our board, as well as existing and potential shareholders and equity analysts, we have taken the opportunity to reassess our capital deployment strategy. I'm excited to announce the results which are also highlighted in the investor presentation which is available on our website.
Speaker 3: transcript
Speaker 3: We will also continue to invest in our 9.5-base final mile offering as we continue to onboard new customers and build more density, driving stronger service and enhanced margin.
We will also continue to invest in our non asset based final mile offering as we continue to onboard new customers and build more density driving stronger service and enhance margin performance.
Speaker 3: transcript
Speaker 3: Our logistics pipeline remains strong with larger deal sizes and improved close rates.
Our logistics pipeline remains strong with larger deal sizes and improved close ratios, our non asset based logistics growth strategy is playing out well and we are in a great position to continue our trajectory of profitable organic growth and continue to integrate future acquisitions.
Phil Yeager: First, we are establishing a long-term leverage target of 0.75 to 1.25 times net debt to EBITDA. We are not in a rush to achieve this target and will do so methodically as we continue to invest in our core business, grow the acquisition, and return capital to shareholders. Second, we have received authorization from our board for a $250 million share repurchase program while retiring our current offereration which had $83 million for me. We believe this new and larger program demonstrates our commitment to returning capital to shareholders and the long-term value we see in Hub Group.
Speaker 3: transcript
Speaker 3: Our non-asset based logistics growth strategy is playing out well and we are in a great position to continue our trajectory of profitable organic growth and continue to integrate future acquisitions. With that, I'll hand it over to Jeff to discuss.
Phil Yeager: Third, our board has authorized a two-for-one share sport that will be effectuated early in 2024 through a share dividend which we believe will enhance liquidity in our stock and support long-term investment.
With that I'll hand, it over to Jeff to discuss our financial performance.
Speaker 2: transcript
Speaker 2: Despite recessionary freight market conditions, we generated revenue over $1 billion for the quarter in operating income margin of 4.2%. Our diluted earnings per share for the quarter.
Thank you Brian.
Despite recessionary freight market conditions, we generated revenue of over $1 billion for the quarter and an operating income margin of four 2%.
Our diluted earnings per share for the quarter was 97.
Speaker 2: transcript
Speaker 2: We generated $88 million of EBITDA and ended with over $400 million of cash on hand.
We generated $88 million of EBITDA and ended with over $400 million of cash on hand.
Speaker 2: transcript
Speaker 2: During the quarter, we purchased 208,000 shares of our stock for $17 million.
During the quarter, we purchased 208000 shares of our stock for $17 million.
Speaker 2: transcript
Speaker 2: Our purchase transportation and where I've been costed quite slowly as a percentage of revenue is compared to the prior year. Deflecting our focus on cost containment and yield management.
Our purchase transportation and warehousing cost declined slightly as a percentage of revenue as compared to the prior year, reflecting our focus on cost containment and yield management.
Phil Yeager: Last, in the first quarter of next year we plan to begin paying a quarterly cash dividend equal to $0.50 per share annually on our new share accounts. The transformation of our business that I described earlier has provided us with the pre-cash-flowing balance sheet profile that allows us to implement these four capital allocation initiatives which will provide greater consistency regarding return of capital while allowing ample opportunity to continue to invest in our board business and execute on our acquisition strategy.
Speaker 2: transcript
Speaker 2: Dallarism benefits cost growth from the prior year as they expanded our driver count by 12%, which had enabled a large increase in our insourced rage percentage.
Salaries and benefits costs rose from the prior year as we expanded our driver count by 12%, which has enabled a large increase in our <unk> percentage.
Speaker 2: transcript
Speaker 2: In addition, the inclusion of tight logistics for a full quarter at its $4 million of expense as compared to the prior year.
In addition, the inclusion of take logistics for a full quarter added $4 million of expense as compared to the prior year.
Speaker 2: transcript
Speaker 2: This increase was offset by lower office employee costs and lower incentive competition expense, as our office had counted by 12% as compared to the prior year.
This increase was offset by lower opex employee costs and lower incentive compensation expense as our office head count declined by 12% as compared to the prior year.
Phil Yeager: Now it's turning into the quarterly results and outlook. As we discussed in our last call, we felt as though the third quarter would be our most challenging and that did come to fruition. However, we saw improvement in demand throughout the quarter and increased tightness in the west coast, indicating a need for some inventory replenishment. However, peak season has been muted and we do not anticipate a sharp inflection in demand in the fourth quarter.
Speaker 2: transcript
Speaker 2: GNA costs a crease by over $10 million to the lower legal and youth tax expenses and a lease impairment charge in the prior year.
G&A cost increased by over $10 million due to lower legal and use tax expenses and a recent payment charge in the prior year.
Speaker 2: transcript
Speaker 2: Depreciation and amortization expense increased as compared to prior year to growth-oriented investments in equipment and technology, as well as the opposition.
Depreciation and amortization expense increased as compared to prior year due to growth oriented investments in equipment and technology as well as the acquisition.
Speaker 2: transcript
Speaker 2: Game on sale was minimal this quarter, whereas the prior year benefited from very strong use truck price.
Gain on sale was minimal this quarter, whereas the prior year benefited from very strong used truck pricing.
Phil Yeager: Demand was soft through July and August leading to volume declines in Intermoral. Rail service has remained strong and we executed improved volumes for business day and September while onboarding wins and shorter haul markets. We continue to focus on improving operations on the street, reducing our cost to serve and maximizing the efficiency of our team. Although we have made significant progress, we still have opportunity to improve operational fluidity and reduce costs. We believe there is considerable intermodal conversion opportunity in the upcoming mid-season and our commercial organization is focused on returning to growth.
Speaker 2: transcript
Speaker 2: Logistic segment revenue of $460 million was down 12% from prior year, but increased 2% from the second quarter.
Logistics segment revenue of $450 million were down 12% from prior year, but increased 2% from the second quarter.
Speaker 2: transcript
Speaker 2: Segment operating income of $29 million with 6.3% of revenue, a 40 basis point improvement from the prior year.
Segment operating income of $29 million was six 3% of revenue a 40 basis point improvement from the prior year.
Speaker 2: transcript
Speaker 2: While brokerage volume grew 5%, and productivity was up by over 40%, revenue per load was down 21%, as compared to the strong conditions we experienced in 2022, which impacted our profitability in the quarter.
While brokerage volume grew 5% and productivity was up by over 40% revenue per load was down 21% as compared to the strong conditions, we experienced in 2022, which impacted our profitability in the quarter.
Speaker 2: transcript
Speaker 2: This headwind was off-step by growth and profitability and our managed transportation, bottom mile and consolidation businesses, as well as a full quarter of results from our fulfillment business.
This headwind was offset by growth in profitability in our managed transportation final mile and consolidations businesses as well as a full quarter of results from our fulfillment business.
Phil Yeager: Our rail partners have remained committed to providing a great service product and we believe that the combination of quality service costs benefits versus trucks and greenhouse gas emission reductions will lead to share gains from over the road and create improved balance and velocity in our network.
Speaker 2: transcript
Speaker 2: The benefits of our long-term acquisition strategy and cross-selling initiatives are showing in our results, with logistics segment operating income accounting for nearly 70% of total.
The benefits of our long term acquisition strategy and cross selling initiatives are showing in our results with logistics segment operating income accounting for nearly 70% of total.
Phil Yeager: Our logistics business performed well once again illustrating the resiliency of our model. We executed well in brokerage leading to share gains due to our strong service and value proposition while driving new wins and organic expansion in our warehouse and managed transportation and final mile services. Our pipeline for logistics and dedicated opportunities is very strong and we remain focused on excellent execution for our customers. While we are experiencing some improvement in demand, the length of time it will be maintained remains unclear.
Speaker 2: transcript
Speaker 2: Our logistics offer provides a more stable earnings stream and improves our positioning as a broad supply chain solutions provider.
Our logistics offering provides a more stable earnings stream and in periods, our positioning as a broad supply chain solutions provider.
Speaker 2: transcript
Speaker 2: There's a strong self-type line and several large recent wins which will drive profitability into 2024.
Strong sales pipeline and several large recent wins, which will drive profitability into 2024.
Speaker 2: transcript
Speaker 2: IPS second revenue at $595 million, with down 30% from prior year, due primarily to lower animal volume and a 20% decline in revenue for load.
<unk> segment revenue of $595 million was down 30% from prior year, due primarily to lower intermodal volume and a 20% decline in revenue per load.
Speaker 2: transcript
Speaker 2: operating income margin declined to 2.3%. As the impact of minimal price declines and reduction in possible adversarial charges, more than offset improvements in Dreyage, rail and equipment cost.
Operating income margin declined to two 3% as the impact of intermodal price decline and reduction in profitable accessorial charges.
Phil Yeager: With this season approaching, we are focused on returning to growth in Intermoral, leveraging our strong service and cost structure to drive conversions from truckloads. As Federal word realization rates improved, capacity attrition accelerates due to low spot rates and customer demand increases. We will be in a strong position to support those opportunities given our excellent team creative solutions and available capacity. We will maintain our focus on providing world-class service and efficiently operating our business while executing on our long-term investment plan.
More than offset improvements in drayage rail and equipment costs.
Speaker 2: transcript
Speaker 2: While soft demand conditions and abundant capacity weighed on price, the operating team performed well in reducing controllable costs and driving efficiency, and we saw the benefits of our new flexible rail contract.
While soft demand conditions and abundant capacity weighed on price the operating team performed well and reducing controllable cost and driving efficiency and we saw the benefits of our new flexible rail contracts.
Speaker 2: transcript
Speaker 2: We are realizing the cost benefits of in-source and grayage with every 100 basis point increase worth approximately $1.5 million annually over the course of the cycle.
We are realizing the cost benefits of insourcing drayage with every 100 basis point increase worth approximately $1 5 million annually over the course of the cycle.
Brian Alexander: With that, I will turn it over to Brian to review our operating results. Thank you, Phil. I would like to start by thanking our talented team for their efforts and dedication in leading and executing through a changing frame environment in positioning us for growth with our customers.
Speaker 2: transcript
Speaker 2: Profitability within our dedicated service line has significantly improved in 2023. It's likely to improve yields and leveraging of operating expense.
Profitability within our dedicated service line has significantly improved in 2023.
Selecting improved yield and leveraging of operating expenses.
Speaker 2: transcript
Speaker 2: Our updated guidance for 2023 as soon as market conditions decline throughout the remainder of the year with softest following the Thanksgiving holiday per more typical seasonality in our in a modal and brokerage services with stability in our more contractual service by
Our updated guidance for 2023 assumes market conditions decline throughout the remainder of the year.
Brian Alexander: I will now discuss our reportable segments starting with our Intermoral and Transportation Solutions. As Phil mentioned, and we anticipated, our third quarter was challenging with ITS revenue declining 30% driven by software and our modal volume that declined 16%. Triant count volume declined 90% to local west to client 18% and the local east declined 14%. Continued soft import volume elevated seasonal inventories and an oversupply of truckload capacity generated softer volume in lower accessorial revenue in the third quarter which led to a decline in ITS operating income.
With softness following the Thanksgiving holiday per more typical seasonality in our intermodal and brokerage services.
With stability in our more contractual service lines.
Speaker 2: transcript
Speaker 2: For 2023, we expect to generate deleted EPS of between $5.30 and $5.40 per share.
For 2023, we expect to generate diluted EPS of between $5 30.
And $5 <unk> per share.
Speaker 2: transcript
Speaker 2: The expect revenue will be approximately $4.2 billion for 2023.
We expect revenue will be approximately $4 2 billion for 2023.
Speaker 2: transcript
Speaker 2: Greenermoto, we're forecasting volume will apply low double digits to mid teens for the full year.
For intermodal, we're forecasting volume will decline low double digits to mid teens for the full year.
Speaker 2: transcript
Speaker 2: The remainder of the year will reflect the impact of lower prices and less at the story of a surcharge revenue, which will be partially upset by lower purchase transportation costs and improved operating efficiency. The expected tax rate...
The remainder of the year will reflect the impact of lower prices and less accessorial that surcharge revenue, which will be partially offset by lower purchase transportation costs and improved operating efficiency.
Brian Alexander: Throughout the year, we have improved our cost structure and feel well positioned going into the upcoming business. In retrospect, we held the line on price for too long in 2023 which has impacted our volume. We have made the appropriate structural and process changes that are focused on regaining velocity and balance in our network and feel confident in our timing and discipline approach for the 2024 business season.
We expect a tax rate of approximately 20% for the year.
Speaker 2: transcript
Speaker 2: Our capital expenditure range is unchanged at $140 to $150 million.
Our capital expenditure range is unchanged at $140 million to $150 million.
Speaker 2: transcript
Speaker 2: Based on this guidance we would expect to generate Evid Daleks Kaplot Spenatures of over $250 million in 2023.
Based on this guidance, we would expect to generate EBITDA less capital expenditures of over $250 million in 2023.
Speaker 2: transcript
Speaker 2: Over the past over years, we've made important strategic changes to our business, including our focus on yield management, asset utilization, and operating expense efficiency, which has significantly improved cross-ability and return.
Over the past several years, we have made important strategic changes to our business, including our focus on yield management.
Asset utilization and operating expense efficiency, which has significantly improved profitability and returns.
Brian Alexander: We continue to be pleased with our dedicated trucking growth in yield expansion along with a strong pipeline of confirmed wins scheduled on board in the fourth quarter and early in the first quarter of 2024. As I mentioned in our previous calls, we have been improving our intermodal cost structure throughout the year. Our new rail agreements are helping us move with the market to provide compelling volume for our customer base and rail service improvements that help us better manage our equipment costs.
Speaker 2: transcript
Speaker 2: We've also completed several acquisitions to build out our logistics offering and drive more stability in our earners.
We've also completed several acquisitions to build out our logistics offering and drive more stability in our earnings.
Speaker 2: transcript
Speaker 2: While we compete in a typical marketplace, these actions have driven a step change in our trop to trop results, with operating margin growing from 2% in 2017 to 6% today, along with an improvement in free cash flow to over $250 million as compared to $60 million in 2017.
While we compete in a cyclical marketplace. These actions have driven a step change in our trough to trough results with operating margin growing from 2% in 2017% to 6% today, along with an improvement in free cash flow to over $250 million as compared to $60 million in 2017.
Speaker 2: transcript
Speaker 2: These strategic changes have a position-hub group for success in both the short and long-term time horizons and in soft and strong demand environments. With that, I'll turn...
The strategic changes have physician hub group for success in both the short and long term time horizons and source and strong demand environments.
Brian Alexander: On the street, we have continued to improve our trade costs by increasing our in-source trade from 62 percent last year to 78 percent and have lowered our cost of third-party purchase trade. We continue to execute in the additional opportunity to improve our street economics through regional planning improvements and fixed cost reductions.
With that I'll turn it over to the operator to open the lines for questions.
Speaker 1: transcript
Speaker 1: As a reminder, to ask a question you will need to press Star 1-1 or your telephone.
As a reminder to ask a question you will need to press star one one on your telephone.
Speaker 1: transcript
Speaker 1: Our first question is from Scott Group of Wolf Research. Please proceed with your question.
Our first question.
It is from Scott Group of Wolfe Research. Please proceed with your question.
Brian Alexander: We will continue to defend our incomeancy and have incremental wins that will set us up for long-term success. In addition, the recent expansion of our cross-border rail solutions have already generated new wins that will expand in 2024. We will continue to invest in our intermodal business for the long-term and our cabinet that these investments along with improved rail service will help support further conversions from over the road to intermodal.
Speaker 4: transcript
Speaker 4: Hey, thanks afternoon guys. So I want to try and focus on the ITS margin. And we don't have a lot of history to know what it looked like in prior troughs, but it was 10% a year ago in Q3. Now it's 2%. It doesn't feel like we're seeing the benefits of...
Hey, Thanks afternoon, guys. So I wanted to I wanted to try and focus on this.
Margin, we don't have a lot of.
History to know what it looked like in prior troughs, but it was.
10% a year ago in Q3 now its 2% it doesn't feel like we're seeing the benefits of.
Speaker 4: transcript
Speaker 4: different rail contracts or more flexibility like we've talked about and looks like the Q4 guide implies margins take another step down from here. So why are we not?
Different rail contracts are more flexibility like we've talked about.
Brian Alexander: While the near-term results are impacted by low volume, we are confident that our actions will position us for growth and deliver high levels of service for our customers with sustainable profitability.
It looks like the Q4 guide implies margins take another step down from here so.
Why are we not.
Speaker 4: I guess why aren't we seeing the benefits of all the stuff that you've talked about in...
I guess why arent, we seeing that.
Brian Alexander: Now, turning to our logistic segment. As we continue our diversification strategy to deepen our value with our customers, with our integrated approach to supporting and end-to-end supply chain, we are once again successful in expanding our logistic operating income as a percent of revenue by 40 basis points. Despite the challenging trade environment, our brokerage team continues to stand out with growing volume in margin expanded throughout the quarter. Our third quarter brokerage volume was up 5 percent, led by shared gain with existing customers and continued new customer onboards.
The benefits of all the stuff that you've talked about.
Speaker 4: transcript
Speaker 4: in Margin and where do you think we go on Margin from here?
And margin and where do you think we go on margin from here.
Speaker 5: transcript
Speaker 5: Yeah, sure, Scott. This is still off start. So I think we have executed well in cost out. If you look at the quarter year over year with cost for DRA drop.
Yeah sure Scott This is Phil I'll start.
I think we have executed well on cost out you look at the quarter year over year, we saw.
Cost per dray drop.
Speaker 5: transcript
Speaker 5: 27% year over year are real contracts, it actually helps us offset some of the pricing pressure. I think when you're looking at...
27% year over year, our rail contracts.
Actually help us offset some of the pricing pressure I think when youre looking at the prior year numbers. Those were also somewhat inflated with high accessorial revenue as well as gains on sale, which came out so if you normalize those.
Speaker 5: transcript
Speaker 5: The prior year numbers, those were also someone inflated with high, at the Sorial Revenue as well as games on sale, which came out. So if you normalize those.
Brian Alexander: Our overall logistic segment experienced the revenue decline of 12 percent in the third quarter, but as a strong pipeline of confirmed wins with onboarding in the fourth quarter in start of 2024. In addition, we continue to harvest crop-downing synergies with our most recent non-asset logistics acquisitions While we continue to drive logistics growth, we are also improving our costs as we leverage our ability to establish new multi-purpose logistics locations to support our growth and lower our costs As mentioned in previous earnings calls, these locations are strategic to our hub network of freight as they enable the continued growth of our LPL, Final Mile, and e-commerce solutions, and support inbound and outbound multimodal hub volume to service our customers' supply chain needs We saw the benefits of these new locations in the West and Central regions supporting the growth of our LPL solutions in the third quarter, and we expect this success to accelerate heading into 2024 We will also continue to invest in our non-asset-based Final Mile offering as we continue to onboard new customers and build more density, driving stronger service and enhanced margin improvements Our logistics pipeline remains strong with larger deal sizes and improved close ratios.
You are seeing a more consistent earnings pattern, obviously pricing has been somewhat more aggressive than we would have anticipated and I think Bryan did a good job of calling out.
His prepared remarks that we didn't necessarily move quickly enough on pricing in the first portion of bid season. This time last year, which we wound up losing some share to over the road. We now have an opportunity to garner some of that back and given some of the spreads that we're seeing I think we have a significant.
Speaker 4: transcript
Speaker 4: portion of bids season this time last year, which we wound up losing some share to over the road. We now have an opportunity to garner some of that back and given some of the spreads that we're seeing, I think we have a significant opportunity to do so. We have a higher asset count today and when it is not moving, you're going to see degradation in overall margins. And so our goal is to get velocity back into the network through the upcoming bids season. And then I think you'll really start to see the benefits of those real contracts. And so as we approach bids season, it sounds like you want to recapture some share. Do you need to, just price need to go lower from here in order to do that? Or do you think there's an opportunity to regain share, but also.
Opportunity to do so we have a higher asset count today and when it is not moving if youre going to see degradation in overall margins and so our goal is to get velocity back into the network through the upcoming bid season, and then I think youll really start to see the benefits of those rail contracts.
Speaker 4: transcript
Speaker 4: And so if as we approach bid season, it sounds like you want to recapture some share. Do you need to, does price need to go lower from here in order to do that? Or do you think there's an opportunity to regain share, but also improve price? I think that's hard to get both, but here's what you guys.
And so it is.
As we approach bid season, it sounds like you want to recapture some share do you need to just price need to go lower from here in order to do that or do you think there's an opportunity to.
Regained share but also price.
Think that's hard to get both but curious what you guys think.
Speaker 5: transcript
Speaker 5: Sure, so Brian has brought some in his prepared marks once again. I think some of the structural changes we made with our pricing group following some of the share losses to track initially in the season. And since then, we've actually performed quite well and I've really seen some nice wins come online, particular in some shorter home market. So we feel that our current pricing methodology actually is working and we won't have to go much lower. I think you also look at the spreads that we're seeing right now between OTR and normal contract rates.
Sure So Brian addressed in his prepared remarks, once again I think some of the structural changes we made with our pricing group. Following some of the share losses to track initially in bid season and since then we've actually performed quite well and have really seen some nice wins come online in particular and some shorter haul market. So we feel that our current pricing methodologies.
Geoff DeMartino: Our non-asset-based logistics growth strategy is playing out well and we are in a great position to continue our trajectory of profitable organic growth and continue to integrate future acquisitions With that, I'll hand it over to Jeff to discuss our financial performance Thank you, Brian. Despite recessionary freight market conditions, we generated revenue over $1 billion for the quarter and an operating income margin of 4.2%. Our diluted earnings per share for the quarter was 97 cents.
He actually is working and we won't have to go much lower I think you also look at the spreads that we're seeing right now between OTR and intermodal contract rate, it's up in the mid 30% at this point. So we think with the combination of really strong service product higher fuel prices and some uncertainty around what truckload capacity.
Speaker 5: transcript
Speaker 5: It's up in the mid 30s at this point. So we think with the combination of really strong service product, higher fuel prices, and some uncertainty around what truckload capacity in the spot market will look like. There is a significant opportunity for an overall conversion.
<unk> in the spot market will look like there is a significant opportunity for intermodal conversion.
Geoff DeMartino: We generated $88 million of EBITDA and ended with over $400 million of cash on hand. During the quarter, we purchased 208,000 shares of our stock for $17 million. Our purchase transportation and warehousing cost declined slowly as the percentage of revenue is compared to the prior year, reflecting our focus on cost containment and yield management. Dallarism benefits costs rose from the prior year as we expanded our driver count by 12%, which enabled a large increase in our in-source storage percentage.
Speaker 5: transcript
Speaker 5: and we're planning to focus on that and capture that.
We're planning to focus on that and capture that.
Speaker 4: transcript
Speaker 4: And then just lastly, so maybe, Jeff, are we thinking about this right that the guidance implies a closer to like a percent and a half margin in ITS and Q4? And is that right? How should we think about those segment margins into next year?
Okay, and then just lastly, so maybe Jeff or are we thinking about this right that the guidance implies closer to.
<unk> percent and a half margin in <unk> in Q4, and if that's right how should we think about.
Those segment margins into next year.
Speaker 2: transcript
Speaker 2: No, I wouldn't be that low. I would say it's going to be pretty consistent with where we are today from a margin percent. I think we are going to see some pressure towards the end of the year on the broker side. I think we perform well in Q3 and we are starting to see that soften.
I wouldn't be that low I would say, it's going to be pretty consistent with where we are today from a margin percent I think we are going to see some pressure towards the end of the year on the brokerage side I think we performed well in Q3, and we are starting to see that soften.
Geoff DeMartino: In addition, the inclusion of tight logistics per full quarter at its $4 million of expense as compared to the prior year. This increase was offset by lower office employee costs and lower incentive competition expense as our office has declined by 12% as compared to the prior year. GNA costs decreased by over $10 million to the lower legal and youth tax expenses and a lease impairment charge in the prior year. Depreciation and amortization expense increased as compared to prior year to growth-oriented investments in equipment and technology as well as the acquisition.
Speaker 2: transcript
Speaker 2: I would say, our business model, as you know, within Intermodal is very asset-like from an equipment perspective. We do, like most companies, have some level of fixed costs on the operation side. So if you think about incremental volume from a contribution margin perspective, those numbers are in the upper teens area, just on a contribution margin, and that's with flat price. Obviously, price is very, very impactful. A 1% price increase on today's.
I would say.
Our business model as you know within intermodal.
It's very asset light from an equipment perspective, we do like most companies have some level of fixed costs on the operation side. So.
So if you think about incremental volume from a contribution margin perspective those numbers are in.
Upper upper teens area, just on a contribution margin and that's with flat price. Obviously price is very very impactful a 1% price increase on <unk>.
Geoff DeMartino: Gain on sale was minimal this quarter, whereas the prior year benefited from very strong use truck pricing. The logistics segment revenue of $450 million was down 12% from prior year, but increased 2% from the second quarter. The equipment operating income of $29 million was 6.3% of revenue, a 40 basis point improvement from the prior year. While brokerage volume grew 5%, and productivity was up by over 40%, revenue per load was down 21%, as compared to the strong conditions we experienced in 2022, which impacted our profitability in the quarter.
Speaker 2: transcript
Speaker 2: Financial profile is worth nearly 100 basis points in operating profits. So we are focused on returning fluidity into the network and then pricing will be incremental up to that from there.
<unk>.
<unk> financial profile is worth nearly 100 basis points and operating profit. So we are focused on returning fluidity in the network and then pricing will be incremental upside from there.
Pass it along thank you guys.
Speaker 1: transcript
Speaker 1: Thank you. Our next question is from John Chappelle of Evercore ISI. Please proceed with your question.
Thank you.
Our next question is from Jon Chapell of Evercore ISI. Please proceed with your question.
Speaker 2: transcript
Speaker 2: Thank you. Good afternoon. Phil, do your answer before on holding price too long and Brian's commentary on that as well? You mentioned that you lost share you think too over the road. But as we try to determine how long you'll be bouncing along the bottom in a modal pricing, can you speak to the competitive landscape among your intermodal competitors? Is that what's driving the race to the bottom or is it just the over capacity and truck load and you feel that once that stabilizes the hole in a modal industry, can get a bit of a flaw?
Thank you.
Afternoon.
To your answer before on holding price too long and Brian's commentary on that as well you mentioned that you lost share or anything to over the road, but as we try to determine how long you'll be bouncing along the bottom with intermodal pricing can you speak to the competitive landscape. Among your intermodal competitors is that what's driving the race to the bottom or is it just.
Geoff DeMartino: This headwind was offset by growth and profitability in our managed transportation, final mile, and consolidation businesses, as well as a full quarter of results from our fulfillment business. The benefits of our long-term acquisition strategy across young initiatives are showing in our results, with logistics segment operating income accounting for nearly 70% of total. Our logistics offer provides a more stable earnings stream, and improves our positioning as a broad supply chain solutions provider.
The overcapacity in truckload and you feel that once that stabilizes the whole intermodal industry.
Can get a bit of a floor.
Speaker 5: transcript
Speaker 5: Yeah, I think it's mostly the over capacity in the truckload market. We aren't seeing, you know, some really nice wins that we've brought on lately. It was just later in the overall bid season. And as you know, our bid calendar in the first quarter will reprise over 40% of our total business. And so that's where we felt as the last year we didn't have a great overall service product and we tried to hold the line on Christ. And that's where a lot of that share went to over the road. So we believe that there are a lot of questions out there from our customers on how they're going to as demand returns and they need to replenish inventory, how they're going to move that product. We're displaying a very...
Yes, I think it's mostly the overcapacity in the truckload market. We are seeing some really nice wins that we've brought on lately. It was just later in the overall bid season and as you know our bid calendar in the first quarter, we will reprice over 40% of our total business and so that's where we felt as though last.
Geoff DeMartino: We have a strong self-type line and several large recent wins which will drive profitability into 2024. ITF segment revenue of $595 million was down 30% from prior year due primarily to lower animal volume and a 20% decline in revenue below. Operating income margin declined to 2.3% as the impact of minimal price defines and reduction in possible adversarial charges, more than offset improvements in drainage, rail, and equipment cost. While soft demand conditions and abundant capacity weigh on price, the operating team performed well in reducing control costs and driving efficiency, and we saw the benefits of our new flexible rail contracts.
Here, we didn't have a great overall service product and we tried to hold the line on price and Thats, where a lot of that share went to over the road. So we believe that there are a lot of questions out there from our customers on how they're going to as demand returns and they need to replenish inventories how theyre going to move that product were displayed.
Speaker 5: transcript
Speaker 5: strong rail service product, we're showing the fuel prices are up and that the spreads between contract rates are expanding. So we think we have a very strong value proposition to bring to our customers and having a lot of great conversations that converge.
A very strong rail service product, we're showing that fuel prices are are up and that the spreads between contract rates are expanding so we think we have a very strong value proposition to bring to our customers and having a lot of great conversations at convergent.
Geoff DeMartino: We are realizing the cost benefits of in-source and drainage with every 100 basis point increase worth approximately $1.5 million annually over the course of the cycle. Profitability within our dedicated service line has significantly improved in 2023, reflecting improved yield and leveraging of operating expenses. Our updated guidance for 2023 as soon as market conditions decline throughout the remainder of the year, with softness following the thanksgiving holiday per more typical fees now be in our in-a-modal and proper services with stability in our more contractual service lines.
Speaker 6: transcript
Speaker 6: And then so if we think about it now, you've transitioned a little bit. So hopefully stem the share loss. I don't recall you giving them the monthly breakdown of the arm auto volumes, but maybe that'll help with, as you went through the third quarter, and we're mostly through October now, maybe where you stand there.
Okay and then so if we think about it now.
Transitioned a little bit.
Hopefully stem the share loss.
I don't recall, given the monthly breakdown of the intermodal volumes, but maybe that will help with as well.
Through the third quarter and we're mostly through October now, maybe where you stand there sure. Yes. So July was down 13% August was down 19% in September was down 15 October thus far is down 9% one thing I think that is worth highlighting.
Speaker 5: transcript
Speaker 5: Sure. Yeah. So, July was down 13% August was down 19% and September was down 15. October thus far is down 9%.
Geoff DeMartino: For 2023, we expect to generate deluded EPS of between $5.30 and $5.40 per share. The expect revenue will be approximately $4.2 billion for 2023. For Intermodal, we're forecasting volume will define low double digits to mid teens for the full year. The remainder of the year will be $1.5 million and less at the store in search of revenue, which will be partially upset by lower purchase transportation costs and improved operating efficiency. The expected tax rate will approximately 20% for the year.
Speaker 5: transcript
Speaker 5: One thing I think that is worth highlighting is when we came out of Q2, due to July , we actually saw a three percent sequential increase in demand. We then July to August an eight percent decline and then August to September a nine percent ramp.
When we came out of Q2 June to July we actually saw 3% sequential increase in demand. We then July to August saw an 8% decline and then August and September 90% ramp what occurred in August, which I think was very impactful in the back half of August and really cost us, we think 2% to 3% ish.
Speaker 2: transcript
Speaker 5: what occurred in August , which I think was very impactful in the back half of August . And really, we think two to three percentage points on total volume for the quarter, which hurt a Hillary. And obviously, it was very impactful to the Western portion of our network. And so that was something we didn't call out specifically, but I think it's important to reference as we think about the volumes for the quarter.
Points on total volume for the quarter was hurricane Hillary I know, obviously was very impactful to the western portion of our network and so that was something we didn't call out specifically, but I think it's important to reference as we think about the volumes for the quarter.
Geoff DeMartino: Our capital expenditure range is unchanged at $140 to $150 million. Based on this guidance, we would expect to generate ebit.less capital expenditures of over $250 million in 2023. Over the past over years, we've made important strategic changes to our business, including our focus on yield management, asset utilization, and operating expense efficiency, which has significantly improved profitability and returns. We've also completed several acquisitions to build out our logistics offering and drive more stability in our earnings.
Okay I appreciate it thank you Phil.
Speaker 1: transcript
Speaker 1: Thank you. Our next question is from Jason Scydall with Cowan & Company. Please proceed with your question.
Thank you.
Our next question.
Geoff DeMartino: While we compete in a typical marketplace, these actions have driven a step change in our trop-to-trop results, with operating margin growing from 2% in 2017 to 6% today, along with an improvement in free cash flow to over $250 million as compared to $60 million in 2017. These strategic changes have positioned hub groups for success in both the short and long-term time horizons, and it saws and strong demand environments.
Is from Jason Seidl with Cowen <unk> company.
Please proceed with your question.
Speaker 3: transcript
Speaker 3: Thank you, Robert, or hey, Phil, hey Jeff Heybren. What is it? Talk conceptually about next year, you know, you guys.
Thank you operator, Haynesville HSA Brian.
Talk conceptually about next year you guys.
Speaker 3: transcript
Speaker 3: announced that you have a pending dividend out here. Most companies don't put out a new dividend announcement if they think the business is going south. So how should we think about the potential for earnings growth with the backdrop of 40% of your business coming due in one queue, improving rail costs on your side and sort of an increase in your percentage of an on-earned tarmac.
Announced.
You have a pending dividend out here most companies don't put out.
New dividend announcement, if they think the business is going south so how should we think about the potential for earnings growth with the backdrop of 40% call. It of your business coming due in <unk>.
Improving railcar.
Rail cost on your side and sort of an increasing your percentage of internal dray.
Speaker 5: transcript
Speaker 5: Sure, no, I think it's a great question. And I think I'll start and let Jeff and Brian fill in. I think it's a little early to give anything too concrete if we're in our budgeting process. What I'll try to do is kind of frame it up. As we look at the market, I think we're seeing some form of peak season, which is great. We're starting to see capacity exits and a more balanced spot market. Inventories are coming more back in line. I think from Intermodal, I referenced, fuel crisis increasing is normally a good thing conversion, our service levels, even with increasing sequential volumes are holding up very well. And I mentioned that OTR versus Intermodal Contracts bread.
Sure.
Great question.
I think.
I'll start and let Jeff and Brian So and I think it's a little early to give anything to concrete is we're in our budgeting process, but I'll try to do is kind of frame. It up as we look at the market I think we're seeing some form of peak season, which is great. We're starting to see capacity exit and a more balanced spot market inventories are coming more back in line I think from intermodal I reference.
Operator: With that, I'll turn it over to the operator to open the line of questions. As a reminder, to ask a question you will need to press Star 11 on your telephone.
Scott Group: Our first question is from Scott Group of Wolf Research. Please proceed with your question. Hey, thanks afternoon guys. So, I want to, I want to try and focus on this, the ITS margin and we don't have a lot of history to know what it looked like in prior troughs, but it was 10% a year ago in Q3. Now it's 2%. It doesn't feel like we're seeing the benefits of different rail contracts or more flexibility like we've talked about, and it looks like the Q4 guide implies margins, take another step down from here. So, why are we not, I guess why aren't we seeing the benefits of all the stuff? That you've talked about in margin and where do you think we go on margin from here?
Fuel prices, increasing its normally a good thing for conversion our service levels, even with increasing sequential volumes are holding up very well and I mentioned that OTR versus intermodal contract spread I think when you look at hub, we're far more efficient head count is down 12% year over year I mentioned, our cost per dry.
To a far lower capital expenditures going into next year and I think if you layer in some accretive M&A and the capital allocation plan barring some sort of consumer recession, we're going to be targeting earnings and revenue growth I think the only thing that remains unclear is the timing on recovery of demand, but it will certainly obviously have more specifics for you on the fourth quarter call, but I'll, let <unk>.
Brian and Jeff fill in sure yes, no Jason I think what we see going into next year, and we talked a little bit about it earlier this year to about the inventories and a lot of that inventory has to burn off more seasonally so while there was some bloated inventories earlier. This year just took a full seasonal cycle to burn off and so as we push through the holiday season and enter into the spring we.
Speaker 3: transcript
Speaker 3: And a lot of that inventory has to burn off more seasonally. So while there was some bloated inventories earlier this year, it just took a full seasonal cycle to burn off. And so as we push through the holiday season and enter into the spring, we see that that's going to be a reset in a good position to be replenished. And as we do that, we'll see our intermodal volumes grow. We called out our brokerage, which is a standout in the marketplace, despite all these market end wins. They stood out really well with that 5% growth and really continued growth. Going into into next year as well. And then our logistics services, we continue to see a really strong demand for all of our logistics services.
Phil Yeager: Yeah, sure, Scott, this is still our start. So, I think we have executed well in cost out. You look at the quarter year over year with cost for DRA drop 27% year over year, our rail contract actually help us offset some of the pricing pressure. I think when you're looking at the prior year numbers, those who are also somewhat inflated with high as a soil revenue as well as games on sale, which came out.
Speaker 3: transcript
Speaker 3: to burn off more seasonally. So while there was some bloated inventories earlier this year, it just took a full seasonal cycle to burn off. And so as we push through the holiday season and enter into the spring, we see that that's going to be a reset in a good position to be replenished. And as we do that, we'll see our intermodal volumes grow. We called out our brokerage, which is a standout in the marketplace, despite all these market end wins, they stood out really well with that 5% growth and really continue growth going into in the next year as well. And then our logistics services, we continue to see a really strong demand for all of our logistics.
See that thats going to be reset.
In a good position to be replenished and as we do that we'll see our intermodal volumes grow we called out our brokerage which is a standout in the marketplace. Despite all of these market headwinds.
Phil Yeager: So, if you, if you normalize those, I think you are seeing a more consistent earnings pattern, obviously pricing has been some of more aggressive than we would have anticipated. And I think Brian did a good job of calling out in his prepared remarks that we didn't necessarily move quickly enough on pricing in the first portion of this season this time last year, which we wound up losing some share to over the road.
Stood out really well with that 5% growth and really continued growth.
Going into the into next year as well and then our logistics services. We continue to see really strong demand for all of our logistics services with our managed transportation, what we bring to the table with.
Speaker 3: transcript
Speaker 3: with our managed transportation, what we bring to the table.
Speaker 3: transcript
Speaker 3: with our consolidation and fulfillment locations that I've mentioned that we're adding and investing with new buildings. We're working kind of left to right adding to in the west earlier this year to in the Midwest.
With our consolidation and fulfillment locations that had mentioned that we're adding and investing with new buildings working kind of left to right, adding to and the west earlier. This year two in the Midwest and we're going to finish out the year working into the eastern going into 2024 as well as our final mile. So we continue to win service awards from our customers and our.
Speaker 3: transcript
Speaker 3: and we're going to finish out the year working into the East and going into 2024, as well as our final mile. So we continue to win service awards from our customers and our final mile offering. We're bringing on new logos and diversifying that customer base.
Phil Yeager: We now have an opportunity to garner some of that back and given some of the spreads that we're seeing, I think we have a significant opportunity to do so. We have a higher asset count today. And when it is not moving, you're going to see degradation in overall margins. And so, our goal is to get velocity back into the network through the upcoming fifth season. And then I think you'll really start to see the benefits of those rail contracts.
Final mile offerings, we're bringing on new logos and diversifying that customer base and our non asset based model and final mile has proven to be really great for flexing and growing with our customers and so we're going to see continued success there as we invest in that from a growth perspective, but yes. Those are the big areas that will continue.
Speaker 3: transcript
Speaker 3: And our non-asset based model and final model is proven to be really great for flexing and growing with our customers. And so we're gonna see continued success there as we invest in that from a growth perspective. But yeah, those are the big areas that will continue to focus. You know, Phil mentioned a lot of the over-the-road conversions into the previous...
Phil Yeager: And so, as we approach bid season, it sounds like you want to recapture some share. Do you need to just price need to go lower from here in order to do that? Or do you think there's an opportunity to regain share, but also improve price? I think that's hard to get both, but curious what you guys think. Sure, so Brian had read some in his prepared remarks once again. I think some of the structural changes we made with our pricing group following some of the share losses to track initially in bid season.
To focus Phil mentioned, a lot of the over the road conversions into the previous.
Speaker 3: transcript
Speaker 3: Questions, there's still over 56 million over the road, truckload volume that's out in the marketplace that is eligible for intermodal conversions. And we're highly focused on delivering that on that growth and converting it in the right cost.
Questions are still over $56 million over the road truckload volume Thats out in the marketplace that is eligible for intermodal conversions and we're highly focused on delivering on that growth and converting and the right cost structure.
Speaker 7: transcript
Speaker 7: I appreciate those comments. How do we think about your rail partners? There's obviously been some talk about improved rail service.
Alright, I appreciate those comments, how should we think about your rail partners.
There's obviously been some talk about improved rail service.
Speaker 7: transcript
Speaker 7: You know, I'm happy to see that, but I'm not giving them as much credit because we haven't really seen the improved rail service with improved volume. So how confident are you guys if we do see volumes come back at some point in 24, that your rail partners will be able to handle that increase.
Phil Yeager: And since then, we've actually performed quite well. And I've really seen some nice winds come online in particular in some shorter home markets. So we feel that our current pricing methodology actually is working and we won't have to go much lower. I think you also look at the spreads that we're seeing right now between OTR and normal contract rates. It's up in the mid 30s at this point. So we think with the combination of really strong service products, higher fuel prices, and some uncertainty around what truck load capacity in the spot market will look like. I think that there's a significant opportunity for a low conversion and we're planning to focus on that and capture that.
I'm happy to see that but I'm, not giving them as much credit because we havent really seen the improved rail service with improved volume so.
Confident are you guys. If we do see volumes come back at some point in 'twenty for that your rail partners will be able to handle that increase.
Speaker 5: transcript
Speaker 5: Yeah, this is still, I think you're seeing a good test right now. It's been sequential volume increase and in pretty short order, which I think has been a good test. We're hoping that this is more prolonging continues to.
Yes, so I think youre seeing a good task right now it's been sequential volume increase in pretty short order, which I think has been a good tax we're hoping that this is more prolonged and continue.
Speaker 5: transcript
Speaker 5: to move forward. I agree with you. We have to continue to show our customers that, but at the same time, I think you're seeing the commitment in hiring and resourcing to handle that demand. And so we believe we are going to be in that position. And it's a massive opportunity for us and our real partners. And I know all of our conversations are related to growth.
To move forward I agree with you we have to continue to show our customers that but but at the same time, I think youre seeing the commitment and hiring and resourcing to handle that demand and so we believe we are going to be in that position and it's a massive opportunity for us and our rail partners and I know all of our conversations are related to growth at this point.
Geoff DeMartino: Okay, and then just lastly, so maybe, Jeff, are we thinking about this right that the guidance implies, you know, closer to like a percent and a half margin in ITS and Q4, and if that's right, how should we think about those segment margins into next year? No, I wouldn't be that low. I would say it's going to be pretty consistent with where we are today from a margin percent. I think we are going to see some pressure towards the end of the year on the broker side.
Speaker 7: transcript
Speaker 7: Okay, well one final one and I'll turn it over to somebody else. Phil, I think you mentioned a creative M&A. Can you maybe give us an update on the M&A market? You know, are you still seeing a lot of stuff being put up for sale? And what do the multiples look like, say, compared to a year ago?
And time.
Okay, one final one and I'll turn it over to somebody else.
Phil I think you mentioned accretive M&A can you maybe give us an update on the M&A market.
Are you still seeing a lot of stuff being put up for sale and what are the multiples look like say compared to a year ago.
Geoff DeMartino: I think we perform well in Q3 and we are starting to see that soften. I would say, you know, our business model, as you know, within intermodal is very asset light from an equipment perspective. You know, we do, like most companies have some level of fixed costs on the operation side, so if you think about incremental volume from a contribution margin perspective, you know, those numbers are in the, you know, upper teens area just on a contribution margin, and that's with flat price.
Speaker 5: transcript
Speaker 5: Sure, I'll start now, let's just go in. We haven't seen as many companies coming up for sales, just given some of the challenges in the broader market and obviously interest rates increasing. So, and there's been somewhat of a disconnect on overall value, but I think what we've been able to do is continue to go out and find interesting and exciting off-market opportunities. And we have a very strong pipeline right now and are certainly working towards closing something. We hope in the near future.
Sure I'll start and I'll, let Jeff go in we.
Haven't seen as many companies coming up for sale just given some of the challenges in the broader market and obviously interest rates increasing.
And theres been somewhat of a disconnect on overall value, but I think what we've been able to do is continue to go out and find interesting and exciting and off market opportunities and we have a very strong pipeline right now and are certainly working towards closing something we hope in the near term.
Geoff DeMartino: Obviously, price is very, very impactful, a one percent price increase on, you know, on today's financial profile is worth, you know, nearly a hundred basis points in operating profits. So, we are focused on returning fluidity into the network, and then pricing will be incremental upside from there. Pass it along.
Speaker 2: transcript
Speaker 2: Yeah, gentlemen, say keep the key part of our strategic growth plan. We highlighted that today in the context of the overall capital allocation plan. I think we have a good pipeline and we're continuously evaluating. And again, we've had more success on those out reaches that we've generated. And we think we're a good buyer in this market.
Yes, I'll just add.
I'd say its a key part of our strategic growth plan, we highlighted that today in the context of the overall capital allocation plan.
I think we have a good pipeline and we're continuously evaluating and again, we've had more success on those outreach that we've generated and we think were a good buyer in this market.
Operator: Thank you, guys. Thank you.
John Chappelle: Our next question is from John Chappelle of Evercore ISI. Please proceed with your question. Thank you. Good afternoon. Phil, do your answer before on holding price too long and Brian's commentary on that as well. You mentioned that you lost share you think too over the road, but as we try to determine how long you'll be bouncing along the bottom in a modal pricing, can you speak to the competitive landscape among your intermodal competitors?
Thanks for the time gentlemen.
Speaker 1: transcript
Speaker 1: Thank you. Our next question is from Brian Austinback of JP Morgan. Please proceed with your question.
Okay. Thank you.
You are.
Our next question is from Brian <unk> of Jpmorgan. Please proceed with your question.
Speaker 5: transcript
Speaker 5: Hey, afternoon. Thanks for taking the question. So maybe just to come back to competition on the intermobile side. So can you talk about...
Hey, good afternoon, thanks for taking the question.
So maybe just to come back to competition on the intermodal side.
So can you talk about.
Speaker 5: transcript
Speaker 5: What you're going after here is this really some of the things you think left the rail network with poor service and this is really just over the road conversion maybe you can give some context in terms of where that spread is versus history and the service could enough to get this back or is this really more of a play on price and getting a little bit more that density you might have not had as much as you want to
More what you're going after here is this really some of the things you think left the rail network with poor service.
John Chappelle: Is that what's driving the race to the bottom, or is it just the over capacity and truckload and you feel that once that stabilizes the whole in a modal industry can get a bit of a floor? Yeah, I think it's mostly the over capacity in the truckload market. We are seeing, you know, some really nice wins that we've brought on lately. It was just later in the overall bid season. And as you know, our bid calendar in the first quarter will reprise over 40% of our total business.
And this is really just over the road conversion, maybe you can give some context in terms of where that spread is.
His history.
Service good enough to get this back or is this really more of them.
Hey on on price and getting a little bit more of that density that you might have not had as much as you want it before.
Speaker 5: transcript
Speaker 5: Sure, so I think you could imagine, given the market conditions, that it's obviously a competitive marketplace, but I think what we're seeing are very savvy customers are focusing on total cost, including fuel expenses and rate. And so we are seeing in some nice conversions outside of the cycles right now, back to intermodal taking advantage of the improved service product and some of those shorter haul.
Sure. So I think you can imagine given the market conditions that it's obviously a competitive marketplace, but I think what we're seeing are very savvy customers are focusing on total cost, including fuel expenses and and rate and so we are seeing in some some nice conversions outside of bid cycle.
John Chappelle: And so that's where we felt as the last year we didn't have a great overall service product, and we tried to hold the line on price, and that's where a lot of that share went to over the road. So we believe that there are a lot of questions out there from our customers on how they're going to as demand returns and they need to replenish inventories, how they're going to move that product.
<unk> right now back to intermodal taking advantage of the improved service product and some of those shorter haul when you think about the spreads that we're seeing between contract and both from intermodal and over the road right now and longer length of haul, it's up near 40% and the shorter length of haul, it's getting closer to the high teens and <unk>.
Speaker 5: transcript
Speaker 5: When you think about the spreads that were seen between contract and both from Intermodal and over the road right now, in Longer Lens of Paul, it's up near 40% in the shorter Lens of Paul that's getting closer to the high teens and 20% child, but an aggregate really in the mid 30s. And so that's what we're trying to go to our customers both in advance of RFP events and during them and highlight that differential as well as those strong service levels. We think that the opportunity for conversion is significant both in the short and longer haul, but we're very focused on getting that back.
John Chappelle: We're displaying a very strong rail service product. We're showing the fuel prices are up and that the spreads between contract rates are expanding. So we think we have a very strong value proposition to bring to our customers and having a lot of great conversations that conversion. Yeah. And then so if we think about it now, you've transitioned a little bit, so hopefully stem the share loss. I don't recall you giving them the monthly breakdown of the inner motor volumes, but maybe that will help with, you know, as you went to the third quarter and, you know, we're mostly through October now. Maybe where you stand there. Sure. Yeah.
Eight percentile, but in aggregate really in the mid <unk> and so that's what we're trying to go through our customers both in advance of RFP events and during them and highlight that differential as well as the strong service levels.
We think that the opportunity for conversion is significant both in the short and longer haul but.
And we're very focused on getting that back yes, Brian. This is Brian I'll, just add and that too will continue to focus and target. The cross border. We have started that process already we have some confirmed wins and we expect those to expand going into next year, we have a superior product on the rail with our partners there on service and trends in transit.
Speaker 3: transcript
Speaker 3: Yeah, Brian , this is Brian . I'll just add in that too. We'll continue to focus and target the cross-border. We've started that process already. We have some confirmed wins and we expect those to expand going in the next year. We have a superior product on the rail with our partners there on service and transit and also diversified offerings as well there too. So that's something that we'll continue to target as we grow into.
Phil Yeager: So July was down 13% August was down 19% and September was down 15. October thus far is down 9%. One thing I think that is worth highlighting is when we came out of Q2 June to July, we actually saw a 3% sequential increase in demand. We then July, August and 8% decline and then August to September 9% ramp. What occurred in August, which I think was very impactful and the in the back half of August and really cost us, we think 2 to 3 percentage points on total volume for the quarter, was hurricane Hillary.
And also diversified offerings as well there too so that's something that we'll continue to target as we grow into 2024.
Speaker 2: transcript
Speaker 2: Okay, and then in terms of capacity boxes, and as rail service comes back, there could be more boxes effectively out there. What are you doing in terms of your storage and how do you view a cat-x and the investment known as slide deck you've got? More color in terms of the longer term viewpoint, but how does that investment translate here to the rest of this year? And I guess in...
Okay, and then in terms of capacity box.
Boxes, and Israel service comes back there's going to be more boxes effectively out there.
What are you doing in terms of your storage and how do you view.
Capex in that investment.
The slide deck you've got.
Phil Yeager: I know obviously it was very impactful to the Western portion of our network. And so that was something we didn't call out specifically, but I think it's important to reference as we think about the volumes, for the quarter. Okay, I appreciate it. Thank you, Phil. Thank you.
More color in terms of the longer term viewpoint, but how does that.
Investment translate here to the rest of this year and I guess into next year.
Speaker 3: transcript
Speaker 3: Sure, yeah, no, yeah, Brian , we've got, we have Fox's stack now. I think a lot of, a lot of the industry does right now. We started to actually unstack a little bit as we've started to handle and manage through this muted peak. We'll evaluate as we finish out the year, how we manage that as we enter the year, but certainly as that volume returns, we'll be bringing down that stack. We mentioned about our discipline around targeting balance in our network and getting the most utilization out of that equipment. And as that improves.
Sure Yes.
Yes, Brian we've got we have bought the stack now I think a lot of.
A lot of the industry does right now we started to actually Unstack, a little bit as we've started to handle and manage through this muted peak, we'll evaluate as we finish out the year, how we manage that as we entered the year, but certainly as that volume returns.
Jason Seidl: Our next question is from Jason Seidl with Cowan & Company. Please proceed with your questions. Thank you, Robert, or hey, Phil, hey, Jeff, hey, Brian, we'll talk conceptually about next year. You know, you guys announced that you have a pending dividend out here. Most companies don't put out a new dividend announcement if they think the business is going south. So, you know, how should we think about the potential for earnings growth with the backdrop of, you know, 40% call it of your business coming due in one queue, you know, in improving rail costs on your side and, and sort of an increase in your percentage of an only tarled right?
We will be bringing down that stack, we mentioned about our discipline around targeting balance in our network and getting the most utilization out of that equipment and as that improves.
Speaker 3: transcript
Speaker 3: We'll be able to evaluate what we need. As we go in the next year, Jeff, maybe you want to talk a little about our CAPX plan on that.
We will be able to evaluate what we need as we go into next year, Jeff maybe you want to talk little bit about our Capex plan on that sure. We would expect for this year our guidance is 140 to $1 50.
Speaker 2: transcript
Speaker 2: Sure, we expect, you know, for this year our guidance is 140 to 150. Our preliminary thoughts for next year would be a pretty big reduction in that. I think on the container side, you know, we probably would be looking to add to the fleet. Next year, and then we do have a smaller replacement cycle on the tractor side. So certainly something, you know, thousands of 100 million next year, which would have a pretty big impact.
Preliminary thoughts for next year would be a pretty big reduction in that I think on the container side, we probably would be looking to add to the fleet.
Phil Yeager: Sure, no, I think it's a great question and I think, you know, I'll start in let Jeff and Brian fill in. I think it's a little early, you know, to give anything to you. We're in our budgeting process, but all try to do is kind of frame it up as we look at the market. I think we're seeing some form of peak season, which is great. We're starting to see capacity exits in a more balanced spot market.
Next year and then we do have a smaller replacement cycle on the tractor side. So.
Certainly something south of $100 million next year.
Which would have a pretty big impact on our free cash flow.
Speaker 5: transcript
Speaker 5: Well, only other thing that I would highlight is that we've seen utilization improve about 10% sequentially from Q2 to Q3. So we are getting more out of the existing equipment. We still have a ways to go, but it is good to see progress on that.
The only other thing that I would highlight is that we've seen utilization improved about 10% sequentially from Q2 to Q3. So we are getting more out of the existing equipment, we still have a ways to go.
Phil Yeager: Inventories are coming more back in line. I think from intermodal, I referenced, you know, fuel crisis increasing is normally a good thing for conversion or service levels, even with increasing sequential volumes are holding up very well. And I mentioned that OTR versus intermodal contract spread. I think when you look at hub, we're far more efficient, you know, headcount is down 12% year over year. I mentioned our cost per dry. We're going to have far lower capital expenditures going into next year.
But it is good to see progress on that very key metrics.
Speaker 2: transcript
Speaker 2: All right, thanks. Just one quick follow up on balance sheet and leverage. And I feel you talked about not being in a hurry to get to that new mark, but maybe you can just give some thoughts in terms of how you're in the border looking at going through that process. And if there's anything we should sort of pencil in for buybacks here and then near.
Alright. Thanks, just one quick follow up on balance sheet and the leverage NFL, you talked about not being in a hurry to get to that net new mark, but maybe you can just give some thoughts in terms of how you are.
How are you and the board of looking at going through that process.
Phil Yeager: And I think if you layer in some accrued of M&A and the capital allocation plan far in some sort of consumer recession, we're going to be targeting earnings and revenue growth. I think that only thing that remains unclear is the timing and recovery of the end, but we'll certainly obviously have more specifics for you on the fourth floor of call.
Speaker 5: transcript
Speaker 5: Sure, so we're going to be very thoughtful around that. As we mentioned, we have some very interesting acquisition opportunities that we're continuing to look at. I think it'll take likely two to get us to the middle of the leverage target that we laid out, but we are going to be thoughtful on the approach. I think, and as we did roll out the annual purchase plan, assuming that we would execute on it, I don't think there's anything to build into the model. We certainly didn't end our forecast, but at the same time, we will be opportunistic with it and utilize the very strong balance sheet that we have.
Sure. So we're going to be very thoughtful around that as we mentioned we have some very interesting acquisition opportunities that we're continuing to look at I think it will take likely too to get us to the middle of the leverage targets that we've laid out but we are going to be thoughtful on the approach I think.
Brian Alexander: Then I'll let Brian and Jeff fill in. Sure. Yeah. No, Jason. I think what we see going in the next year, and we talked a little bit about it earlier this year, too, about the inventories. And a lot of that inventory has to burn off more seasonally. So while there was some bloated inventories earlier this year, it just took a full seasonal cycle to burn off. And so as we push through the holiday season and enter into the spring, we see that that's going to be a reset in a good position to be replenished.
As we did rollout the new repurchase plan, assuming that we would execute on it I don't think theres anything to build into the model. We certainly didn't in our forecast, but at the same time, we will be opportunistic with it and utilize that the very strong balance sheet that we have effectively.
Speaker 8: transcript
Speaker 8: Ab struggles
Speaker 2: transcript
Speaker 2: Yeah, I think, you know, we'll, again, it'll be, the author's, or usually the author's age will be tempered by our outlook for both cat-backs and acquisition.
Gotcha.
Yes, I think.
Brian Alexander: And as we do that, we'll see our intermodal volumes grow. We called out our brokerage, which is a standout in the marketplace, despite all these market end wins. They stood out really well with that 5% growth and really continue growth going into in the next year as well. And then our logistic services, we continue to see a really strong demand for all of our logistic services with our managed transportation. What we bring to the table with our consolidation and fulfillment locations that I've mentioned that we're adding and investing with new buildings.
Again, it will be.
The authors they usually authorization will be tempered by our outlook for both Capex and acquisitions.
Okay makes sense thanks, guys.
Speaker 1: transcript
Speaker 1: Thank you. Our next question is from Baskin Majors of Susquejana Financial Group. Please proceed with your question.
Thank you.
Our next question is from Bascom majors of Susquehanna Financial Group. Please proceed with your question.
Speaker 9: transcript
Speaker 9: If you look at the guidance and results for 3Q and 4Q, you're at a dollar or so earnings run rate. You typically do less easily in the first half than you do in the second half. So...
If you look at the guidance.
Results for <unk> and <unk>, you're at a dollar or so earnings run rate you typically do.
Brian Alexander: We're working kind of left to right adding to in the West earlier this year, too, in the Midwest. And we're going to finish out the year working into the East and going into 2024 as well as our final mile. So we continue to win service awards from our customers and our final mile offering. We're bringing on new logos and diversifying that customer base. And our non-asset based model and final mile is proven to be really great for flexing and growing with our customers. And so we're going to see continued success there as we invest in that from a growth perspective.
Two last seasonally in the first half than you do in the second half so.
Speaker 9: transcript
Speaker 9: barring some super seasonal outcome in the first half of next year. You've got a lot of catch up to doing the second half. Can you watch us through? You know, what has to happen to deliver the earnings growth that you hope for preliminarily next year from the starting place we are today and just any other thoughts to help us kind of level set expectations for next year now rather than waiting till February . Thank you.
Barring some super seasonal outcome in the first half of next year and you've got a lot of catch up to do in the second half can you walk us through.
What has to happen to.
Deliver the earnings growth that you hope for preliminarily.
Next year from the starting place we are today and just any other thoughts to help us kind of level set expectations for next year now rather than waiting till February. Thank you.
Phil Yeager: But yeah, those are the big areas that we'll continue to focus. You know, Phil mentioned a lot of the over-the-road conversions into the previous questions. There's still over 56 million over the road, truckload, volume that's out in the marketplace that is eligible for intermodal conversions. And we're highly focused on delivering that on that growth and converting it in the right cost. I appreciate those comments. How do we think about your rail partners?
Speaker 5: transcript
Speaker 5: Sure, so I do think we are seeing some peak season. We need to perform in the upcoming bid as that is a key priority. I think capacity continuing to exit and the bot market is staying relatively balanced. I think the consumer, state, resilient, all those pieces are certainly going to support that. We need to successfully onboard a lot of the logistics win.
Sure. So I do think we are seeing some some peak season, we need to perform in the upcoming bid.
A key priority I think capacity continuing to exit in the spot market has been relatively balanced I think the consumer stayed resilient all those pieces are.
Certainly going to support that we need to successfully on board a lot of the logistics wins.
Speaker 5: transcript
Speaker 5: that we have and we need to get our intermodal fleet moving again. You know, having a significant portion of the act is not optimal for earnings growth. I think if you layer in us then executing on the capital allocation plan and acquisition strategy, that should...
We have and we need to get our intermodal fleet moving again.
Phil Yeager: There's obviously been some talk about improved rail service. I'm happy to see that but I'm not giving them as much credit because we haven't really seen the improved rail service with improved volume. So how confident are you guys if we do see volumes come back at some point in 24 that your rail partners will be able to handle that increase. Yeah, this is still I think you're seeing a good test right now with some sequential volume increase in pretty short order which I think has been a good test.
We are having a significant portion stacked is not optimal for for earnings growth I think if you layer in <unk> been executing on the capital allocation plan and acquisition strategy that should frame up earnings growth I do agree with you it will likely be driven by execution in the latter portion of the year we would.
Speaker 5: transcript
Speaker 5: Frame up earnings growth that I do agree with you. It will likely be driven by execution in the latter portion of the year. We would hope to see some increase in demand in the spring to help drive that. And we think if we do see that, we're in an excellent position to go out.
Hope to see some increase in demand in the.
The spring to help help drive that.
And we think if we do see that we're in an excellent position to go out and execute.
Speaker 3: transcript
Speaker 3: I'll just add one item to that too is, you know, we've created a really long tail of customers that we are cross-selling into right now. And as we look at it from a revenue perspective, 80% of our revenue is using two or more services of ours, but as we look at that customer count, 80% of those customer count is only using one of service. So that's a big part of our growth plan is continuing to cross-sell that's been underway and it's going to accelerate as we're going.
Phil Yeager: We're hoping that this is more prolonged and continues to move forward. I agree with you. We have to continue to show our customers that but at the same time, I think you're seeing the commitment in hiring and resourcing to handle that demand. And so we believe we are going to be in that position. And it's a massive opportunity for us and our rail partners and I know all of our conversations are related to growth at this point in time.
I'll just add one item to that too is we've created a really long tail of customers that we are cross selling into right now and as we look at it from a revenue perspective, 80% of our revenue is using two or more services of ours, but as we look at that customer count.
80% of those customer count is only using one hub service. So that's a big part of our growth plan is continuing to cross sell that's been underway and is going to accelerate as we go into next year.
Phil Yeager: Okay, well one final one and I'll turn it over to somebody else. You know, Phil, I think you mentioned a creative M&A. Can you maybe give us an update on the M&A market? You know, are you still seeing a lot of stuff being put up for sale? And what do the multiples look like say compared to a year ago?
Speaker 9: transcript
Speaker 9: Thank you for that. Can you update us on where big compliance is? And I apologize if I missed that earlier. And just maybe anecdotally, how are these conversations going with your customers? It seems that the economic case for Intermodal from your earlier discussion is very attractive. But the reality is, it's just not converting. What is holding that back? And what has to happen to change that in your view? Thank you.
Thank you for that can you update us on where bid compliance is and I apologize if I missed that earlier and just.
Phil Yeager: Sure, I'll start now. Let's just go in. You know, we haven't seen as many companies coming up for sales just given some of the challenges in the broader market. And obviously interest rates increasing. So, and there's been somewhat of a disconnect on overall value, but I think what we've been able to do is continue to go out and find interesting and exciting off market opportunities and where we have a very strong pipeline right now.
Maybe anecdotally how are these conversations going with your customers. It seems that the economic case for intermodal from your earlier discussion is very attractive, but the reality is it's just not converting what is holding that back and what has to happen to change that in your view. Thank you.
Speaker 3: transcript
Speaker 3: Here in regards to this is Brian , in regards to the big compliance, you know, we started the year at about 70%. We finished last year at 81. We did see that compliance improved throughout the year finishing out 2, 3, around 78% compliance.
Sure and regard this is Brian in regards to the big compliance we started the year at about 70%. We finished last year at 81, we did see that compliance improved throughout the year, finishing out Q3 at around 78% compliance.
Phil Yeager: And, you know, we're certainly working towards closing something we hope in the near term. Yeah, gentlemen, say keep it's a key part of our strategic growth plan. We highlighted that today in the context of the overall capital allocation plan. I think we have a good pipeline and we're continuously evaluating. And again, we've had more success on those out reaches that we've generated and we think we're a good buyer in this market.
Speaker 3: transcript
Speaker 3: And we think a lot of that was the ship are starting to realize where their balance was at, where their demand was gonna be. A lot of those conversations with them is about the seasonality of their inventory. And as that starts to rebuild, they know that that over the road capacity is gonna be exiting and need to come back into the rail. And they wanna have that assurance that the service is gonna be there that we've talked about. And Phil mentioned we've seen the continued investments from our rail partners.
And we think a lot of that was the shippers starting to realize where their balance was that where their demand was going to be.
A lot of those conversations with them is about the seasonality of their inventory and as that starts to rebuild they know that that over the road capacity is going to be exiting and need to come back into the rail and they want to have that assurance that the service is going to be there that we've that we've talked about and Phil mentioned, we've seen a continued investments from our.
Operator: Thanks for the time, gentlemen. Thank you.
Brian Austin Beck: Our next question is from Brian Austin Beck of JP Morgan. Please proceed with your question. Hey, afternoon. Thanks for taking the question. So maybe just to come back to competition on the intermodal side. So can you talk about more of what you're going after here? Is this really some of the things you think left the rail network with poor service? And this is really just over the road conversion. Maybe you can give some context in terms of where that spread is versus history.
Speaker 3: transcript
Speaker 3: to ensure that that service is going to be there. And, you know, from up to be a little bit more tactful in that too, you know, we've been competent in that service so we've improved our transit times that we submit in those bits and have a lot more confidence in those competing very well against over the road.
Rail partners to ensure that that service is going to be there.
From a to be a little bit more tactical in that too we've been confident in that service. So we've improved our transit times that we submitted those bids and there are a lot more confidence in those competing very well against over the road.
Speaker 3: transcript
Speaker 3: Yeah, just one piece on that before we go into the next question too. I think, you know, in regards to those customers too, we saw capacity exit with the departure of yellow and we've been really successful one in protecting our customers with that, but then also providing solutions for them to consolidate that LCL through our network, our logistics network and convert that into intermodal as well. We see that piece growing for us and for our customers going into next year as well.
Thank you Bob.
Yes, just one piece on that before we go into the next question too I think.
In regards to those customers too we saw capacity exit.
Brian Austin Beck: Service could enough to get this back or is this really more of a play on on price and getting a little bit more of that density that you might have not had as much as you wanted before?
With the departure of yellow and we've been really successful one in protecting our customers with that but then also providing solutions for them to consolidate that LPL through our network, our logistics network and convert that into intermodal as well, we see that piece growing.
Phil Yeager: Sure. So I think, you know, you could imagine given the market conditions that it's obviously a competitive marketplace, but I think what we're seeing are very savvy customers are focusing on total cost, including fuel expenses and rate. And so we're seeing in some nice conversions outside of its cycles right now back to intermodal taking advantage of the improved service products and some of those shorter halls. When you think about the spread that we're seeing between contract and both from intermodal and over the road right now, in longer lengths of haul is up near 40% in the shorter lengths of haul.
For us and for our customers going into next year as well.
Thank you.
Speaker 1: transcript
Speaker 1: Our next question is from Justin Long of Stevens. Please proceed with your question.
Our next.
Question is from Justin long of Stephens. Please proceed with your question.
Thanks, and maybe I'll start with one for Jeff on the guidance.
Speaker 10: transcript
Speaker 10: Maybe I'll start with one for Jeff on the guidance. Last quarter, you talked about the tax rate for the fourth quarter being in the midteens.
Last quarter, you talked about the tax rate for the fourth quarter being in the mid teens. It looks like based on the guidance you gave today it could be a little bit lower than that so I was just wondering if you could provide an update there and just given the decline in the tax rate.
Speaker 10: transcript
Speaker 10: It looks like based on the guidance you gave today, it could be a little bit lower than that. So I was just wondering if you could provide an update there and just given the decline in the tax rate.
Phil Yeager: It's getting closer to the high teens and 20% tile, but an aggregate really in the mid 30s. And so that's what we're trying to go through our customers, both in advance of RFP events and during them and highlight that that differential as well as those strong service levels. So we think that the opportunity for conversion is significant both in the short and longer haul, but and we're very focused on getting that back.
Speaker 10: transcript
Speaker 10: It also seems to imply that operating income will probably take a step down from three Q to four Q. So I was wondering if you could comment on what's driving that. It sounds like logistics margins may be down a bit, but I wanted to make sure I wasn't missing anything else.
It also seems to imply that operating income will probably take a step down from <unk> to <unk>. So I was wondering if you could comment on what's driving that it sounds like logistics margins may be down a bit but I wanted to make sure I wasn't missing anything else.
Speaker 2: transcript
Speaker 2: Sure, a gagger math is correct. On the tax rate, we think in Q4 will be around 10%. That's driven by a changing state of portionment, approximately been working on all year.
Brian Alexander: Brian, this is Brian. I'll just add on that too. We'll continue to focus and target the cross border. We've started that process already. We have some confirmed wins and we expect those to expand going in the next year. We have a superior product on the rail with our partners there on on service and tram and transit and also diversified offerings as well there too. So that's that's something that will continue to target as we grow, of 2024.
Sure. Yes. Your math is correct on the tax rate, we think in Q4 will be around 10%.
That's driven by a change in state apportionment projects, we've been working on all year.
Speaker 2: transcript
Speaker 2: So Chifo will be low as you file the 2022 file tax returns. To your point on the operational side of the earnings.
So Q4 will be low as we file the 2020 to file tax returns to your point on the operational side of the earnings.
Speaker 2: transcript
Speaker 2: You know, we're expecting, you know, seasonal strength in October . He was going to fall off as he usually does.
We're expecting seasonal strength in October he is going to fall off as it usually does.
Speaker 2: transcript
Speaker 2: in the latter half of Q4. We are expecting some more softness on the birth reach side. And of course, birth reaches in our logistics.
In the latter half of Q4, we are expecting some more softness on the brokerage side of that of course brokerages and our logistics.
Geoff DeMartino: Okay, and in terms of capacity, boxes, and as well service comes back, there could be more boxes effectively out there. What are you doing in terms of your storage and how do you view Catholics and the investment known as slide deck, you've got more color in terms of the longer term viewpoint, but how does that investment translate here to the rest of this year, and I guess into next year. Sure. Yeah, no, yeah.
Speaker 2: transcript
Speaker 2: A segment so it's really the the transactional parts of our business between their motor volume Work rich volume and some tailing off and profitability in a Q4 the rest of our logistics segment we think will continue to perform based on
Segment. So it was really the transactional parts of our business between intermodal volume brokerage volumes and some tailing off in profitability into Q4.
The rest of our logistics segment, we think will continue to perform based on.
Speaker 2: transcript
Speaker 2: recent wins that are being onboarded but not enough to overcome the performance of the other two pieces we talked about.
Our recent wins that are being on boarded but not enough to overcome the performance of the other two pieces we talked about.
Speaker 5: transcript
Speaker 5: and we certainly wanted to be conservative in the approach on what we think volumes will be just given that it doesn't mean someone unclear right and there's certainly upside to that if we see the demand continue right up to and through the Thanksgiving holiday that is it's certainly upside but felt as though with with the guidance we should
We certainly wanted to be conservative in the approach on what we think volumes will be just given that it doesn't remain somewhat unclear item. There is certainly upside to that if we see the demand continue right up to and through the Thanksgiving holiday.
Geoff DeMartino: Brian, we've got, we have boxed a stack now. I think a lot of a lot of the industry does right now. We've started to actually unstack a little bit as we've started to handle and manage through this muted peak. We'll evaluate as we finish out the year, how we manage that as we enter the year, but certainly as that volume returns. We'll be bringing down that stack. You know, we mentioned about our discipline around targeting balance in our network and getting the most utilization out of that equipment.
There's certainly upside and so but felt as though with the guidance, we should we should be conservative.
Speaker 10: transcript
Speaker 10: Got it, thanks. And maybe as a follow up for Brian , you talked about some onboarding and logistics in the fourth quarter and early next year. Is there a way to think about the collective impact that these onboarding could have at the top line? I just wanted to get a sense for how you're set up for potential growth in that segment as we move into next year.
Got it thanks, and maybe as a follow up for Brian you talked about some on boardings in logistics in the fourth quarter and early next year is there a way to think about the collective impact that these onboarding could have at the top line I just wanted to get a sense for how you're set up for.
Geoff DeMartino: And as that improves, you know, we'll be able to evaluate what we need is we're going to next year, Jeff, maybe you want to talk a little about our cat's plan on that. Sure, we expect, you know, for this year, our guidance is 140 to 150. Our preliminary thoughts for next year would be a pretty big reduction in that. I think on the container side, you know, we probably would be looking to add to the fleet next year, and then we do have a smaller replacement cycle on the tractor side.
For potential growth in that segment as we move into next year.
Speaker 3: transcript
Speaker 3: Sure, yeah, no, Justin, yeah, that's a appreciate that question. And, you know, we love our logistics wins for a lot of reasons. One, it's great to continue to get out there and win, but a lot of what we see within our logistics wins is that it helps feed the other lines of business and create that overall up network of freight. So as we win in the final mile, we're able to leverage our assets for the middle mile management of that. As we onboard these new buildings that I've mentioned, we're, again, leveraging our assets to manage the inbound and the outbound across all modes of transportation.
Sure, Yes, no Justin I appreciate that question and we love our logistics wins for a lot of reasons. One it's great to continue to get out there and win but a lot of what we see within our logistics wins is that it helps feed the other lines of business and create that overall hub network of freight so as we win in the final mile We're able to leverage R. R.
Geoff DeMartino: So certainly something, you know, thousands of 100 million next year, which would have a pretty big impact on our pre-pecial. Well, only other thing that I would highlight is that we've seen utilization improve about 10% sequentially from Q2 to Q3. So we are getting more out of the existing equipment. We still have a ways to go, but it is good to see progress on that very key metric.
Operator: All right. Thanks.
Our assets for the middle mile manager management of that as we onboard these new buildings that Ive mentioned were again, leveraging our assets to manage the inbound and the outbound across all modes of transportation and then it also just continues to add to that long tail of customers that we cross sell into and provide more solutions for as we do that and we get deep.
Speaker 3: transcript
Speaker 3: And then it also just continues to add that long tail of customers that we cross sell into and provide more solutions for us. We do that and we get deeper with our customers that become less price sensitive, they become more sticky and our retention continues to go up. We've seen our deal sizes continue to grow in logistics.
Bascome Majors: Just one quick follow up on balance sheet and the leverage. And if you talked about not being in a hurry to get to that, that new mark, but maybe you can just give some thoughts in terms of how you're, how you in the border looking at going through that process. And if there's anything, we should sort of pencil and for buybacks here. And then your term. Sure. So we're going to be very thoughtful around that.
With our customers they become less price sensitive they become more sticky and our retention continues to go up you have seen our deal sizes continue to grow in logistics and I'll also mention on the dedicated from a contract win perspective, our dedicated product continues to stand out again against some of the headwinds, but strong pipeline continued demand or when.
Speaker 3: transcript
Speaker 3: And I'll also mention on the dedicated, from a contract, wind perspective, our dedicated product continues to stand out again, again some of the headwinds, but strong pipeline continued to man our wind ratios are the highest we've seen them, our largest dedicated wind of the year will onboard right before the turn of the calendar and set us up really well going in the next year.
Bascome Majors: As we mentioned, we have some very interesting acquisition opportunities that we're continuing to look at. I think it'll take likely to get us to the middle of the leverage target that we laid out. But we are going to be thoughtful on the approach, I think. And as we did roll out the annual purchase plan, you know, assuming that we would execute on it, I don't think there's anything to build into the model.
Ratios are the highest we've seen them our largest dedicated win of the year, we'll onboard right before the turn of the calendar and set us up really well going into next year.
Speaker 1: transcript
Speaker 1: Our next question is from Bruce Chan of Fiefel. Please proceed with your question.
Thank you.
Our next question.
Bascome Majors: We certainly didn't in our forecast, but at the same time, we will be opportunistic with it and utilize the very strong balance sheet that we have effectively. Yeah, I think, you know, we'll, again, it'll be the author, the user, the authorization will be temperate by our outlook for both catbacks and acquisitions. Okay. Makes sense. Thanks, guys. Thank you.
Is from Bruce Chan of Stifel. Please proceed with your question.
Speaker 5: transcript
Speaker 11: Hey, thanks operator and good afternoon everyone. Just want to look at the brokerage side of things from minute here. It seems like the market's going to be grinding lower for a bit longer. And just assuming that's the case, want to see if you have any more opportunities for cost-right sizing there, whether it's head count related or technology related or maybe something else.
Hey, Thanks, operator, and good afternoon, everyone.
Just look at the brokerage side of things for a minute here. It seems like the market is going to be grinding lower for a bit longer than just assuming that's the case.
See if you have any more opportunities for cost right sizing their whether its head count related or technology related or maybe something else.
Speaker 3: transcript
Speaker 3: Sure, yeah, numbers appreciate the question. And you know, one of my favorite guiding principles that we say here at Hubb is that we innovate with a purpose, right? And that we direct our IT investments in a meaningful way that focuses on our customers, our carriers, and our team members that drives profitable growth.
Sure Yeah, no I appreciate the question.
Bascome Majors: Our next question is from Basque majors of Susquejana Financial Group. Please proceed with your question. If you look at the guidance and results for 3Q and 4Q, you're at a dollar or so earnings run rate. You typically do less easily in the first half than you do in the second half. You know, barring some super seasonal outcome in the first half of next year. You've got a lot of catch-up to do in the second half.
One of my favorite guiding principles that we say here at hub is is that we innovate with a purpose that we direct our investments in a meaningful way that focuses on our customers our carriers and our team members that drives profitable growth and that's exactly what we've seen in our brokerage and Jeff called out some of those.
Speaker 3: transcript
Speaker 3: And that's exactly what we've seen in our brokerage. And Jeff called out some of those productivity gains that we saw, well, we did see volume grow. We saw that grow on top of a lower cost base and drive more efficiency in our overall operation. So we do send some more headwinds coming in the fourth quarter. We feel well positioned to handle those, but with some of the softer volume, we'll make sure that we're scaled appropriately and that again, our investments are appropriated towards driving that profitable growth.
Productivity gains that we saw while we did see volume grow we saw that.
That grow on top of a lower cost base and drive more efficiency in our overall operation. So we do send some more headwinds coming in the fourth quarter, we feel well positioned.
Phil Yeager: Can you watch us through? You know, what has to happen to deliver the earnings growth that you hope for preliminarily next year from the starting place we are today? And just any other thoughts to help us kind of level set expectations for next year now rather than waiting till February. Thank you.
To handle those but with some of the softer volume.
We'll make sure that we're scaled appropriately and that again, our investments are appropriated towards driving that profitable growth.
Speaker 11: transcript
Speaker 11: go go
Okay, Great and maybe just one.
Speaker 5: transcript
Speaker 5: I was just going to follow in a little bit around our program is that our commission model really incentivizes volume growth around But we obviously pay off a gross crop of dollars, but we also incentivize volume growth and handling additional volume
Got it.
Phil Yeager: Sure. So I do think we are seeing some some peak season. We need to perform in the upcoming bid as that is a key priority. I think capacity continuing to exit in the top market is being relatively balanced. I think the consumer, staying resilient, all those pieces, you know, are certainly going to support that. We need to successfully onboard a lot of the logistics winds that we have. And we need to get our intermodal fleet moving again.
Okay.
Around our program is that our commission model really incentivizes volume growth around but we obviously pay off of gross profit dollars, but we also incentivized volume growth in handling additional volumes and that has really allowed us with the growth that we've seen to remain very lean in our operation and not have to add additional.
Speaker 5: transcript
Speaker 5: And that has really allowed us with the growth that we've seen to remain very lean in our operation and not have to add additional headcounts that actually become more efficient. And I believe we saw about a 20% in aggregate productivity and improvement year over year in our brokerage. And so really significant improvement there. And we saw the long way to go and need to return to growth, but that will come as the market does, but we'll keep focusing on taking share as well.
Head count, but actually become more and more efficient.
Phil Yeager: You know, having a significant portion stacked is not optimal for earnings growth. I think if you layer in us then executing on the capital allocation plan and acquisition strategy, that should frame up earnings growth. I do agree with you. It will likely be driven by execution in the latter portion of the year. We would hope to see some increase in demand in the spring to help drive that. And we think we do see that we're in an excellent position to go out and execute.
And I believe we saw about 20% in aggregate productivity improvement year over year, and our brokerage so really significant improvement there and we still have a long way to go and need to return to growth, but that will come at the market does but we will keep focusing on taking share as well.
Speaker 7: transcript
Speaker 5: Okay, that's great color. And I was just gonna ask with that 5% volume growth was that related to some of those incentive programs or was it fair to say that was tied more to disruption from yellow in the L.T.L. Mark.
That's great color and I was just going to ask what that 5% volume growth was that related to some of those incentive programs or is it fair to say that was tied more to the disruption from yellow in the wholesale market.
Speaker 3: transcript
Speaker 3: A little bit of both, like it says, we saw a lot of growth in our customers from that yellow exit and we protected our customers from that. We did pick up volume there, but we also get new logo wins. Our brokerage teams added anywhere from 80 to 100 new customers a month, and so as we do that, then we cross sell into those. And our brokerage also offers a diversified subset of modes as well.
A little bit of a little bit of both like I said, we saw a lot of <unk>.
Brian Alexander: I'll just add one item to that too is we've created a really long tail of customers that we are cross selling into right now. And as we look at it from a revenue perspective, 80% of our revenue is using two or more services of ours. But as we look at that customer count, 80% of those customer count is only using one of service. So that's a big part of our growth plan is continuing to cross sell that's been underway. And we're going to accelerate as we go in the next year. Thank you for that.
Growth in our customers from that yellow exit and we protected our customers from that we did pick up volume there, but we also get new logo wins, our brokerage teams, adding anywhere from 80 to 100, new customers a month and so as we do that then we cross sell into those and our brokerage also offers a diversified subset of modes as well.
Speaker 3: transcript
Speaker 3: You know, outside of just driving our chopped-kink acquisition really built out a nice temperature-controlled offering as well as our LCL race that we bring to the table flat bed and other sub-modes that become very meaningful to our customers. So it's a good overall balance of growth.
Well so outside of just dry van R. Chop tank acquisition really built out a nice temperature controlled offering as well as our LPL brief that we bring to the table flatbed and other sub modes that become very meaningful to our customers. So it's a good overall balance of growth.
Brian Alexander: Can you update us on where big compliance is? And I apologize if I missed that earlier and just maybe anecdotally, how are these conversations going with your customers? It seems that the economic case for intermodal from your earlier discussion is very attractive, but the reality is it's just not converting. You know, what is holding that back and what has to happen to change that in your view? Thank you.
Speaker 11: transcript
Speaker 11: Right, and just a final follow up before I turn it over, we had a fairly high profile competitor exit in that space last week. Just wanna get your take on that and whether you anticipate any major changes in the market as a result.
Great and then just a final follow up before I turn it over we had a fairly high profile competitor exits in that space last week, just wanted to get your take on that and whether you anticipate any major changes in the market as a result.
Speaker 5: transcript
Speaker 5: Sure, I wouldn't represent major changes. I think it's just an indication of how challenging the market can be and having brokerage as a key capability that you can bring to customers as part of a full suite of services. I think it's very important and something that we've tried to utilize, we think our model works and we're continuing to invest in the brokerage products. So feel good about our positioning for the long term there. Thank you.
Sure I wouldn't.
Reference any major changes I think it's just an indication of cloud challenging the market can be and having brokerage is a key capability that you can bring to customers as part of our full suite of services I think.
Brian Alexander: Sure. In regards, this is Brian. In regards to the big compliance. You know, we started the year at about 70%. We finished last year at 81. We did see that compliance and prove throughout the year finishing out to three around 78% compliance. And we think a lot of that was the ship are starting to realize where where their balance was that where their demand was going to be. A lot of those conversations with them is about the seasonality of their inventory.
It's very important and something that we've tried to utilize we think our model works and we are.
We are continuing to invest in brokerage products, so feel real good about our positioning for the long term there.
That's great. Thanks for the time.
Speaker 1: transcript
Speaker 1: Thank you. Our next question is from Thomas Waterwoods of UBS. Please proceed with your question.
Brian Alexander: And as that starts to rebuild, they know that that that over the road capacity is going to be exiting and need to come back into the rail. And they want to have that assurance that the service is going to be there that we that we've talked about. And Phil, Phil mentioned we've seen the continued investments from our real partners to ensure that that service is going to be there. And you know, from up to be a little bit more tactical in that too, you know, we've been confident in that service so we've improved our transit times that we submit in those bits and have a lot more confidence in those competing very well against over the road.
Thank you. Our next question is from Thomas <unk> of UBS. Please proceed with your question.
Speaker 12: transcript
Speaker 12: Yeah, good afternoon. Wanted to ask you about the ITS operating margin and just how you should think about the...
Yes. Good afternoon I wanted to ask you about the <unk> operating margin and just how we should think about the.
Speaker 12: transcript
Speaker 12: potential levers for improvement. I know you've talked about volume and being a bit more aggressive with some of the bids and winning volume. Is that kind of a key lever to see improvement off the level in third quarter? Or is it more appropriate to think about pricing being the lever and you kind of wait for potential improvement in rates in the bid fees in next year and second half? I just wanted to get a little more perspective on what really kind of drives potential improvement
Potential levers for improvement I know, you've talked about volume and being a bit more aggressive with some of the bids and winning volume.
Is that kind of a key lever to see improvement off the level of <unk> and third quarter.
Or is it more appropriate to think about pricing being the lever and you kind of wait for potential improvement in rates in the bid season next year and second half just wanted to get a little more perspective on what really.
Phil Yeager: Thank you, boss. Yeah, just one piece on that before we go into the next question too. I think, you know, in regards to those customers too, we saw capacity exit with the departure of yellow and we've been really successful one in protecting our customers with that, but then also providing solutions for them to consolidate that LCL through our network, our logistics network and convert that into intermodal as well. We see that piece growing for us and for our customers going into next year as well. Thank you.
Drives potential improvement in the timing as well.
Speaker 5: transcript
Speaker 5: Sure, I think we have a good feel for the market at this point and have positioned ourselves while we've seen some nice winds by mentioned.
Sure I think we have a good feel for the market at this point and have positioned ourselves, while we've seen some nice wins I mentioned.
Speaker 5: transcript
Speaker 5: in the latter portion of this season and even some out of market opportunities. So I don't think it's taking rates lower and we're currently, you know, have that pricing fully baked. What I think we see is the opportunity is this time frame last year, which I referenced, you know, about 43% of our rate is pricing effective in Q1. That is a significant opportunity where we lost shares over the road and it's given some of the question marks around the spot market as well as customers taking a deeper look at fuel prices and aggregate cost. I think presents an opportunity to leverage the strong service we've had and that disparity and contract rates to garner some of that volume.
In the latter portion of bid season, and even some out of market opportunities. So I don't think its taking rates lower and were currently have that pricing fully baked what I think we see as the opportunity in this timeframe last year, which I referenced about 43% of our freight.
Justin Long: Our next question is from Justin Long of Stevens. Please proceed with your question. Thanks, and maybe I'll start with one for Jeff on the guidance. Last quarter, you talked about the tax rate for the fourth quarter being in the midteens. It looks like based on the guidance you gave today, it could be a little bit lower than this. So I was just wondering if you could provide an update there and just given the decline in the tax rate, it also seems to imply that operating income will probably take a step down from three Q to four Q.
As pricing effective in Q1 that is a significant opportunity where we've lost share to over the road and given some of the question marks around the spot market as well as customers, taking a deeper look at fuel prices in aggregate cost I think presents an opportunity to leverage the strong service, we've had and that.
Disparity in contract rates to garner some of that volume back.
Speaker 13: transcript
Speaker 13: show
So.
Speaker 12: transcript
Speaker 12: So you think that if you get the volume back in one, Q, Q, that can be a meaningful margin lever or...
So you think that if you get the volume back in <unk> that can be a meaningful margin lever or.
Justin Long: So I was wondering if you could comment on what's driving that. It sounds like logistics margins may be down a bit, but I wanted to make sure I wasn't missing anything else. Sure, yeah, your math is correct and the tax rate we think in Q4 will be around 10%. That's driven by a change in state of portionment, approximately been working on all year. So Q4 will be low as you file the 2022 final tax returns to your point on the operational side of the earnings.
Speaker 5: transcript
Speaker 5: I'm just gonna sing it further out. You know, getting the container fleet unpacked and driving more velocity in the network will reduce the fixed cost and help us really with the efficiency we've gained in headcount drive a better flow through to the bottom line.
You're thinking further out.
Getting getting the container fleet unstack and driving more velocity in the network, we will reduce the fixed cost and help us really really with the efficiencies. We've gained in head count drive a better flow through to the bottom line.
Okay.
Speaker 12: transcript
Speaker 12: I get from the brokerage side. I mean, it's your results and brokerage look very good. The 5% volume growth in the tough market. So, you know, could it is for executing well in that business? I wanted to see if you could give us a sense of the mix of spot and contract and how you would think about the risk that eventually, you know, the cycle's gonna happen and spot rates are gonna go up.
And then I.
On the brokerage side I mean your results in brokerage look very good as a 5% volume growth in a tough market. So.
Justin Long: You know, we're expecting, you know, seasonal strength in October, he's going to fall off as it usually does in the latter half of Q4. We are expecting some more softness on the brokerage side, and of course, brokerages in our logistics segment. So it's really the transactional parts of our business between their motor volume, brokerage volume and some tailing off and profitability in a Q4. The rest of our logistics segment we think will continue to perform based on recent wins that are being onboarded, but not enough to overcome the performance of the other two pieces we talked about.
Kudos for executing well in that business.
I wanted to see if you could give us a sense of the mix of spot and contract and how do we think about the risk that <unk>.
<unk> the cycle is going to happen in spot rates are going to go up.
Speaker 12: transcript
Speaker 12: and you know that that can be a risky time for brokers just in terms of the gross margin percent pressure and potential impact of profitability from that so you know what's the split look like and and how much of a potential headwind is that uh... you know spot rates move up and first half next year
And that.
That can be a risky time for brokers just in terms of the gross margin percent pressure and potential impact of profitability from that so whats the split look like and how much of a potential headwind does that.
Justin Long: Yeah, we certainly wanted to be conservative in the approach on what we think volumes will be just given that it doesn't mean someone unclear, right? And there's certainly upside to that if we see the demand continue right up to and through the Thanksgiving holiday, that is certainly upside, but felt as though with the guidance we should be conservative. Got it. Thanks.
Spot rates move up in first half next year.
Speaker 3: transcript
Speaker 3: Sure, yeah, no, you know, time this is Brian , I'll kind of start even last year. So as we look at last year, we moved, our brokerage was about 60% spot and 40% contract throughout this year.
Sure Yes.
Tom This is Brian I'll kind of start even last year. So as we look at last year, we moved our brokerage was above 60% spot and 40% contracted throughout this year. We were very focused on growing in our contracted volume and we saw that kind of level off right around half and half and what's really good about the growth within our contracted.
Brian Alexander: And maybe if it follow up for Brian, you talked about some onboarding and logistics and the fourth quarter and early next year. Is there a way to think about the collective impact that these onboardings could have to the top line? I just wanted to get a sense for how you're set up for potential growth in that segment as we move into next year. Sure, yeah, no, Justin. I appreciate that question. And we love our logistics wins for a lot of reasons.
Speaker 12: transcript
Speaker 12: that volume with our carriers in the way that we purchase that transportation to really make sure that we can contain that spot capacity and price. And so we feel well positioned that as that spot starts to grow our capacity in the truckload market place starts to exit and it starts to press up that we have a really good model and a good balance with those carriers to keep that contained, but while also making sure that we're recovering it with our customers as well. So you don't think we should anticipate pressure of spot rates rise or it's man.
As we really leverage that volume with our carriers and the way that we purchased that transportation.
To really make sure that we can contain that spot capacity and price and so we feel well positioned that as that spot starts to grow our capacity in the truckload marketplace starts to exit and it starts to press up that we have a really good model and a good balance with those carriers to keep that contained.
Brian Alexander: One is great to continue to get out there and win, but a lot of what we see within our logistics wins is that it helps feed the other lines of business and creates that overall of network of freight. So as we win in the final mile, we're able to leverage our assets for the middle mile management of that. As we onboard these new buildings that I've mentioned, we're again leveraging our assets to manage the inbound and the outbound across all modes of transportation.
Speaker 3: transcript
Speaker 3: but while also making sure that we're recovering it with our customers.
But while also making sure that we're recovering it with our customers as well.
Speaker 12: transcript
Speaker 12: So you don't think we should anticipate pressure of spot rates rise or it's manageable amount of pressure? It's manageable in our model.
So you don't think we should anticipate.
We anticipate pressure if spot rates rise or its manageable amount of pressure.
It's manageable in our model.
Right, Okay, great. Thank you.
Speaker 1: transcript
Speaker 1: Thank you. As a reminder to ask a question, please press star 11 on your telephone. Our next question is from Robbie Shanker of Morgan Stanley . Please proceed with your question.
Thank you as a reminder to ask a question. Please press star one one on your telephone. Our next question is from Ravi Shanker of Morgan Stanley. Please proceed with your question.
Brian Alexander: And then it also just continues to add that long tail of customers that we cross sell into and provide more solutions for as we do that. And we get deeper with our customers to become less price sensitive. They become more sticky and our retention continues to go up. We've seen our deal sizes continue to grow in logistics and I'll also mention on the dedicated from a contract win perspective, our dedicated product continues to stand out again.
Speaker 14: transcript
Speaker 14: Hey, I think this is Christine Garvey on for Ravi. I want to circle back to the capital allocation announcement, specifically calling out on the acquisition front. It doesn't feel like that's super new for you guys. So just wondering if you're trying to signal anything different going forward in terms of, you know, pace of transaction or type of transaction that you guys are looking for going forward.
Hey, Thanks. This is Christine mcgarvey on for Ravi I wanted to circle back to the capital allocation announcements.
Specifically, calling out on the acquisition front it doesn't feel like that Super New for you guys. So just wondering if youre trying to signal anything different going forward in terms of pace of transaction or type of transaction that you guys are looking for going forward.
Brian Alexander: Again, some of the headwinds, but strong pipeline continued demand or win ratios are the highest we've seen them are largest dedicated win of the year will onboard right before the turn of the calendar. And set us up really well going into the next year. Thank you.
Speaker 2: transcript
Speaker 2: I think the announcement today is really just formalizing things we've been working on. So M&A has always been an element.
I think we had out there today is really just formalizing things we've been working on so M&A has always been an element.
Speaker 2: transcript
Speaker 2: of our growth strategy, particularly in the not-asset parts of our business expanding that logistics offering.
Our growth strategy, particularly in the non asset parts of our business expanding that logistics offering.
Speaker 2: transcript
Speaker 2: You know, we've always had the strategy to invest in our intermodal plea, containers and trackers will continue to do that.
We've always had the strategy to invest in our intermodal fleet containers and trackers will continue to do that I think you've seen us be more opportunistic on this.
Bruce Chan: Our next question is from Bruce Chan of Seifl. Please proceed with your question. Hey, thanks operator and good afternoon everyone. Just want to look at the brokerage side of things from minute here. It seems like the market's going to be grinding lower for a bit longer and just assuming that's the case, want to see if you have any more opportunities for cost-right sizing there, whether it's, you know, head count related or technology related or maybe something else. Sure. Yeah, numbers appreciate the question.
Speaker 2: transcript
Speaker 2: I think you've seen us be more opportunistic on the, on that we turn a capital with Sherry purchases, and we are today announcing, or we're signaling a more rigorous framework around that. So really no change in the pieces, I think just more of a framework to measure.
Return on capital with share repurchases and we are today.
Signaling a more rigorous framework around that so really no no change in the the pieces I think just just more of a framework to measure.
Speaker 2: transcript
Speaker 2: a return of capital performance by. I think we all feel good about our acquisition pipeline. We're optimistic to get an acquisition completed in the short term here.
Our return on capital performance by I think we all feel good about our acquisition pipeline.
We are optimistic to get an acquisition completed in the short term here.
Brian Alexander: And, you know, one of my favorite guiding principles that we say here at Hub is that we innovate with a purpose, right? And that we direct RIT investments in a meaningful way that focuses on our customers, our carriers and our team members that drives profitable growth. And that's exactly what we've seen in our brokerage. And Jeff called out some of those productivity gains that we saw. Well, we did see volume grow.
Speaker 14: transcript
Speaker 14: That's really helpful. And if I could squeeze one more in, switching gears a little bit on the drainage and sourcing and some of the other kind of costs or process initiatives, can you just frame up for us at all sort of the cost benefits that you guys are seeing and maybe how to think about incremental margins in that business going forward in the next cycle when it comes, if you think it can be structurally improved on the back of the years.
Got it that's really helpful and if I could squeeze one more in switching gears, a little bit on the drayage in sourcing and some of the other kind of costs.
Process initiatives.
Can you just frame up for us at all sort of the cost benefit that you guys are seeing and maybe how to think about incremental margins in that business going forward.
Brian Alexander: We saw that that grow on top of a lower cost base and drive more efficiency in our overall operation. So, we do sense some more headwinds coming in the fourth quarter. We feel well positioned to handle those. But with some of the softer volume, we'll make sure that we're scaled appropriately and that again, our investments are appropriated towards driving that profitable growth. Okay, great. Let me just one round. Okay. Go ahead.
And the next up cycle. When it comes if you think it can be structurally improved on the back of the year.
Speaker 2: transcript
Speaker 2: Yeah, so we have a pretty strong focus on operating efficiency within our headcount and within our...
Yes, so we have a.
Pretty strong focus on operating efficiency within our head count with our within our kind of below the transportation part of our P&L within transportation I think having those.
Speaker 2: transcript
Speaker 2: a kind of below the transportation part of our P&L. Within transportation, I think, you know, having those.
Speaker 2: transcript
Speaker 2: That in-source number, you know, around 80% may drift down in a stronger market, but, you know, we feel like that's the right balance of fixed costs. You know, right now, third party costs are pretty low. It's a very big, very different story last year in a stronger market. You know, we like to have that flexible of the ability to in-source on our own fleet. As we do more volume, we are able to leverage our fixed costs as we improve that productivity in our tractors.
That <unk> number.
Around 80% may drift down and a stronger market, but we feel like that's the right balance of fixed costs.
Brian Alexander: I was just going to follow up on the other round. Our program is that our commission model really incentivizes volume growth around, but we obviously pay off a gross crop of dollars, but we also incentivize volume growth and handling additional volumes. And that has really allowed us with the growth that we've seen to remain very lean in our operation and not have to add additional headcounts that actually become more efficient. And I believe we saw about a 20% in aggregate productivity and improvement year over year in our brokerage.
Right now third party costs are pretty low.
It's a very big very different story last year in a stronger market.
We like to have that flex, but also the ability to in source on our own fleet as we do more volume we are able to leverage our fixed cost as we improve that productivity at our tractors.
Speaker 2: transcript
Speaker 2: on our drivers. I referenced earlier a contribution margin just on today's cost structure. An incremental load with no change in price is going to deliver, you know, north of 15% incremental flow through operating margin.
On our drivers I.
I referenced earlier, our contribution margin just on today's cost structure and incremental load.
Brian Alexander: So, you know, really significant improvement there. And we saw a long way to go and need to return to growth, but that will come as the market does, but we'll keep focusing on taking share as well. Okay, that's great color. And I was just going to ask what that 5% volume growth was that related to some of those incentives programs or was it fair to say that was tied more to disruption from yellow and yellow sale market?
With no change in price is going to deliver north of 15% incremental flow through operating margin.
Great I appreciate it thank you.
Speaker 1: transcript
Speaker 1: Thank you. Our next question is from David Zazdwa of Barclays. Please proceed with your question.
Thank you. Our next question is from David Zaslav of Barclays. Please proceed with your question.
Hey, Thanks for squeezing me in.
Speaker 15: transcript
Speaker 15: Sorry to beat the dead horse on brokage volumes, but I just want to understand a little bit. You can say you're seeing peak.
Sorry to beat a dead horse on brokerage volumes, but I just wanted to understand a little bit.
Brian Alexander: A little bit of both. Like it says, we saw a lot of growth in our customers from that yellow exit and we protected our customers from that. We did pick up volume there, but we also get new logo wins. Our brokerage teams added anywhere from 80 to 100 new customers a month. And so as we do that, then we cross sell into those. And our brokerage also offers a diversified subset of modes as well.
You said Youre seeing peak.
Speaker 15: transcript
Speaker 15: and you gained 5% in volumes this quarter, but it sounds like you're talking about potentially some pressure in the fourth quarter. So, I mean, is that a factor of customers going away from brokerage on a temporary basis? Or, can you talk about what is driving the volume outlook for brokerage in the fourth quarter?
And you've gained 5% in volumes this quarter, but it sounds like youre talking about potentially some pressure in the fourth quarter. So I mean is that a factor of customers going away from brokerage on a temporary basis or can you talk about what is driving the volume outlook for brokerage in the fourth quarter.
Brian Alexander: So, you know, outside of just driving our chop tank acquisition really built out a nice temperature controlled offering as well as our LCL race that we bring to the table flat bed and other sub modes that become very meaningful to our customers. So, it's a good overall balance of growth. Great. And just a final follow up before I turn it over. You know, we had a fairly high profile competitor exit in that space last week.
Speaker 3: transcript
Speaker 3: Some of that's just, this is Brian , David. And some of that's really just the decline, after Thanksgiving of what we'll see just in a softer tail off of the year, from what we're expecting in overall volumes. But I think we're continuing to drive in that across cell and where we're growing with our brokerage internally as well. So yeah, we still think we'll continue to stand out in the marketplace in the fourth quarter, but are just anticipating some of that softness up on that unravel.
Sure.
Some of Thats, just this is Brian dividend and some of Thats really just the decline after Thanksgiving of what we'll see just in a softer tail off of the year from what we're expecting in overall volumes.
But I think we're continuing to driving the cross sell and where we're growing with our brokerage internally as well.
Brian Alexander: Just want to get your take on that and whether, you anticipate any major changes in the market as a result. Sure, I wouldn't reference any major changes. I think it's just an indication of how challenging the market can be and having brokerage as a key capability that you can bring to customers as part of a full suite of services. I think it's very important and something that we've tried to utilize. We think our model works and we're continuing to invest in the brokerage products. So, feel good about our positioning for the won't. That's great. Thanks for the time. Thank you.
So yes, we still think that will continue to stand out in the marketplace in the fourth quarter, but are just anticipating some of that softness as we wrap up the year.
Speaker 15: transcript
Speaker 15: Thanks for that. And then if I can just get one follow up. You mentioned some dedicated wins. I know you've had some competitors that have lost existing customers. Can you talk to your dedicated retention rate and how it compares to history? Yeah, no. And.
Great. Thanks for the help.
And then if I could just get one follow up you mentioned some dedicated wins I know you've had some competitors that have lost existing customers can you can you talk to your dedicated retention rate and how it compares to history.
Yes no.
Speaker 3: transcript
Speaker 3: I did not come wood, we have done very well with our retention, we have give a
And knock on wood, we've done very well with our retention we have.
Speaker 3: transcript
Speaker 3: retained our customers. I think our model for doing so, as I mentioned before, is that we see a higher retention when we're offering a multiple lines of service. So while our dedicated service and assets and management and efficiencies are all really important to our customers, we find that if we can have them cross-sold into multiple lines of service, it helps drive that overall operating efficiency, but it also helps with that retention. But we focus on being a very strong operator and making sure that we pass those efficiencies along to our customers and that we position to retain, but it also helps us end the business cycle. And so we've seen a higher rate of our wins on these because they are highly competitive.
Retained our customers I think our model for doing so as I've mentioned before is that we we see a higher retention when we're offering multiple lines of service. So while our dedicated service and assets and management and efficiencies are all really important to our customers. We find that if we can have them cross sold into multiple lines of service it helps <unk>.
Thomas Wadewitz: Our next question is from Thomas Wadowitz of UBS. Please proceed with your question. Yeah, good afternoon.
Phil Yeager: I wanted to ask you about the ITS operating margin and just how you should think about the potential levers for improvement. I know you've talked about volume and being a bit more aggressive with some of the upgrades and winning volume. Is that kind of a key lever to see improvement off the level in third quarter? Or is it more appropriate to think about pricing being the lever and you kind of wait for potential improvement in rates in the bid season next year and second half?
<unk> that overall operating efficiency, but it also helps with that retention, but we focus on being a very strong operator, and making sure that we pass those efficiencies along to our customers and that we positioned to retain but it's also helped us in the bid cycle and so we've seen a higher rate of our wins on these because they are highly competitive.
Speaker 3: transcript
Speaker 3: Interdeal sizes are growing. I mentioned one of our largest ones will be onboarding later in this quarter and setting up really well for next year. And those are organic as well as new logo customers that were winning more.
And our deal sizes are growing I mentioned, one of our largest ones will be onboarding later in this quarter and setting us up really well for next year and those are organic as well as new logo customers that were winning work.
Phil Yeager: I just wanted to get a little more perspective on what really kind of drives potential improvement in the timing as well. Sure, I think we have a good feel for the market at this point and have positioned ourselves well. We've seen some nice ones, I mentioned in the latter portion of the season and even some out of market opportunities, so I don't think it's taking rates lower and we're currently, you know, have that pricing fully baked.
Thanks very much appreciate it.
Speaker 1: transcript
Speaker 1: Thank you. Our next question is from Brian Austinbeck of J.P. Morgan. Please proceed with your question.
Thank you.
Our next question.
Is from Brian <unk> of Jpmorgan. Please proceed with your question.
Speaker 2: transcript
Speaker 2: Yeah, thanks for taking the follow up just a real quick one. I think you mentioned as the story was where down just one to see if that was sequential comment or year-to-year. I think there's been
Yes, thanks for taking the follow up just a real quick one I think you mentioned accessorial ware.
I just wanted to see if there was a sequential comment or year over year I think there has been.
Phil Yeager: What I think we see is the opportunity is this time frame last year, which I referenced, you know, about 43% of our rate is pricing effective in Q1. That is a significant opportunity where we lost shares over the road and given some of the question marks around the spot market as well as customers taking a deeper look at fuel prices and aggregate cost. I think presents an opportunity to leverage the strong service we've had and that disparity contract rates to garner some of that volume back.
Speaker 5: transcript
Speaker 5: Some providers who have seen a little bit more come out than they initially thought, and they guys took a pretty big hit earlier in the year. So where do you stand on asses royals right now? And you kind of at a run rate, you expect to carry in.
Some providers, who have seen a little bit more come out than they initially thought and you guys took a pretty big hit earlier in the year. So.
Where do you stand on Accessorial, right now and you kind of at a run rate you would expect to carry into next year.
Speaker 2: transcript
Speaker 2: Yeah, sequentially on the revenue side of the flat, the big step down is year-to-year. We do have that sort of cost as well, which we have been reducing sequentially, but not enough to offset the revenue.
Yes sequentially on the revenue side is flat the big step down year over year, we do have a sort of cost as well, which we have been reducing.
Sequentially, but not enough to offset the revenue piece.
Speaker 2: transcript
Speaker 2: and it has caused combat with more volume, with more fluidity, I guess, better service. They would be how we would expect them to, yeah. Thank you.
And do those cost come out with more with more volume with more fluidity I guess better service.
Phil Yeager: So, so you think that if you get the volume back in one Q2 Q, that can be a meaningful margin lever or you think it further out. Yeah, you know, we're getting getting the container fleet on fact and driving more velocity in the network will reduce the fixed costs and help us really really with the efficiency we've gained in headcount drive a better flow through to the bottom line.
We would expect them to you.
Alright, Thanks, a follow up.
Speaker 1: transcript
Speaker 1: Thank you. I would now like to turn the conference back to Phil Yeager for Client or Mark.
Yes.
Thank you I would now like to turn the conference back to Phil Yeager for closing remarks.
Speaker 5: transcript
Speaker 5: Great, well thank you for joining our call with Phoebe and just to wrap up, you know, despite headwinds in the broader logistics market, we believe Hub Group is extremely well-positioned to drive long-term growth and returns through our focus on providing best-in-class service, continuing to operate efficiently and investing in our business to recruit a back position in long-term or the end growth.
Great well. Thank you for joining our call. This evening and just to wrap up despite headwinds in the broader logistics market. We believe upgrades is extremely well positioned to drive long term growth and returns through our focus on providing best in class service continuing to operate efficiently and investing in our business through accretive acquisitions and long term organic growth.
Geoff DeMartino: Okay, and then I guess on the broker side, I mean, it's, you know, your results and brokerage look very good, you know, the 5% volume growth in the tough market. So, you know, could it is for executing well in that business. I wanted to see if you could give us a sense of the mix of spot and contract and how you would think about the risk that, you know, eventually, you know, the cycle is going to happen in spot rates are going to go up.
Speaker 5: transcript
Speaker 5: We believe this investment approach, along with our focus, I consistently return to capital to shareholders is going to create long-term value. So I want to thank you again for joining our call this evening, and as always, Brian , Jeff and I are available for any.
We believe this investment approach along with our focus on consistently returning capital to shareholders is going to create long term value. So I want to thank you again for joining our call. This evening and as always Brian Jeff and I are available for any questions.
Geoff DeMartino: And, you know, that that can be a risky time for brokers just in terms of the gross margin, percent pressure and potential impact of profitability from that. So, you know, what's the split look like and how much of a potential headwind is that, you know, spot rates move up in first half next year. Sure, yeah, no, I, you know, time, this is Brian, I'll kind of start even last year. So as we look at last year, we moved our brokerage was about 60% spot and 40% contracted throughout this year.
Speaker 1: transcript
Speaker 1: This concludes today's conference call. Thank you for participating. You may now disconnect.
This concludes today's conference call. Thank you for participating you may now disconnect.
Okay.
[music].
Okay.
Okay.
Yes.
[music].
Geoff DeMartino: We were very focused on growing in our contracted volume and we saw that kind of level off right around half and half. And what's really good about the growth within our contracted volume is we really leverage that volume with our carriers in the way that we purchased that transportation. So, really make sure that we can contain that spot capacity and price. And so, we feel well positioned that as that spot starts to grow or capacity in the truckload marketplace starts to exit and it starts to press up that we have a really good model and a good balance with those carriers to keep that contained.
Geoff DeMartino: But while also making sure that we're recovering it with our customers as well. So you don't think we should anticipate pressure of spot rates rise or it's manageable amount of pressure? It's manageable in our model. Right, okay, great.
Operator: Thank you. As a reminder to ask a question, please press star 1-1 on your telephone.
Ravi Shanker: Our next question is from Ravi Shanker of Morgan Stanley.
Christyne McGarvey: Please proceed with your question. Hey, thanks. This is Christyne McGarvey on for Ravi. I want to circle back to the capital allocation announcement, specifically calling out on the acquisition front. It doesn't feel like that's super new for you guys. So just wondering if you're trying to signal anything different going forward in terms of, you know, pace of transaction or type of transaction that you guys are looking forward going forward. I think the announcement today is really just formalizing things we've been working on.
Christyne McGarvey: So M&A has always been an element of our growth strategy, particularly in the not asset parts of our business, expanding that logistics offering. You know, we've always had the strategy to invest in our intermodal fleet, containers and trackers will continue to do that. I think you've seen us be more opportunistic on the on that we turn a capital with Sherry purchases and we are today announcing or signaling a more rigorous framework around that.
Christyne McGarvey: So really no, no change in the pieces, I think just just more of a framework to measure a return of capital performance by. I think we all feel good about our acquisition pipeline. We're optimistic to get an acquisition completed in the short term here.
Phil Yeager: That's really helpful.
Geoff DeMartino: And if I could squeeze one more in switching gears a little bit on the drainage and sourcing and some of the other kind of cost or process initiative. Can you just frame up for us at all sort of the cost benefits that you guys are seeing and maybe how to think about incremental margins in that business going forward in the next cycle when it comes if you think it can be structurally improved on the back of these.
Geoff DeMartino: Yeah, so we have a pretty strong focus on operating efficiency within our headcount within our kind of below the transportation part of our P and L. Within transportation, I think having those that in-source number around 80% may drift down in a stronger market, but we feel like that's the right balance of fixed costs. You know, right now, third party costs are pretty low. It's a very big, very different story last year in a stronger market.
Geoff DeMartino: You know, we like to have that flexible ability to in-source on our own fleet. As we do more volume, we are able to leverage our fixed cost as we improve that productivity and our tractors and on our drivers. I referenced earlier a contribution margin just on today's cost structure, an incremental load with no change in price is going to deliver, you know, north of 15% incremental flow through operating margin.
Christyne McGarvey: Great. Appreciate it.
David Zazdwa: Thank you.
David Zazdwa: Our next question is from David Zazdwa of Barclays. Please proceed with your question. Hey, thanks for squeezing me in. Sorry to beat the dead horse on brokerage volumes, but I just want to understand a little bit. You get that you're seeing peak and you gained 5% in volumes this quarter, but it sounds like you're talking about potentially some pressure in the fourth quarter. So I mean, is that a factor of customers going away from brokerage on a temporary basis? Can you talk about what is driving the volume outlook for brokerage in the fourth quarter?
Brian Alexander: Some of that's just, this is Brian, David, and some of that's really just the decline after Thanksgiving of what we'll see just in a softer tail off of the year from what we're expecting in overall volumes. But I think we're, you know, continuing to drive in the cross cell and where we're growing with our brokerage internally as well. So yeah, we still think we'll continue to stand out in the marketplace in the fourth quarter, but are just anticipating some of that softness as we wrap up the year.
Brian Alexander: Thanks for that. And then, if I can just get one follow up, you mentioned some dedicated wins. I know you've had some competitors that have lost existing customers. Can you, can you talk to your dedicated retention rate and how it compares to history? Yeah, no, we've done very well with our retention. We have retained our customers. I think our model for doing so, as I mentioned before, is that we, we see a higher retention when we're off.
Brian Alexander: We're offering a multiple lines of service. So while our dedicated service and assets and management and efficiencies are all really important to our customers, we find that if we can have them cross sold into multiple lines of service, it helps drive that overall operating efficiency, but it also helps with that retention. But we focus on being a very strong operator and making sure that we pass those efficiencies along to our customers and that we, we position to retain, but it's also helped us in the business cycle.
Brian Alexander: And so we've seen a higher rate of our wins on these because they are highly competitive and our real sizes are growing. I mentioned one of our largest ones will be onboarding later in this quarter and setting us up really well for next year. And those are organic as well as new logo customers that we're winning.
Brian Austin Beck: Thanks very much for sharing.
Operator: Thank you.
Geoff DeMartino: Our next question is from Brian Austin Beck of JP Morgan. Please proceed with your question. Yeah, thanks for taking the follow up just a real quick one. I think you mentioned. Assessorials were down. Just wanted to see if that was sequential comment or year of year. I think there's been some providers who have seen a little bit more come out. And they initially thought and I guess took a pretty big hit earlier in the year. So where do you stand on. Assessorials right now. And you kind of at a run rate, you expect to carry into into next year.
Geoff DeMartino: Yeah, so potentially on the revenue side of flat, the big step down is year over year. We do have as sort of cost as well, which we have been reducing sequentially, but not enough to offset the revenue piece. And it is cost come out with more volume with more fluidity, I guess, better service. Yeah, we would expect them to. All right, thanks for follow up. Thank you.
Phil Yeager: I would now like to turn the conference back to Phil Yeager for closing remarks. Great. Well, thank you for joining our call to see me and just to wrap up, you know, despite headwinds and the broader logistics market, we believe has been extremely well positioned to drive long term growth and returns through our focus on providing best in class service, continuing to operate efficiently and investing in our business to recruit. We have acquisitions and long term organic growth. We believe this investment approach, along with our focus, I consistently return to capital to shareholders is going to create long term value.
Phil Yeager: So I want to thank you again for joining our call this evening. And as always, Brian Jeff and I are available for any.
Operator: This concludes today's conference call. Thank you for participating.
Operator: You may now disconnect.