Q1 2024 Hub Group Inc Earnings Call

Hello, and welcome to the hub group first quarter 'twenty 'twenty four earnings conference call, Phil Yeager hubs, President Chief Executive Officer, and Vice Chairman by Brian Alexander Chief Operating Officer, and Kevin Beth.

Financial officer are joining the call.

At this time all participants are in a listen only mode. A brief question and answer session will follow the prepared remarks in order for everyone to have an opportunity to participate please limit your inquiries to one primary and one follow up question.

Operator: A brief question-and-answer session will follow the prepared remarks. 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. 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.

Any forward looking statements made during the course of the call or contained in the release represent the company's best good faith judgment as to what may happen in the future.

Statements that are forward looking can be identified by the use of words, such as believe expect anticipate and project and variations of these words.

Operator: Please review the cautionary statements in the release. In addition, you should refer to the disclosures in the company's form 10-K and other SEC filings regarding factors that could cause actual results to differ materially from those projected in these forward-looking statements. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to your host, Phil Yeager. You may now begin.

Please review the cautionary statements in the release.

You should refer to the disclosures in the company's Form 10-K, and other SEC filings regarding factors that could cause actual results to differ materially from those projected in these forward looking statements. As a reminder, this conference is being recorded it is now my pleasure to turn the.

Our call over to your host Phil Yeager, you may now begin.

Yeah.

Phillip D. Yeager: Good afternoon, and thank you for joining Hub Group's first quarter earnings call. Joining me today are Brian Alexander, Hub Group's Chief Operating Officer, and Kevin Beth, our Chief Financial Officer. Market conditions have remained soft despite improved demand trends and inventory restocking, largely due to excess truckload capacity that is yet to exit the industry. This trend is counter to many prior cycles and has led to a prolonged drop in the spot market.

Phillip D. Yeager: Good afternoon, and thank you for joining hub group's first quarter earnings call joining.

Phillip D. Yeager: Joining me today are Brian Alexander our group's Chief operating officer, and Kevin Burke, Our Chief Financial Officer.

Phillip D. Yeager: Market conditions have remained soft despite improved demand trends inventory restocking largely due to excess truckload capacity, but is yet to exit the industry.

This trend is counter to many prior cycles and has led to a prolonged trough in the spot market.

Phillip D. Yeager: This has, in turn, driven a competitive start to bid season as carriers attempt to deploy latent capacity and spot market pricing is pressuring contract rates. We're seeing some positive signs in the market with capacity exits and many customers orienting their purchasing decisions to value both service and cost. However, this capacity attrition is not occurring at a pace that is leading to more stability in the broader truckload environment.

Phillip D. Yeager: This has in turn driven our competitive start to bid season at carriers attempt to deploy latent capacity and spot market pricing, especially in contract rates.

We're seeing some positive signs in the market with capacity exits and many customers orienting their purchasing decision to value the service and costs.

Phillip D. Yeager: However, this capacity attrition is not occurring at a pace that is leading to more stability in the broader truckload environment.

Phillip D. Yeager: Despite these market challenges, we continue to execute well on our strategic priorities. Consistent with our focus on diversifying our service offerings to expand value to our customers, the integration of our recent final mile acquisition is performing ahead of expectations, and our strong balance sheet and robust pipeline of opportunities positions us to drive growth via strategic acquisition. We also deployed our capital allocation strategy due to our strong free cash flow generation, issuing our first ever cash dividend, completing our stock split, and opportunistically repurchasing shares in the quarter. We are executing these initiatives while enhancing our operational discipline and delivering premier service to our customers. The challenging broader industry fundamentals have more heavily impacted our intermodal and brokerage services.

Despite these market challenges, we continue to execute well on our strategic priorities.

Phillip D. Yeager: Consistent with our focus on diversifying our service offerings to expand value to our customers. The integration of our recent final mile acquisition is performing ahead of expectations and our strong balance sheet and robust pipeline of opportunities positions us to drive growth via strategic acquisitions.

We also deployed our capital allocation strategy due to our strong free cash flow generation issuing our first ever cash dividend completing our stock split and Opportunistically repurchasing shares in the quarter.

We are executing these initiatives, while enhancing our operational discipline and delivering premier service to our customers.

Phillip D. Yeager: The challenging broader industry fundamentals are more heavily impacted our intermodal and brokerage services.

Phillip D. Yeager: However, we have outperformed expectations in early bid season as we focused on utilizing our improved rail and chassis agreements, enhanced street economics, better fleet utilization, healthier network velocity, and extremely strong rail service to convert business from over the road in both short and long haul segments. We remain focused on execution and bid season, and our deliberate approach is helping to drive improved costs through our velocity and balance-oriented growth plan. Along with this, our brokerage continues to grow low cost as customers recognize the value of our multiple service offerings, scale, and superior service.

Phillip D. Yeager: However, we have outperformed expectations in early bid season has been focused on utilizing our improved rail and Jackie agreements enhanced Street economics, better fleet utilization healthier network velocity and extremely strong rail service to convert business from over the road in both short and long haul segments.

Phillip D. Yeager: We remain focused on execution in bid season, and our deliberate approach is helping to drive improved cost to our velocity and balanced oriented growth path.

Phillip D. Yeager: Along with this our brokerage continues to grow load count as customers recognize the value of our multiple service offerings scale and superior service.

Phillip D. Yeager: The diversification of our services and focus on cost management has led to enhanced stability in our earnings through this elongated cyclical downturn. We have a high service integrated and cost competitive value proposition across all of our contractual solutions. And in the final mile, the expansion of our capabilities and high service levels is helping us deliver improved cross-selling and growth. Our warehousing solutions are flexible and have a growing national footprint, which brings enhanced value to our clients.

The diversification of our services and focus on cost management has led to enhanced stability in our earnings through this elongated cyclical downturn.

Phillip D. Yeager: We have a high service integrated and cost competitive value proposition across all of our contractual solutions.

Phillip D. Yeager: And final mile the expansion of our capabilities and high service levels is helping us deliver improved cross selling and growth are.

Phillip D. Yeager: Warehousing solutions are flexible and have a growing national footprint, which brings enhanced value to our clients.

Phillip D. Yeager: Within managed transportation, our continuous improvements, technology, and purchasing power are driving customer retention and organic growth. Last, within Dedicated, despite short-term headwinds due to startup costs and increased claims expense, we are utilizing our award-winning service to grow with our existing clients. We have a strong pipeline of opportunities across all of our service offerings, which we believe will drive growth for the remainder of the year and position us well as the market recovery.

Phillip D. Yeager: Within managed transportation, our continuous improvements technology and purchasing power is driving customer retention and organic growth.

Phillip D. Yeager: Last within dedicated despite short term headwinds due to startup cost and increased claims expense. We are utilizing our award winning service to grow with our existing clients.

Phillip D. Yeager: We have a strong pipeline of opportunities across all of our service offerings, which we believe will drive growth through the remainder of the year and position as well as the market recovers.

Phillip D. Yeager: We are excited about the progress we have made in our strategic plan while delivering enhanced execution and excellent service for our customers. We believe that there will be a broader market transition in the future driven by capacity exits and inventory restacking, and we remain focused on positioning Hub Group for long-term success through our consistent investment approach and relentless focus on delivering for our customers, team members, and shareholders. With that, I will hand the call over to Brian to discuss our service line performance. Thank you, Phil.

Phillip D. Yeager: We are excited about the progress we have made on our strategic plan, while delivering enhanced execution and excellent service for our customers.

Phillip D. Yeager: We believe that there will be a broader market transition to future driven by capacity exits and inventory restocking and we remain focused on positioning at hub group for long term success through our consistent investment approach and relentless focus on delivering for our customers team members and shareholders.

Phillip D. Yeager: With that I will hand, the call over to Brian to discuss our service line performance.

Brian Daniel Alexander: I will now discuss our reportable segments, starting with Intermodal and Transportation Solutions. ITS revenue declined 22% in the first quarter, driven by softer intermodal volume that declined 10%. TransCon volume was down 6%, Local East volume declined 2%, and Local West volume declined 16%.

Brian Daniel Alexander: Thank you Phil.

Brian Daniel Alexander: I will now discuss our reportable segments, starting with intermodal and transportation solutions.

Brian Daniel Alexander: Ats revenue declined 22% in the first quarter driven by softer intermodal volume declined 10%.

Brian Daniel Alexander: <unk> volume was down 6% locally.

Brian Daniel Alexander: Local east volume declined 2% in local west declined 16%.

Brian Daniel Alexander: While year-over-year volume declined in the first quarter, sequential volume growth was up 3%, with the Local East growing 6%, Local West up 1%, and TransCon declining 2%. In addition, the first quarter month-over-month growth was up 5%, with January up 5%, February up 9%, and March up 5%. This monthly and quarterly improvement is showing the early results of the enhancements that we have made to our bid strategy. The first quarter represents about 40% of our annual bid activity, and we have recognized early wins that started late in the first quarter and will continue throughout the year.

Brian Daniel Alexander: While year over year volume declined in the first quarter sequential volume growth was up 3%.

Brian Daniel Alexander: But the local east growing 6% local west up 1% and transcon declining 2%.

Brian Daniel Alexander: In addition, the first quarter month over month illustrated growth.

Brian Daniel Alexander: With January of 5% February up 9% in March up 5%.

Brian Daniel Alexander: This monthly and quarterly improvement is showing the early results of the enhancements that we've made to our bid strategy.

Brian Daniel Alexander: The first quarter represents about 40% of our annual bid activity and we've recognized early wins that started late in the first quarter and will continue throughout the year.

Brian Daniel Alexander: We are being successful in taking share in converting from over the road, while also creating balance in velocity in our network. In addition, we are seeing strong volume growth with cross-border activity as we continue to invest in a superior solution to support our customers' north and southbound volume. Our improved cost structure is helping to support more competitive pricing while maintaining yield. From a cost perspective, our rail agreements are moving with the market, and improved rail service has helped us better manage our equipment costs. In the West, we completed the implementation of a new hub-controlled chassis program that is improving our cost and service reliability.

Brian Daniel Alexander: We are being successful in taking share in converting from over the road, while also creating balance and velocity in our network.

Brian Daniel Alexander: In addition, we are seeing strong volume growth with cross border activity as we continue to invest in a superior solution to support our customers north and southbound volume.

Brian Daniel Alexander: Our improved cost structure is helping to support more competitive pricing, while maintaining yield discipline.

Brian Daniel Alexander: From a cost perspective, our rail agreements are moving with the market and improved rail service has helped us better manage our equipment costs.

Brian Daniel Alexander: In the West we completed the implementation of a new uncontrolled chassis program that is improving our cost and service reliability.

Brian Daniel Alexander: Our in-source tray was 77% throughout the first quarter, compared to 74% in the previous year, and improved driver productivity initiatives are further enhancing our cost per tray, which will expand as we grow volume in 2024. Finally, our new bid awards are creating network balance that is reducing our empty repositioning cost. We are pleased for the start of the second quarter, with April showing volume growth over March and year over year. Our bid strategy and improved cost structure are expected to have continued incremental wins throughout 2024.

Brian Daniel Alexander: Our <unk> was 77% throughout the first quarter compared to 74% in the previous year and improve driver productivity initiatives are further enhancing our cost per trade, which will expand as we grow volume in 2024.

Brian Daniel Alexander: Finally, our new bid awards are creating network balance that is reducing our empty repositioning costs.

Brian Daniel Alexander: We are pleased with the start of the second quarter with April showing volume growth over March and year over year.

Brian Daniel Alexander: Our bid strategy and improved cost structure are expected to have continued incremental wins throughout 2024.

Brian Daniel Alexander: While our dedicated trucking team finished 2023 strong, they entered the year with some headwinds related to startup costs. We have already seen yield improvements in the second quarter that we expect to continue throughout the rest of the year.

Brian Daniel Alexander: While our dedicated trucking team finished 2023 strong they entered the year with some headwinds related to startup costs. We are already seeing yield improvements in the second quarter that we expect to continue throughout the rest of the year.

Kevin W. Beth: Now turning to our logistics, the successful integration of our final model acquisition, our strong pipeline, and continued brokerage volume growth improved our logistics revenue by 2% year-over-year and 10% in the fourth quarter. Our acquisition synergies and leverage purchasing strength help improve our operating income by 60 basis points when compared to the four quarter adjusted operating income. The integration of our final model acquisition is ahead of schedule with several new customer and organic implementations in the first quarter and confirmed wins to implement in the second.

Brian Daniel Alexander: Now turning to our logistics segment.

Brian Daniel Alexander: The successful integration of our final mile acquisition, our strong pipeline and continued brokerage volume growth improved our logistics revenue by 2% year over year and 10% over the fourth quarter.

Brian Daniel Alexander: Our acquisition synergies and leverage purchasing strength helped improved our operating income 60 basis points when compared to the fourth quarter adjusted operating income.

Brian Daniel Alexander: The integration of our final mile acquisition is ahead of schedule with several new customer inorganic implementations in the first quarter and confirmed wins to implement in the second quarter.

Kevin W. Beth: We have also started to leverage the combined non-asset based operating model to improve our cost structure. Despite market headwinds, our brokerage team continues to build momentum with its fifth straight quarter of subsequent volume. The team continues to improve productivity that will expand as we further implement our brokerage IP initiatives throughout 2024. Meanwhile, while we continue our logistics growth, our leveraged spend of LTL has generated several transactional and contract wins in the first quarter, with volume up 16% and confirmed wins that will onboard in the second.

Brian Daniel Alexander: We have also started to leverage the combined non asset based operating model to improve our cost structure.

Brian Daniel Alexander: Despite market headwinds our brokerage team continues to build momentum with its fifth straight quarter of sequential volume growth.

Brian Daniel Alexander: The team continues to improve productivity that will expand as we further implement our brokerage IP initiatives throughout 2024.

Brian Daniel Alexander: While we continue our logistics growth our leveraged spend of LPL has generated several transactional and contract wins in the first quarter with volume up 16% and confirmed wins that we'll onboard in the second quarter.

Kevin W. Beth: We are also continuing to expand our multipurpose logistics locations with the addition of our largest facility in the Northeast that will open this summer and be close to 100% utilized when it opens. The integration and diversification of our logistics solutions are playing out well, and we expect continued growth in 2024. With that, I'll hand it over to Kevin to discuss our financial performance. Thank you, Brian.

Brian Daniel Alexander: We are also continuing to expand our multi purpose logistics locations with the addition of our largest facility in the northeast that will open this summer and be close to a 100% utilized at opening.

Brian Daniel Alexander: The integration and diversification of our logistics solutions are playing out well and we expect continued growth in 2024.

Brian Daniel Alexander: With that I'll hand, it over to Kevin to discuss our financial performance.

Kevin W. Beth: I will now walk through our financial results before commenting on our outlook. I reported revenues for the first quarter of $1 billion. Revenue declined 13% compared to $1.2 billion last year, but it was in line with fourth quarter revenue. ICS revenue was $552 million, which is down 22.2% from the prior year, as expected, due to the challenging market conditions. Lower fuel revenue of approximately $32 million contributed to the decrease, as did lower asset soil revenue and lower intermodal volumes of approximately 10%.

Kevin: Thank you, Brian I will now walk through our financial results before commenting on our outlook.

Kevin: Reported revenues for the first quarter of $1 billion.

Kevin: Revenue declined 13% compared to $1 $2 billion last year, but was in line with fourth quarter revenue.

Kevin: Ics revenue was $562 million, which.

Kevin: Which is down 22, 2% from prior year as expected due to the challenging market conditions.

Kevin: Lower fuel revenue of approximately $32 million contributed to the decrease as did lower accessorial revenue and lower intermodal volumes of approximately 10%.

Kevin W. Beth: Logistics revenue increased to $480 million, an increase of 2.4% year-over-year, as the contribution of the new final mile appliance business more than offset revenue per load declines in our brokerage business. In addition, the January storm hindered overall performance with an estimated 1.5 days of volume loss in the quarter.

Kevin: Logistics revenue increased to $480 million, an increase of two 4% year over year as the contribution of our new final mile clients business more than offset revenue per load declines in our brokerage business.

Kevin: In addition, the January storm hindered overall performance with an estimated one five day of volume loss in the quarter.

Kevin W. Beth: Moving down the P&L, purchase transportation and warehousing costs decreased compared to the prior year due to lower volumes partially offset by cost management efforts. Purchase transportation costs decreased as a percentage of revenue, partially due to decreases in our ICS segment, as equipment, rail, and repositioning costs were all lower than last year.

Kevin: Moving down the P&L.

Kevin: Purchase transportation and warehousing costs decreased compared to the prior year due to lower volume, partially offset by cost management effort.

Kevin: Transportation cost decrease as a percentage of revenue partially due to decreases in our Ics segment as equipment rail and repositioning costs were all lower than last year.

Kevin W. Beth: As anticipated, salaries and benefits increased year over year due to the final mile acquisition and increased merit and incentive compensation expense, partially offset by a 9% decrease in our legacy headcount. Depreciation and amortization expense increased as compared to the prior year due to the acquisition. Insurance and claims costs were in line with last year as we continue to make safety a top priority.

Kevin: As anticipated salaries and benefits increased year over year due to the final mile acquisition and increased merit and incentive compensation expense, partially offset by a 9% decrease of our legacy head count.

Kevin: Depreciation and amortization expense increased as compared to prior year due to the acquisition.

Kevin: Insurance and claims costs were in line with last year as we continue to make safety a top priority.

Kevin W. Beth: G&A costs increased by approximately $1.7 million due to an additional $2.7 million of costs related to the acquired final mile business versus last year. Gain on sale was minimal in the quarter, whereas the prior year benefited from strong used truck prices. This change created an earnings headwind of $3.5 million. As a result, our operating income margin was 3.7% for the quarter, which is an increase over adjusted Q4 of 20 basis points.

Kevin: G&A cost increased by approximately one 7 million.

Kevin: Due to an additional $2 $7 million of costs related to the acquired final mile business versus last year.

Kevin: Gain on sale was minimal in the quarter, whereas the prior year benefited from strong new truck pricing.

Kevin: This change created an earnings headwind of $3 5 million.

Kevin: As a result, our operating income margin was three 7% for the quarter, which was an increase over adjusted Q4 up 20 basis points.

Kevin W. Beth: ICS operating margin was 2.4%, down slightly from QCOR's adjusted OI percent of 2.6% due to the impact of the January storm, dedicated startup costs, and a larger than expected auto claim settlement in our dedicated business. Logistics operating margin of 5% increased 60 basis points from the Q4 adjusted OIA percentage of 4.4% due to strong results from the final model offsetting a lower brokerage margin. Interest expense and other income totaled $2.7 million, an increase of $1.1 million from last year.

Kevin: Ics operating margin was two 4% down slightly from Q4's, adjusted Oi percent up two 6% due to the impact of the January storm dedicated start up cost and a larger than expected auto claims settlement and our dedicated business.

Kevin: Logistics operating margin up 5% increased 60 basis points from the Q4 adjusted Oi percentages of four 4% due to strong results from final mile offsetting a lower brokerage market.

Kevin: Interest expense and other income totaled $2 7 million.

Kevin: An increase of $1 1 million from last year.

Kevin W. Beth: Although our debt balance is comparable year over year, interest expense increased due to an increase in our average interest rate. Our tax rate was 21.5%, slightly below our estimate of 24% due to tax expense related to our restricted stock program.

Kevin: Although our debt balance is comparable year over year interest expense increased due to an increase in our average interest rate.

Kevin: Our tax rate was 21, 5% slightly below our estimate of 24% due to tax expense related to our restricted stock program.

Kevin W. Beth: Overall, this translates into earnings of 44 cents per diluted share for the first quarter. Now turning to our cash flow. Cash flow from operations for the first three months of 2024 was $80.5 million. First quarter capital expenditures totaled $18 million, with the majority of spend related to 11 million tractors.

Kevin: Overall this translates in the earnings of 44.

Kevin: <unk> diluted share for the first quarter.

Kevin: Now turning to our cash flow.

Kevin: Cash flow from operations for the first three months of <unk> four.

Kevin: $85 million.

Kevin: First quarter capital expenditures totaled $18 million with the majority of spend related to $11 million of tracker the.

Kevin W. Beth: The remainder is for technology projects and warehouse equipment. We are lowering our full-year outlook for CAFAC and now expect it to be between $45 million and $65 million, as we have no additional container purchases planned and lower tractor replacements than last year. Our balance sheet and financial position remain strong. In the first three months of 2024, we purchased $26 million of stock at a weighted average price just shy of $44 a share.

Kevin: The remainder is technology projects and warehouse equipment.

Kevin: We are lowering our full year outlook for Capex and now expected to be between $45 million and $65 million as we have no additional container purchases plan and lower tractor replacement than last year.

Kevin: Our balance sheet and financial position remained strong in the first three months of 2024, we purchased $26 million of stock at a weighted average price of just shy of $44 a share.

Kevin W. Beth: We also issued our first quarterly dividend of 12.5 cents a share. Through the first quarter, we have returned $33 million to shareholders through dividends and stock repurposing. And we ended the quarter with cash on hand of over $195 million. Net debt is $142 million, which is 0.4 times EBITDA, below our stated net debt to EBITDA range of 0.75 to 1.25 times.

Kevin: Also issued our first quarterly dividend of $12.05 per share.

Kevin: Through the first quarter, we have returned $33 million to shareholders through dividends and stock repurchases.

Kevin: And we ended the quarter with cash on hand of over $195 million.

Kevin: Net debt is $142 million, which is <unk> four times EBITDA below our stated net debt to EBITDA range of <unk> 75 to 125 times.

Kevin W. Beth: We continue to expect EBITDA Left Cap Act for full year 2024 to be greater than the $257 million generated in 2023, demonstrating cash resiliency as we expect cash earnings growth in a challenging freight environment. Additionally, we remain confident in our ability to execute on our capital allocation plan, which includes paying quarterly dividends, stock repurchases, and strategic acquisitions. Next, I will conclude my remarks with a few comments on our 2024 guidance. The macro environment remains challenging.

Kevin: We continue to expect EBITDA less capex for full year 2024 to be greater than the $257 million generated in 2023.

Kevin: Demonstrating hub cash resiliency as we expect cash earnings growth in a challenging freight environment.

Kevin: Additionally, we remain confident in our ability to execute on our capital allocation plan, which includes paying quarterly dividends stock repurchases and strategic acquisitions.

Speaker Change: Next I will conclude my remarks with a few comments on our 2020 for guidance.

Speaker Change: The macro environment remains challenging and while hub performed well in the first quarter, we anticipate a prolonged competitive pricing environment impacting our intermodal and brokerage line of businesses.

Kevin W. Beth: And while Health performed well in the first quarter, we anticipate a prolonged competitive pricing environment impacting our intermodal and brokerage lines of business. We now believe that the market inflection point has shifted further out from our Q4 assumption. We expect full-year EPS in the range of $1.80 to $2.25 a share and revenue of $4.3 to $4.7 billion. For the IPS segment for the full year, we continue to expect intermodal volume growth in the high single digits but prices to be down mid-single digits for the full year due to our updated fuel revenue and market recovery assumption.

Kevin: We now believe that the market inflection point has shifted further out from our Q4 assumption.

Kevin: We expect full year EPS in the range of $1 80 to $2 25, a share and revenue of $4 three to $4 7 billion.

Kevin: And our Ics segment for the full year, we continue to expect intermodal volume growth in the high single digits.

Kevin: But price to be down mid single digits for the full year due to our updated fuel revenue and market recovery assumptions.

Kevin W. Beth: For logistics, we continue to expect low to mid double-digit growth, driven by the addition of the acquired final mile business, which is offsetting their suppressed brokerage revenue. Our managed transportation, consolidation, and fulfillment lines of businesses are expected to show growth driven by new customer wins. There continues to be upside potential in our guidance if retail inventory levels decline, leading to restocking demand and a more typical shipping pattern, including a traditional intermodal peak season and surcharge revenue during the peak season.

Kevin: For logistics, we continue to expect low to mid double digit growth driven by the addition of the acquired final mile business, which is offsetting the suppressed brokerage revenue or.

Kevin: Our managed transportation consolidations fulfillment lines of businesses are expected to show growth driven by new customer wins.

Kevin: There continues to be update depends on our guidance, if retail inventory levels decline, leading to a restocking demand and more typical shipping pattern, including a traditional intermodal peak season and surcharge revenue during the peak season.

Kevin W. Beth: Another market condition that would push results to the high end of the guidance is truck conversion to intermodal, helping to increase intermodal volume growth and increase market share. When there is a tightening of the truckload market with capacity leaving, we are well positioned to capitalize on increasing intermodal and truckload rates. As mentioned at the beginning of the year, we are facing some headwinds on guidance, including higher interest costs, the normalization of incentive compensation, our tax rate being closer to 24%, and minimal gain on sales.

Kevin: Another market conditions that would cause results to the high end of the guidance is truck conversion to intermodal.

Kevin: Nothing to increased intermodal volume growth and increased margin.

Kevin: When there is a tightening of the truckload market with capacity exiting we are well positioned to capitalize and increase in intermodal and truckload rates.

Kevin: As mentioned at the beginning of the year, we are facing some headwinds on guidance, including higher interest costs, the normalization of incentive compensation, our tax rate being closer to 24% and minimal gain on sale.

Kevin W. Beth: This quarter, we updated assumptions to assume that the challenges that we have experienced the last few quarters will continue into the fall. However, we do expect earnings growth in Q2 compared to Q1 due to seasonal improvements, resulting in stronger intermodal volume and continued momentum in the final mile business, helping grow operating income. Generating cash is an important goal of management, and we are pleased with our cash EPS of $0.55 and our free cash flow of $63 million in the first quarter of 2024.

Kevin: This quarter, we updated assumption to assume that the challenges that we have experienced the last few quarter will continue into the fall.

Kevin: We do expect earnings growth in Q2 compared to Q1 due to seasonal improvement resulted in stronger intermodal volume and continued momentum in the final mile business, helping grow operating income.

Kevin: Generating cash is an important goal of management and we are pleased with our cash EPS of <unk> 55.

Kevin: And our free cash flow of $63 million in the first quarter of 2024.

Kevin W. Beth: While forecasting the market recovery has been difficult, I'd like to point out that we expect our 2024 OI to be more than double our performance from the last downturn cycle in 2017, when the company's OI was $67 million for 2.1% of revenue. We believe this trough-to-trough growth is a good example of how Hub is positioning itself for more stable financial performance in the long term. With that, I'll turn it over to the operator to open the line for any questions.

Kevin: While forecasting the market recovery has been difficult I'd like to point out that we expect our 2020 for oi be more than double our performance from the last downturn cycle in 2017, when the company was $67 million or two 1% of revenue we.

Kevin: We believe this trough to trough growth is a good example of how <unk> is positioning itself for more stable financial performance and the long term.

Speaker Change: With that I'll turn it over to the operator to open the lines to any questions.

Speaker Change: Yes.

Operator: Thank you. As a reminder to ask a question, you will need to press star 11 on your telephone. I would also like to remind participants that this call is being recorded and a replay will be available on the Hub Group website for 30 days. Our first question comes from Scott Group of Wolf Research. Please proceed with your question.

Speaker Change: Thank you as a reminder to ask a question you will need to press star one on your telephone.

Speaker Change: I'd also like to remind participants that this call is being recorded and a replay will be available on the hub group website for 30 days.

Speaker Change: Our first question.

Operator: Comes from Scott Group.

Scott H. Group: Wolfe Research. Please proceed with your question.

Phillip D. Yeager: Hey, thanks. Afternoon, guys. So can you just walk us through the monthly year-over-year volume trends and give us any color on April volumes? And then I think you said intermodal price for the year down mid-single digits. Can you just give us what Q1 was?

Scott H. Group: Hey, Thanks afternoon, guys. So can you just walk us through the monthly year over year volume trends and any color on April volumes, and then I think you said intermodal price for the year down mid single digits can you just give us what Q1 was.

Phillip D. Yeager: Sure, yeah, Scott, this is Phil. So on the year over year volumes, January was down 16, March was down six, or February was down six, March was down eight, and then April month to date is up 16. So, you know, good trend that we're seeing there. I think we've outperformed our initial view of what we'd be doing on volume. But, as you mentioned, pricing has been more challenged to get that volume.

Scott H. Group: Sure Yes, Scott this is Phil so on a year over year volumes January was down 16.

Phillip D. Yeager: March was down six for February was down six March was down eight and then April month to date is up 16. So.

Scott H. Group: Good.

Phillip D. Yeager: Trends that we're seeing there I think we've outperformed our.

Scott H. Group: Initial view of what we'd be doing on volume, but as you mentioned pricing has been more challenged to get that volume and so we revised the guidance, where we assumed prior that.

Phillip D. Yeager: And so we revised the guidance where we assumed prior that we would see an inflection in positive pricing in the second half, we're assuming that's going to be more flattish, which leads us to more of a mid single-digit sort of price for the full year but a higher volume guide, which we've adjusted up to high single digits for the full year. Yeah, Scott, this is Brian. Just one thing to add, those those year-over-year numbers, if you look at it month over month, we saw January, as I mentioned, at five, February at nine, March was at five, and then April through yesterday is at 11% over March. So we're seeing good momentum coming into Q2.

Scott H. Group: We would see an inflection in positive pricing in the second half, we're assuming that's going to be more flattish, which leads us to more of a mid single digit sort of price for the full year, but a higher volume guide, which we've adjusted up to high single digits for the full year.

Phillip D. Yeager: Scott. This is Bryan just one thing to add those year over year numbers. If we look at it month over month, we saw January as I mentioned at five February nine March was at five and then April through yesterday is that 11% over March so we're seeing good momentum coming into Q2.

Phillip D. Yeager: And I guess you know, so we've got volume momentum, but we're talking about competitive pricing. In order to get that plus 11 on volume, how much incremental price would we have to give up?

Speaker Change: Alright, I guess.

Brian: So we've got volume momentum, but we're talking about competitive pricing in order to get that plus 11 on volume.

Scott H. Group: How much.

Scott H. Group: Incremental price, if we had to give up.

Phillip D. Yeager: Yeah, I don't think it's material. I think it has been more competitive. We're really focused on managing costs and the velocity that we're able to generate in the network. So it's just not, we're not, it's not really all that different from what we had guided to initially. We're just not thinking that we're going to see a turn in the back half. So it's not really an incremental price. It's just we think it's going to continue to be competitive.

Speaker Change: Yes, I don't think its material I think it has been more competitive we're really focused on managing cost.

Speaker Change: <unk>.

Speaker Change: The velocity that we're able to generate in the network. So.

Speaker Change: It's just not we're not it's not really all that different than what we had guided to initially we're just not thinking that we're going to see a turn in the back half. So its not really incremental price. It just we think it's going to continue to be competitive. If you look at the broader landscape I think capacity just does not exit Dana as quickly as we'd like.

Phillip D. Yeager: You look at the broader landscape, I think capacity just isn't exiting as quickly as we'd like, and we're not seeing a real ramp-up in the spot market, which is continuing to really compress contract rates. And so that's really the driver, we're just kind of revising the back half guidance where it was an increase in price to probably more flattish in those back half bids. Yeah, I'd like to add that this is Kevin.

Speaker Change: Not seeing a.

Speaker Change: A real ramp up in the spot market is continuing to really compress contract rates and so that's really the driver were just kind of revising the back half guidance, where it was an increase in price probably more flattish in the back half bit yes, I'd like to add this is Kevin.

Kevin W. Beth: In our bids, we actually were the prices, we were winning at what we were expecting. And want to point out that last year, at this time, don't forget, you know, I think we felt that we were above market. So you know, we understood going into this bid process that we were going to have to come down because we were already above market to begin with, you know, so the results of the bids, and our pricing strategy, what we're we're in

Kevin: In our bids we actually were the prices we are winning at what we're expecting and want to point out that last year. At this time don't create I think we felt that we were above market. So we understood going into this bid process that we're going to have to come down because we are already above market to begin with because of <unk>.

Kevin: All of the beds and our pricing strategy, where we're at and think.

Phillip D. Yeager: Okay, maybe just to ask it a little differently and before I pass on. So if I just think about it on a sequential basis, throughout the year, are you assuming your price goes higher or lower from here? And then, depending on that, what happens to your rail cost from where we are in Q1.

Speaker Change: Okay, maybe just to ask it a little differently and before I pass that so if I just think about like kind of on a sequential basis.

Kevin: Throughout the year.

Phillip D. Yeager: Assuming your.

Kevin: Rice.

Phillip D. Yeager: Goes higher or lower from here and then dip.

Phillip D. Yeager: Sure, so yeah, we're not assuming rates really go down from here. They're pretty well in line with where we were bidding last year. So that's why, you know, but we don't think they're going to think that the back half bids are going to be going up, right? So it might be slightly down, or it might be flattish, but we don't see an opportunity, at least right now, where we're going to be taking a price. Likely, we will see, and we're not going to go too far into rail costs and contracts, but we will likely see for the full year rail purchase transportation down on a year over year basis.

Kevin: Pending on that what happens to your rail costs.

Kevin: From where we are in Q1.

Kevin: Sure.

Phillip D. Yeager: We arent assuming rates really go down from here they are pretty well in line with where we were building last year.

Kevin: So that's why but we don't think theyre going in the back half that the price is going to be going up right. So.

Kevin: It might be slightly down might be flattish, but we don't see an opportunity at least right now where we're going to be taken up price.

Kevin: Likely we will see and we're not going to go too far into rail costs and contracts, but.

Kevin: We will likely see for the full year rail purchase transportation down on a year over year basis.

Scott H. Group: Thank you, guys. I appreciate the time. I'll get back to you.

Phillip D. Yeager: Okay.

Speaker Change: Thank you guys I appreciate the time I'll get back in queue.

Speaker Change: Thank you.

Operator: Our next question comes from John Chappell of Evercore ISI.

Speaker Change: Our next question.

Jonathan B. Chappell: Comes from Jon Chapelle.

Jonathan B. Chappell: Evercore ISI.

Jonathan B. Chappell: Thank you. Good afternoon, Um, one thing I'm trying to understand about the timing here, if 40% of the bid season was in the first quarter, which was disappointing for everybody in the industry, does that basically lock in 40% of the portfolio at these depressed rates, even if there is a spot market upturn in the back half of the year? Or was there any shorter duration associated with some of the bids that could give you more leverage if and when the spot market were to turn before next year?

Jonathan B. Chappell: Thank you and good afternoon.

Jonathan B. Chappell: One thing I'm trying to understand about the timing here, if 40% of the bid season wasn't first quarter bid season was disappointing for everybody in the industry does that basically lock in 40% of the portfolio at these depressed rates, even if there is a spot market upturn in the back half of the year or was there any shorter duration.

Jonathan B. Chappell: Good with some of the bids that could give you more of the leverage if and when the spot market were determined for next year.

Phillip D. Yeager: Yeah, I don't think we've seen a change to a shorter time frame for commitments on bids. What you typically see is overflow, and additional freight start to come in when the market really turns. And I think what we do is make commitments on that capacity, but then when there's anything above that, we have an opportunity to earn a higher return. And that's what Kevin was referencing about potential for surcharges in the back half if we see typical seasonality. So I would say certainly, you know, we want to honor the commitments that we've made, but there are always opportunities to drive additional yield when you see that tightness.

Jonathan B. Chappell: Yes, I don't think we've seen a change to a shorter timeframe.

Jonathan B. Chappell: Our commitment on bid.

Jonathan B. Chappell: You typically see is overflow and additional freight start to come in when when the market really turns and I think what we do is make commitments on that capacity, but then when there is anything above that we have an opportunity to earn a higher return and thats, what Kevin was referencing on potential for surcharges.

Jonathan B. Chappell: Back half if we see typical seasonality. So I would say certainly we want to honor the commitments that we've made but there's always opportunities to drive additional yield when when do you see that tightness.

Phillip D. Yeager: Okay, thanks, Sal. And a follow-up question may be difficult to answer, but is there any way to kind of gauge the competitive landscape of other intermodal providers versus truck? You're thinking about the way that, you know, if you need excess capacity to come out of the market, it feels like trucks are getting to that pain point, and you may be starting to get some acceleration of truck removals, whereas maybe some of the intermodal over capacity may be a bit stickier. So maybe talk about that in the context of that two-part question.

Speaker Change: Okay. Thanks Bill.

Speaker Change: Follow up maybe difficult to answer but is there any way to kind of gauge the competitive landscape of other intermodal providers versus truck.

Phillip D. Yeager: Thinking about the way of if you need excess capacity to come out of the market feels like trucks getting to that pain point and you may be starting to get some acceleration of truck removals, whereas maybe some of the intermodal overcapacity, maybe a bit stickier.

Phillip D. Yeager: Yeah, sure. So I'll start, and Kevin and Brian can add in later.

Phillip D. Yeager: Talk about that in the context of that two part question.

Speaker Change: Yes, sure. So I'll start and then Kevin and Brian can add in.

Phillip D. Yeager: You know, I've been really pleased with our ability to compete with trucks, in particular in the shorter haul segment. A lot of the growth, and you'll see this trend as we talk about numbers moving forward, that we'll be seeing significant growth in the local east. I think a big part of that is service.

Speaker Change: Really pleased with our ability to compete with truck in particular in the shorter haul segment a lot of the growth and Youll see this trend as we talk about numbers moving forward that will be seen significant growth in the local east I think a big part of that is service. We're seeing really the best rail service that I've seen at least in my tenure at hub, but also we're seeing a.

Phillip D. Yeager: We're seeing really the best rail service that I've seen, at least in my tenure at Hub, but we're also seeing a nice economic benefit for our customers. And so, to me, that typically indicates you're winning share back from over the road. Typically, the longer haul segments are already moving intermodal and could be shifting between providers. So, you know, I'm pleased with that. I think the local east can also drive some really nice velocity and balance, and that'll help us keep driving costs down while improving the turns on our containers.

Speaker Change: Nice economic benefit for our customers and so to me that typically indicates you're winning share back from over the road typically the longer haul segments are already moving intermodal and it could be shifting between providers.

Phillip D. Yeager: I am pleased with that I think the local east also can drive some really nice velocity in balance and that will help us keep driving costs down.

Phillip D. Yeager: So, to me, you know, we're executing well on that portion of the mid-season, and it's a good opportunity as we look ahead. Yeah, I'll just add to that too. In addition, we're finding cross-border conversions from over the road, and Q1 was up 18% over Q4. And we're getting more momentum with our superior service as we go north and southbound with Mexico. Okay.

Phillip D. Yeager: Proving the turns on our containers. So to me, we're executing well on that portion of bid season, and it's a good opportunity as we look ahead, yes, I'll just add to that too. In addition, we're finding cross border conversions from over the road in Q1 was up 18% over Q4, and we're getting more momentum with our superior service as we go north.

Speaker Change: It's outbound with Mexico.

Brian Daniel Alexander: Okay, great. Thanks, Brian. Thanks, Phil.

Speaker Change: Okay, great. Thanks, Brian Thanks Beth.

Speaker Change: Thank you.

Speaker Change: Thank you.

Operator: Our next question comes from Bascom Majors of Susquehanna Financial.

Speaker Change: Our next question.

Bascome Majors: It comes from Bascom majors.

Bascome Majors: Susquehanna Financial group.

Bascome Majors: Following up on the cadence questions from earlier, if we look at the last two years as the markets decelerated, you have had the second half of the year come in lighter than the first half, but if we back that up another 10 plus years, I think that's only happened once before, and I think you said the second quarter would be above the first. That gets you pretty close to halfway to your guide. Any color on the amount of conservatism or just a complete flatness in the back half versus your typical seasonal lift that's keeping the guide where it is, and yeah, I'll leave it at that.

Bascome Majors: Following up on the cadence questions from earlier, if we look the last two years as the markets decelerated you have had the.

Bascome Majors: The second half of the year come in lighter than the first half, but if we back that up another 10 plus years I think that's only happened once before and I think you said the second quarter will be above the first that gets you pretty close to halfway to your guide just any color on the amount of conservatism.

Bascome Majors: Or just a complete flatness in the back half versus your typical seasonal lift thats, keeping the guide where it is and.

Phillip D. Yeager: Yeah, I'll start. This is Phil. I do think, you know, we're certainly trying to be conservative, just given how aggressive the front end of bid season has been. And that's why we assumed there would be kind of very little pricing power in the back half. And that is likely, you know, conservative. But yeah, I think we didn't want to bet on a huge back half recovery at this point, given the surplus capacity that's still out there. So, you know, I think that that's really the conservatism to it.

Speaker Change: Yes, I'll leave it at that.

Bascome Majors: Yeah I'll start this is Phil I do think yes.

Phillip D. Yeager: We're certainly trying to be conservative just given how.

Speaker Change: Aggressive the front ended a bid season has been.

Speaker Change: And that's why we assumed there would be kind of very little pricing power in the back half.

Phillip D. Yeager: Is likely conservative, but I think we didn't want to bet on a huge back half recovery at this point given the surplus capacity thats still out there so.

Speaker Change: I think thats really the conservatism to it but as Kevin mentioned, there is certainly upside as volumes come on we've got some really great awards that were about to start up in the next few weeks.

Kevin W. Beth: And but there's, as Kevin mentioned, certainly an upside. As volumes come in, we've got some really great awards that we're about to start up in the next few weeks. And some great wins in our logistics business that could drive upside as well. So, you know, I think we're just trying to be balanced based on what we know today. Yeah, I would just add to that, Kevin, certainly, as you said, when you look historically, the seasonality comes into play, and we do see ROI increase quarter over quarter throughout the year.

Speaker Change: And some great wins in our logistics business that could drive upside as well so.

Speaker Change: I think we're just trying to be balanced based on what we know today I would just add to that Kevin.

Kevin: Certainly I'd like to say that when you look historically the seasonality comes into play and we do see ROI increase quarter over quarter throughout the year.

Kevin: That is what we're expecting this year just not to the degree as Phil mentioned, it's really hard to predict right now with that peak surcharge availability is going to be but we do see sort of sequential increases each quarter.

Kevin W. Beth: And, you know, that is what we're expecting this year, just not to the degree, you know, as Phil mentioned, it's just really hard to predict right now what peak surcharge availability is going to be, but we do see, you know, sort of sequential increases each quarter.

Speaker Change: And from a higher level, if I could follow up.

Kevin W. Beth: If we look back 30 years intermodal has been a tremendous secular growth story if we.

Speaker Change: When we look at the last seven or eight years, it's performed more like.

Kevin W. Beth: Capacity outlet and with a lot of cyclical volatility tied to truckload pricing and capacity.

Speaker Change: How do you push back on the idea that intermodal has just become less secular and more cyclical.

Phillip D. Yeager: And from a higher level, if I could follow up on the idea that, if we look back 30 years, Intermodal has been a tremendous secular growth story, but in the last seven or eight years, it's performed more like a capacity outlet and with a lot of cyclical volatility, tied to truck load pricing and capacity. You know, How do you push back on the idea that intermodal just has become less secular and more cyclical? And, you know, what do we need to do or how far do we need to get along this cycle to maybe prove that wrong and really sell the idea that this is a business that should really outgrow trucking year after year after year? Thank you. Sure, I'll start. This is Phil again.

Speaker Change: What do we need to do or how far we're going to get along in the cycle to turn.

Phil: Maybe proved that wrong and really sell the idea that this is a business that should really outgrow trucking year after year after year. Thank you.

Speaker Change: Sure I'll start this is Phil again.

Phil: I think a few things that have changed at least recently that I think are going to enable.

Phil: Some of that.

Phil: Strong growth that we've seen historically first as the service resiliency thats being put into play.

Phil: Some pretty significant storms in January that could have been in the past, but given our lean things were run really disrupted overall service and taken some of the momentum out of the conversions that were making but instead, we were able to pop back to some of the strongest service levels I've ever seen extremely quickly I think the other pieces how.

Phillip D. Yeager: The rails look at intermodal now it used to be.

Phil: Inflation plus pricing every year not looking at the broader truckload market that change to focus on long term growth is the growth engine for the rail industry. I think is a huge shift and that's been more recent if you think about it more broadly within the industry I.

Phillip D. Yeager: Sure, I'll start. This is Phil again.

Phillip D. Yeager: You know, I think a few things that have changed, at least recently, that I think are going to enable some of that. It's a great opportunity, not something that has been front and center in purchasing decisions, but it's certainly a driver. And the last piece that I would just reference is nearshoring as a trend and the investments going into Mexico and the implications for cross-border freight growth. I think that's something that was a factor before, but is now a new factor that could drive, especially given some of the congestion issues there, even further outsized growth versus the broader truckload market.

Phil: I think the service levels that we're seeing right now and we did talk about it.

Jonathan B. Chappell: The short haul conversion is a huge opportunity that's been untapped because of the service constraints.

Phillip D. Yeager: And right now we are seeing evidence that that is shifting and that there is a customer preference.

Phillip D. Yeager: Q2 move in intermodal and the commitments alone capacity are there I think you'd think about sustainability and the importance of the supply chain going forward. It's a great opportunity not something that has been front and center in purchasing decisions, but it is certainly a driver and the last piece that I would just reference is with near shoring as they as a trend in the investments go.

Speaker Change: Going into Mexico, and the implications for cross border freight growth I think that's something that.

Speaker Change: Was a factor before but is now a new factor that could drive, especially given some of the congestion issues there even further outsized growth versus the broader truckload market.

Phillip D. Yeager: Yeah, just one piece to add to that, too. I think what we've also been building out within our logistics network is where we can capture freight and convert that into intermodal, whether that was LTL originally or final mile originally, converting that into intermodal has also been a good area of focus. And I'll just add, you know, one final thing. I think as a company, I'm not necessarily answering your question.

Speaker Change: One piece to add to that too I think we've also been building out within our logistics network is where we can capture freight and convert that into intermodal whether that was LPL originally or final mile. Originally converting that into intermodal has also been a good area of growth.

Phillip D. Yeager: And I'll just add one final thing I think as a company.

Speaker Change: Not necessarily answering your question, but as a company and our acquisition strategy and investment in the asset light businesses that we have that's stickier.

Phillip D. Yeager: But as a company, you know, our acquisition strategy and investing in asset-based businesses as we have, you know, that stickier, and that OI has been more steady. And, you know, I think that's really what I was trying to point out in our trough to trough look and, you know, that more than doubling of our OI from 2017.

Phillip D. Yeager: <unk> has been more steady and I think thats really what I was trying to point out in our trough to trough look and.

Phillip D. Yeager: More than doubling of our Oi from 2017.

Speaker Change: Thank you all.

Speaker Change: Great. Thank you.

Speaker Change: Thank you.

Speaker Change: Our next question.

Phillip D. Yeager: Comes from TD Cohen.

Phillip D. Yeager: Your question please CB Cohen.

Speaker Change: Alright, great. Thanks, Elliot Alper on for Jason Seidl.

Speaker Change: Curious if you can speak to the capacity you currently have in your network.

Operator: Our next question comes from T.D.

Phillip D. Yeager: Your peers spoke to 28% excess capacity.

Operator: Cohen. If you have a question, please do be kind. Hi, great. Thanks. This is Elliot Alper. I'm for Jason Seidl.

CB Cohen: It looks to hold onto that despite the market softness I guess, how is how are thinking about that capacity and kind of any additional cost takeout within your network. I know you touched on a couple in your prepared remarks, but any other color would be helpful.

Brian Daniel Alexander: Sure. Yeah, no. What we've been able to do is start to unstack, and we started that in January, in late January, but that continued throughout the first quarter. So we actually reduced our stack by about 15% to support more of the volume. We've also seen our boxes turn faster on the rail.

Speaker Change: Sure, Yes, no what we've been able to do.

Brian Daniel Alexander: To start to Unstack and we started that in January in late January but that continued throughout the first quarter. So we actually reduced our staff by about 15% to support more of the volume. We have also seen our boxes turned faster on the rail so picking up about an 8% improvement in the turn of our boxes, which helps helps improve our COO.

Brian Daniel Alexander: So picking up about an 8% improvement in the turn of our boxes, which helps improve our cost, generates more capacity for our customers. We do, we do see as volumes grow, continuing to unleash more of that capacity to support that. But then you didn't mention our other costs, our cost outs, our focus on our rail cost improvements, what we're doing on the street. We had one of our record levels of driver productivity on the street, and we see that improving as that volume grows, and we get more throughput through that.

Brian Daniel Alexander: <unk> generates more capacity for our customers. We do we do see as volumes grow to continue to unleash more of that capacity to support that but then you did mentioned our other cost our cost outs, our focus on our rail cost improvements what we're doing on the street, we had one of our record levels of our driver productivity on the street and we see that.

Brian Daniel Alexander: Improving is that as that volume grows and we get more throughput through that and then we also mentioned our chassis program right.

Brian Daniel Alexander: And then we also mentioned our chassis program, right, that ramped throughout Q1. So it wasn't in full effect throughout Q1, kind of finished out in mid-March, but we'll get the full effects of that in Q2 and throughout the rest of the year. And just to add one thing, you know, that not having or having that capacity available, we're not going to be purchasing additional containers, and that's adding to our free cash flow.

Brian Daniel Alexander: Ramps throughout Q1, so it wasn't in full effect throughout Q1 kind of finished out in mid March, but we will get full effects of that in Q2 and throughout the rest of the year.

Brian Daniel Alexander: And just to add one thing not having or having that capacity available now we're not going to be purchasing additional containers and that's adding to our free cash flow.

Phillip D. Yeager: I just add, I think on the street, we've done a much better job; our cost per drive is down 15% year over year, and that was mostly driven by productivity enhancements; our loads per driver per day were up over 20%. So we're doing a great job, but a part of that is also attributable to just increased density. And that's why when we talk about the benefits of volume, driving better velocity and balance, that economy is a big part of it as well. Got it. Thanks. And then, maybe just to follow up.

Speaker Change: I would just add I think on the street, we've done a much better job of our cost per drive it down 15% year over year and that was mostly driven by productivity enhancements our loads per driver per day were up over 20%. So.

Phillip D. Yeager: We're doing a great job, but a part of that is also attributable to just increased density and thats why when we talk about the benefits of volume driving better velocity imbalanced that Kevin that's great economics is a big part of it as well.

Phillip D. Yeager: Got it thanks, and then maybe just a follow up.

Phillip D. Yeager: Curious to hear your thoughts on the first few months of the Ford Air final mile acquisition. Sure, yeah, no, we're off to a great start. We're ahead of schedule with our synergies, and a big part of that is our cross-sell. So we have new customer wins that we're bringing on board, as well as organic growth with some of our existing customers. And then we're leveraging the models that we have within our final mile to really take the best of and drive cost improvement as we go. I am so very pleased with it.

Phillip D. Yeager: Curious to hear your thoughts on that first few months of the Florida.

Phillip D. Yeager: No Michael acquisition.

Phillip D. Yeager: Sure Yeah, no we're off to a great start we're ahead of schedule with our synergies and.

Phillip D. Yeager: A big part of that is our cross sell so we have new customer wins that we're bringing onboard as well as organic growth with some of our existing customers and then we're leveraging the models that we have within our final mile to really take the best of and drive cost improvement as we go and execute so very pleased with it the team has been great and there is more.

Phillip D. Yeager: The team's been great, and there's more of that to come. As I said, I think culturally, it's been a great alignment. And both of our organizations focus on service, and the great reputation that we have together, I think is enabling a lot of that cross-selling. So it's been great, great, right off the bat.

Speaker Change: Yes, just to add I think culturally it's been a great alignment.

Phillip D. Yeager: Both of our organization focused on service.

Phillip D. Yeager: And the great reputation that we have together I think its enabling a lot of that crop types have been great great right off the bat.

Speaker Change: Great. Thanks, Paul.

Speaker Change: Thank you.

Operator: Our next question comes from Brian Ossenbeck of J.P. Morgan.

Speaker Change: Our next question.

Brian Patrick Ossenbeck: It comes from Brian asked him back up.

Brian Patrick Ossenbeck: Hey, afternoon. Thanks for taking the question. So maybe just coming back to Intermodal specifically, can you talk about just how the progression of margins we should expect throughout the year? Because typically, when you have pricing down mid-seminal digits, That's going to be a lot more impactful than volume up high single digits. So does this kind of stay where it is now in terms of margin wise for the segment and then improve from here as you get some of those things that Brian was mentioning in terms of the chassis and the density, or is there something else I'm missing here? Because again, it usually feels like breaking down that much is going to make it hard to improve margin. Yeah, Brian, you're definitely correct. You know, price is definitely

Brian Patrick Ossenbeck: P market.

Speaker Change: Hey, good afternoon, thanks for taking the question.

Brian Patrick Ossenbeck: So maybe just coming back to intermodal specifically can you talk about.

Brian Patrick Ossenbeck: Just how the progression of margins, we should expect throughout the year because typically when you have pricing down mid single digits.

Brian Patrick Ossenbeck: That's going to be a lot more impactful.

Brian Patrick Ossenbeck: Then volume up high single digits. So does this kind of stay where it is now margin wise for the segment and then improve from here as you get some of those things that Brian was mentioning in terms of.

Brian Patrick Ossenbeck: The chassis and the density.

Brian Patrick Ossenbeck: Or is there something else I'm missing here because again it usually it feels like pricing down that much is going to make it hard to improve margins.

Speaker Change: Yes, Brian.

Kevin W. Beth: The price definitely moves the needle much quicker than buying does, but we do believe that some of the costs are still in the middle innings of cost takeouts.

Brian: You're definitely correct price definitely move the needle much quicker than volume does we do believe that some of the costs are still in middle innings of the cost takeout.

Kevin W. Beth: We'll also be seeing that the rail contracts are also more often changing as we move along during the quarter. So at the end of the day, we do think it should be stable and maybe fluctuate a couple points one way or the other throughout the year. Yeah, I think a lot of it depends on realization rates, as well. And, you know, do we see kind of a typical seasonality there? As Kevin mentioned, there's just one upside.

Speaker Change: We will also be seen that the rail contracts are also.

Kevin W. Beth: More often changing.

Kevin W. Beth: As we move along during the quarter. So at the end of the day, we do think it should be stable and maybe fluctuate a couple of points one way or the other throughout the year yes.

Kevin W. Beth: Yes, I think a lot of it depends on realization rates as well and do we see kind of a typical seasonality there as Kevin mentioned, there's just upside if we see more typical seasonality would be three years in a row now without a real peak, which I think would be odd.

Kevin W. Beth: If we see more typical seasonality, it would be three years in a row now without a real peak, which I think would be odd. You know, there's certainly some factors that are out there that could drive some increased West Coast imports. And, you know, we're watching that closely and aligning with our customers around what peak might look like. But certainly, that's, that's upside potential. But as Kevin also mentioned, you know, we are anticipating operating margin dollar improvement quarter to quarter through this.

Kevin W. Beth: There are certainly some factors that are out there that could drive some increased west coast imports.

Kevin W. Beth: And we're watching that closely and aligning with our customers around what peak.

Kevin W. Beth: It might look like but certainly thats, that's upside potential but as Kevin also mentioned, we are anticipating operating margin dollar improvement quarter to quarter through the year.

Kevin W. Beth: <unk>.

Phillip D. Yeager: Okay, thanks for clarifying that. So, the other question I had was just on the local east conversions, and you're seeing what sounds like some pretty good truckload conversion. What are the sort of spreads that you're seeing there? Because from what we're tracking, it's still pretty competitive, which obviously you're seeing in the market as well. But I wouldn't have expected to hear, you know, that much success, considering just how competitive that market, especially in the short haul. So, what are you seeing there? And how are you getting those deals? Yeah, we're seeing intermodal.

Speaker Change: Okay. Thanks for clarifying that so and the other question I had was just on the.

Phillip D. Yeager: Local east conversions and Youre seeing it sounds like some pretty good.

Phillip D. Yeager: Truckload conversion what are what are sort of the spreads that you're seeing there because what we're tracking is still pretty competitive.

Phillip D. Yeager: Obviously, youre seeing in the market as well, but I wouldn't have expected to hear that much success, considering just how competitive that market is especially as.

Phillip D. Yeager: It is in the short haul so what are you seeing there and how you're getting those deals done.

Brian Daniel Alexander: Yeah, we're seeing intermodal spread to contract truckload in the high 20 percent, but some of the spot pricing compresses that into the single-digit level.

Brian Daniel Alexander: Yes, we are seeing intermodal spread to contract truckload in the high 20 percents.

Brian Daniel Alexander: Some of the spot pricing compresses that into the single digit level.

Brian Daniel Alexander: But that's still where we're able to compete. And in those shorter lengths of haul, we're still able to compete against trucks within those ranges. So I think it's, again, a focus on our cost. And to your earlier question, too, just to add to that as well, we intend to stay balanced, right? So the big effort within our bid season is to maintain balance within our network. And as we see things grow and shift throughout the year, we'll be disciplined in our approach to maintain those balances.

Brian Daniel Alexander: But that's still where we're able to compete and then those shorter lengths of haul we're still able to compete against truck.

Brian Daniel Alexander: Within those ranges. So I think it's again a focus on our cost and to your earlier question too just to add to that as well we intend to stay balanced right. There was a big effort within our bid season is to maintain balance within our network and as we see things grow and shift throughout the year, we'll be disciplined in our approach to maintain those balances.

Brian Daniel Alexander: And I think, you know, Dad, I think we're providing a truck-like service, which, and it's been highly consistent. And, you know, I've referenced this a couple of times, but it's about the service levels I've seen in my tenure at hub. And so I think that's a huge factor in building customer confidence. So, yeah, we think that will progress and throughout the year, and you'll see, as we mentioned, with April being up 16%, a large portion of that will be locally flown.

Brian Daniel Alexander: I think that I think we're providing.

Brian Daniel Alexander: Truck like service, which and it's been highly consistent.

Brian Daniel Alexander: A couple of times, but it's about service level of vaccine in my tenure at hub.

Brian Daniel Alexander: I think that's a huge factor in building customer confidence. So yes, when you think that will progress.

Brian Daniel Alexander: Throughout the year and you'll see as we mentioned with April being up 16%, a large portion of that will be locally volume.

Phillip D. Yeager: Okay, thanks very much.

Brian Daniel Alexander: Okay.

Speaker Change: Okay. Thanks very much.

Operator: Our next question comes from Justin Long of Stevens.

Speaker Change: Thank you.

Speaker Change: Our next question.

Operator: It comes from Justin long of Stephens.

Justin Trennon Long: Thanks. This is Justin Long from Stevens. Sorry if I missed it earlier, but did you give the intermodal yield number for the first quarter? And then also on ITS margins? I know you did.

Justin Trennon Long: Thanks. This is Justin long from Stephens, sorry, if I missed it earlier, but did you give the intermodal yield number for the first quarter and then also on <unk> margins. I know you mentioned there was a claim settlement I was curious if you could quantify the impact from that.

Kevin W. Beth: margins. I know you mentioned there was a claim settlement, but I was curious if you could quantify the impact of that. Yeah, Justin. This is Kevin.

Kevin W. Beth: Yeah, so I'm OI for IPS was 2.4%. And, no, we're not going to give the actual numbers on any claims settlements. But, you know, a couple of basis points between the three factors that I noted on the OI percentage, and the three factors, again, were the January storm. We had startup costs in the dedicated, as we were growing in the Pacific Northwest, and we had that claim as well. So it crossed the board that, you know, they're all a couple of basis points back to where we were on OI adjusted for Q4.

Kevin W. Beth: Yes.

Kevin: Kevin Yes so.

Kevin W. Beth: Oh for Ips of two 4%.

Kevin W. Beth: And.

Kevin W. Beth: No, we're not going to give the actual numbers.

Kevin W. Beth: On any claims settlements but.

Kevin W. Beth: <unk>.

Kevin W. Beth: A couple of basis points between the three factors that I noted on the Oi percentage and the three factors again, where the January storm, we had startup costs and the dedicated.

Kevin W. Beth: We're growing in.

Kevin W. Beth: The Pacific Northwest and we had that claim as well so across the board.

Kevin W. Beth: A couple of.

Kevin W. Beth: <unk> brings a couple of basis points back to where we were on Oi adjusted for Q4.

Kevin W. Beth: And rounding out the question, yeah, I think revenue per load was down 15%. In intermodal, I think two things Kevin referenced in his prepared remarks were fuel and accessorials. The other thing I would just highlight is that the mixed impact from local east really outperforms in those longer haul segments, certainly with the revenue per load headwind. Okay, got it. So that intermodal yield number you said was down 15%?

Kevin W. Beth: Wrapping up the question you had I think revenue per load was down 15%.

Kevin W. Beth: Intermodal I think two things Kevin referenced in his prepared remarks, where fuel and <unk>. The other thing I would just highlight is.

Kevin W. Beth: That mix impact from local east really outperforming those longer haul segment, certainly with the revenue per load.

Kevin W. Beth: And in the quarter.

Speaker Change: Okay got it so that intermodal yield number you said was down 15%.

Phillip D. Yeager: Okay, thanks. And, I guess, shifting to the logistics segment, you talked about the growth you're expecting this year.

Kevin W. Beth: Correct.

Speaker Change: Okay. Thanks.

Phillip D. Yeager: And I guess shifting to the logistics segment.

Phillip D. Yeager: You talked about the growth you're expecting this year could you talk about the growth youre expecting from an organic standpoint, if you were to strip out the final mile acquisition and any updated thoughts on what your view is that normalized margin for that segment pro forma for that deal.

Brian Daniel Alexander: Here. Could you talk about the growth you're expecting from an organic standpoint, if you were to strip out the final mile acquisition, and any updated dots on what you view as a normalized margin for that segment pro forma for that deal? Yeah, I'll touch on the growth. Justin, this is Brian, and I'm really pleased with what we have set up within our logistics network as we've built it out. I think within our brokerage, we continue to be a standout, as I've mentioned, with five sequential volume growth quarters in a row. And we don't intend to break that streak by any means.

Brian Daniel Alexander: Yes, I'll touch on the on the growth just and this is Brian.

Brian Daniel Alexander: We're really pleased with what we have set up within our within our logistics network as we built it out I think within our brokerage we continue to be a standout as I've mentioned with five sequential volume growth quarters in a row and we we don't intend to break that streak by any means but what they're really good at doing is adding new logos and then progressing that down.

Kevin W. Beth: But what they're really good at doing is adding new logos and then progressing that down a cycle of cross-selling to where we can organically offer more services to those customers. So we see that continuing. We win that volume based on leveraging our price, having a diversified service offering within our brokerage, and then being able to, as I mentioned, cross-sell those into other offerings. You know, I think as we do that, we do see our yields improve, and the pricing becomes less of a topic, the more we, the more we cross sell, and the business becomes stickier.

Kevin W. Beth: Cycle of cross selling to where we can organically offer more services to those customers. So we see that continuing we win that volume based on leveraging our price having a diversified service offering within our brokerage and then being able to as I mentioned cross sell those into other offerings.

Kevin W. Beth: I think as we do that we do see our yields improve and the pricing becomes less of a topic. The more we the more we cross sell and in the business becomes stickier. So we do anticipate that continued growth and I'll, let Kevin maybe mentioned speak to the margins and the margins. Unfortunately, right now the brokerage margin.

Kevin W. Beth: So we do anticipate that that continued growth, and I'll let Kevin maybe mention speak to the margins. Yeah, so on the margins, you know, unfortunately, right now, the brokerage margin is really dragging down the logistics segment, you know, that the truckload and the spot market are much lower than our overall margins. So you know, I think we're really probably at the trough as far as that goes.

Kevin W. Beth: Is it really dragging down the logistics segment.

Kevin: Truckload and the spot market are.

Kevin: Much lower than our overall margin.

Kevin: I think we're really probably at the trough as far as that goes and I think there's only upside as the truck Chuck.

Phillip D. Yeager: And you know, I think we're only on the upside as the truck, truckload, both contract and spot market inflects upward. I would just round it out with I think, you know, the brokerage revenue per load is the big headwind. If you think about the logistics business organically, X, X, the final mile acquisition, if you look at the other businesses, they're actually performing quite well. And we've got, as Brian mentioned, some new warehouses that we're bringing on that we think are going to drive some nice top-line organic growth.

Phillip D. Yeager: Truckload, both contract and spot market would inflect upwards.

Phillip D. Yeager: Rounded out with I think the brokerage revenue per load is the big headwind. If you thought about the logistics business organically ex X. The final mile acquisition. If you look at the other businesses are actually performing quite well and we've got as Brian mentioned, some new warehouses that were bringing on that we think are going to drive some nice top line organic growth.

Phillip D. Yeager: And I think our team's doing a great job, in particular, selling the LTL solutions and in our cross docking network continues to go well. So a lot of really good things are happening there. I think, you know, brokerage, I would tie it more to, you know, we're dealing with market conditions, and a lot of our growth is in LTL, which is a lower revenue per load. But if you look at those more contractual services, those are growing quite nicely on the. Okay, that's helpful. Thanks for your time.

Phillip D. Yeager: And I think our team's done a great job in particular, selling the <unk> solutions and our cross docking network continues to expand as well. So a lot of really good things happening there I think brokerage I would tie more to <unk>.

Phillip D. Yeager: Dealing with market conditions, and a lot of our growth as an LTI, which the lower revenue per load, but if you look at those more contractual services those are growing quite nicely on the top line.

Phillip D. Yeager: Okay. That's helpful. Thanks for the time.

Phillip D. Yeager: Okay.

Operator: Our next question comes from the line of Thomas Wadewitz of UBS.

Speaker Change: Thank you.

Speaker Change: Our next question.

Thomas Richard Wadewitz: It comes from the line of Thomas <unk> of UBS.

Thomas Richard Wadewitz: Yeah, good afternoon. Wanted to ask a little bit about the I think you were just talking about brokerage and obviously pressure on revenue per load. What's the mix you have in terms of contract and spot? I don't know if you mentioned that, and I missed it. But are you, you know, heavy towards spot, or is it 50 50 50 where we're at right now in terms of contracting, spot, and brokerage?

Speaker Change: Hi, yes, good afternoon.

Thomas Richard Wadewitz: Wanted to ask a little bit about the I think you were just talking about.

Thomas Richard Wadewitz: Brokerage and obviously pressure on revenue per load, what's the mix you have in terms of contract and spot I don't know if you mentioned that and I missed it but where are you.

Thomas Richard Wadewitz: Heavy toward spot or is it 50, 50, 50, where yes.

Thomas Richard Wadewitz: Now on contract and spot in brokerage.

Brian Daniel Alexander: Yeah, Tom, this is Brian. It stayed pretty consistent. We're right about 50-50, 48-52, and I think that helps us position ourselves, right? We're able to leverage our contracted capacity and freight with carriers to be able to then position that for improved spot prices that we can go to market with and continue to win that volume. We think that'll kind of continue to stay, and we saw some early signs in Q1 of January spot pricing inflection. It did fade kind of throughout the quarter, but as that picks back up, we'll look to maintain some of that balance in our budget.

Thomas Richard Wadewitz: Yes, Tom This is Brian it stayed pretty consistent we're right about 50, 50, $48 52, and I think that helps us position, we are able to leverage our contracted capacity and freight with carriers to be able to end position that foreign crude spot pricing that we can go to market with and continue to win that volume.

Brian Daniel Alexander: We think that will kind of continue to stay and we saw some early signs in Q1 of January spot pricing inflection. It did feed kind of throughout the quarter, but as that picks back up we will look to maintain some of that debt balance and our brokerage.

Thomas Richard Wadewitz: Okay, yeah, great. Thanks, Brian.

Speaker Change: Okay, Yeah, great. Thanks, Brian and then.

Phillip D. Yeager: And then I think there's, you're getting growth coming in pretty significantly and intermodal. What do you think the dynamic is of the ocean carriers? Because I think, you know, while you're doing well, maybe some of the other domestic players aren't doing as well.

Thomas Richard Wadewitz: I think there is I mean.

Phillip D. Yeager: You're getting growth coming in pretty significantly in intermodal.

Phillip D. Yeager: What do you think the Impac.

Phillip D. Yeager: The impact is of the ocean carriers, because they think.

Phillip D. Yeager: While you're doing well, maybe some of the other domestic players aren't doing as well and if you look at the way the railroads are commenting you're seeing stronger growth in international intermodal than in domestic do you think that I don't know if its like excess boxes in international and they're happy to see the boxes go to Chicago versus the approach two years ago or.

Phillip D. Yeager: And if you look at the way the railroads are commenting, they're seeing stronger growth in international intermodal than in domestic. Do you think that, I don't know if it's like, you know, excess boxes in international and they're happy to see the boxes go to Chicago versus the approach two years ago, or what it is, but do you think that there is competition from international and, you know, capacity available in international, or is it more so, you know, where people want to keep the inventory, and there's inventory in the Inland Empire, just trying Thanks, sir.

Phillip D. Yeager: It is do you think that the U.

Phillip D. Yeager: You see competition.

Phillip D. Yeager: From international and capacity available available in international or is it more so.

Phillip D. Yeager: Where people want to keep the inventory and there is inventory in the inland Empire I, just trying to figure out the different pieces.

Phillip D. Yeager: Setting aside competition within within domestic thanks, Eric Yes.

Phillip D. Yeager: Yeah, no, I think it's a great question. Yeah, it's certainly a competitive set right now. You typically see your point, you know, if things are busy in cross-border trade, they want to pull that capacity back. But given, you know, how slow things are right now, I think they're, they're very happy to see those boxes go inland and be taking in some revenue. And so, you know, I think our customers are, if it's West Coast oriented, the economics still point to utilizing transloading most of the time, although, you know, if pricing continues to drop, they might just use those boxes going inland, but the utility of getting an extra crate you could fit into a big box is obviously impactful.

Phillip D. Yeager: I think it's a great question.

Phillip D. Yeager: Really a competitive set right now.

Phillip D. Yeager: Typically see your point.

Phillip D. Yeager: Yes.

Phillip D. Yeager: If things are busy in cross border trade they want to pull that capacity back, but given how slow things are right now I think they're very happy to see those boxes go in London and be taking on some revenue and so.

Phillip D. Yeager: I think our customers are if its west coast oriented the economics still point to.

Phillip D. Yeager: Utilizing trans loading and most of the time, although it.

Phillip D. Yeager: <unk> continues to drop they might just use those boxes going and learned about the utility you got an extra credit you can fit into a big box, obviously impactful, we see less trans loading on the east coast more ICI competition, there I would tell you.

Phillip D. Yeager: We see less transloading on the East Coast, more ITI competition there, I would tell you. But yeah, certainly something we're seeing right now, and, long term, and the commitment to capacity that we have, we typically find that's used more temporarily by our customers when rates are very low. And then, as things pop back, and you see the steamship lines start to want that capacity back, they'll flip that back to us very quickly.

Phillip D. Yeager: But yes, it's certainly something we're seeing right now and.

Phillip D. Yeager: But long term.

Phillip D. Yeager: And the commitment to capacity that we have we typically find that's used more temporarily by our customers when rates are very low and then.

Phillip D. Yeager: As things pop back and you see the steamship lines start to want that capacity back.

Phillip D. Yeager: They will flip that back to us very quickly.

Phillip D. Yeager: Do you think there is some negative effect of maybe the international player behavior at the moment? What about the Red Sea disruption impact? Does that help you at all in terms of pushing a little more to the West Coast, or not necessarily? No, it certainly does. Yeah, I think, you know,

Phillip D. Yeager: Do you think there is some some negative effect that maybe the international player behavior.

Phillip D. Yeager: At the moment, what about Red Sea disruption impact does that help you at all in terms of pushing a little more to the west coast or not necessarily.

Phillip D. Yeager: No. It certainly does I think.

Phillip D. Yeager: I think, you know, the potential East Coast labor disruptions are going to be another driver of volume. And, yes, I would say, though, that right now, it's certainly a piece of competition that we're dealing with with IPI.

Phillip D. Yeager: Potential each court east coast labor disruption, there's going to be another driver of volume.

Phillip D. Yeager: And yes, I would I would say that right now it certainly.

Phillip D. Yeager: A piece of competition that we're dealing with with Ipi.

Thomas Richard Wadewitz: Right. Okay. Great. Thanks, Phil. I appreciate it. Thank you.

Thomas Richard Wadewitz: Right.

Thomas Richard Wadewitz: Okay, great. Thanks, Phil I appreciate it thank.

Operator: Our next question comes from Bruce Chen of Stifel.

Speaker Change: Thank you.

Speaker Change: Thank you.

Unknown Executive: Our next question.

Unknown Executive: Comes from Bruce Chan of Stifel.

Unknown Executive: Thanks, operator, and afternoon, everybody. Just to follow up on the commentary on Final Mile, wondering if it's possible to parse out what the organic growth might have looked like in that business? You know, maybe how far you're into that cross-sell push that you talked about.

Unknown Executive: Thanks, Operator and afternoon, everybody just a follow up here on the commentary on final mile.

Unknown Executive: Wondering if it's possible to parse out what the organic growth might have looked like in that business.

Unknown Executive: And maybe how far you're into that cross sell push that you talked about it as an opportunity.

Phillip D. Yeager: So just to clarify, you're asking about their revenue, how much was the organic growth of the acquisition? Yeah, I think I'll take a shot at this.

Speaker Change: So just if I'm understanding you are asking up their revenue how much was organic growth.

Speaker Change: The acquisition yes.

Phillip D. Yeager: I think the organic growth on our existing business would have been mid-high single digits on a year over year basis. And we've seen some spring surge, which has been great, obviously, with the addition of the acquisition that's been much higher and very large incremental growth. When we think about CrossSell, you know, we are ahead of schedule, we have some overlapping customers that we're getting deeper into, and then we were able to open some doors with new clients where we did not have an appliance offering before.

Speaker Change: I'll take a shot at this I think the organic growth on our existing business would've been mid to high single digits on a year over year basis.

Phillip D. Yeager: We've seen some spring surge, which has then been great. Obviously with the addition of the acquisition.

Phillip D. Yeager: It's been much higher in various large incremental growth when we think about cross sell we are ahead of schedule and we had some overlapping customers that were getting deeper with.

Phillip D. Yeager: And then we were able to open some doors with new clients, where we did not have an appliance operating before some of those wins have already started others I would say in the vast majority are still kind of in that contract phase and we're in a startup process right now so that we will start to really see the benefits the cross.

Phillip D. Yeager: Some of those wins have already started. Others, I would say, and the vast majority are still kind of in that contract phase, and we're in a startup process right now. So we'll start to really see the benefits of CrossSell, I think, as the year progresses and we get into kind of the Q3, Q4 time frame.

Phillip D. Yeager: So I think as the year progresses, and we get into kind of Q3 Q4 timeframe.

Unknown Executive: Okay, perfect. Yeah, that was exactly what I was looking for.

Speaker Change: Okay perfect, Yes that was exactly what I was looking for and then just maybe a little bit more broadly I know diversification of our model has been.

Phillip D. Yeager: And then just, you know, maybe a little bit more broadly, I know diversification of the model has been, you know, a real focus for you recently, and I know that we're still somewhat fresh from the final mile. But, you know, when you think about additional M&A, you know, are you back in the market at this point? And if so, are there any areas that you've identified as, you know, focuses, maybe on the intermodal dray side of, you know, properties becoming available there, and maybe more on the retail consolidation front, any color that Yeah, I think if you look at our pre-cash flow generation and balance

Phillip D. Yeager: We'll focus for you recently and I know that we're still somewhat fresh from final mile but.

Phillip D. Yeager: When you think about additional M&A are you back in the market at this point and if so are there any areas that you've identified as focuses mainly on the intermodal dray side of properties become available there.

Phillip D. Yeager: More on the retail consolidation front any any color there would be great.

Phillip D. Yeager: Yes, I think if you look at our free cash flow generation and balance sheet and.

Phillip D. Yeager: Yeah, I think if you look at our pre-cash flow generation and balance sheet, and we've gotten quite good integrations at this point, or at least we feel we have, and so, you know, I think we are back in the market, we're certainly looking and are active, you know, there's, we're always going to be opportunistic when it comes to intermodal, that's a core part of our business, and anything we can find to drive strategic growth there, we would be very interested in, but the focus continues to be on really building out that non-asset logistics platform, we feel as though we have the right services, but it's now about adding specializations or scale to those, and I think that will continue to be the focus for us, so certainly, you know, you mentioned retail consolidation, final mile, I think intermodal obviously is very interesting, you look at brokerage, I think, you know, we're kind of at a bottom here in the market, which could be very interesting for us, so a lot of, we're, we're, we have targets that we are really focused on, but, you know, really have a great pipeline, and I'm pretty pleased with how our team's doing in identifying new opportunities and vetting them very quickly.

Phillip D. Yeager: <unk> gotten quite good integrations at this point or at least we feel we have and so.

Phillip D. Yeager: Yes, I think we are back in the market and we're certainly looking in our active.

Phillip D. Yeager: We're always going to be opportunistic when it comes to intermodal.

Phillip D. Yeager: Core part of our business and anything we can find to drive strategic growth. There, we would be very interested in but.

Phillip D. Yeager: <unk>.

Phillip D. Yeager: Continues to be on really building out that non asset logistics platform, we feel as though we have the right services.

Phillip D. Yeager: But it's now about adding specializations or scale to those and I think that will continue to be the focus for us. So certainly you mentioned retail consolidation final mile I think intermodal obviously, it's very interesting you look at brokerage I think we're kind of at a bottom here in the market, which could be there.

Phillip D. Yeager: Very interesting for us so a lot of.

Phillip D. Yeager: We're.

Phillip D. Yeager: We have targets that we are really focused on but.

Phillip D. Yeager: Really have a great pipeline and I'm pretty pleased with how our team is doing and identifying new opportunities and embedding them very quickly.

Speaker Change: That's great. Thank you.

Speaker Change: Thank you.

Operator: Our next question comes from Ravi Shanker of Morgan Stanley.

Speaker Change: Our next question.

Operator: Comes from Ravi Shanker Morgan Stanley.

Christyne McGarvey: Hey, great. This is Christyne McGarvey. I'm on behalf of Ravi Shanker.

Christyne McGarvey: Hey, Greg This is Christine <unk> on for Ravi Shanker, Thanks for taking the question.

Phillip D. Yeager: Thanks for taking the question. I want to touch on your comment earlier in the call about the kind of trough-to-trough earnings being double. Maybe just taking a step back, I think there's been a lot of changes at the company, and the cycles have been so volatile in the last couple of years that it gets a bit difficult to triangulate to kind of normalize earnings power. So maybe you can just talk to us a little bit about what you guys think about the normalized earnings power of the company as it stands today.

Phillip D. Yeager: I wanted to John your comment earlier on the call about kind of trough to trough earnings being double.

Phillip D. Yeager: Maybe just taking a step back I think the there's not a lot of changes at the company and the cycles have been so volatile in the last couple of years that it gets a bit difficult to triangulate to kind of normalized earnings power. So maybe just talk to us a little bit how you guys think about.

Phillip D. Yeager: Normalized earnings power of the company.

Phillip D. Yeager: Well, sure, I think, and I totally agree with you. I think COVID, obviously, the pandemic there led to some supply chain disruptions that I think would, you know, really lead to some over-earning, right? And I think that's okay to say. I mean, you look at how our boxes were being used basically for storage, and there wasn't enough warehousing space. I mean, that was, you know, I think an anomaly.

Phillip D. Yeager: Today.

Phillip D. Yeager: Well sure I think and I totally agree with you I think the Covid obviously.

Phillip D. Yeager: <unk> led to some supply chain disruptions, but I think.

Phillip D. Yeager: <unk>.

Phillip D. Yeager: Really lead to some over earning right and I think thats, Okay to say I mean, you look at how our boxes were being used basically for storage and there wasn't enough warehousing space.

Speaker Change: That was.

Phillip D. Yeager: But at the same time, I think it has led to what is now a prolonged down cycle, and so we feel as though the highs were higher and the lows are lower. So there is a normalized earnings that is likely in the middle and higher than where we are today. If you think about mid-cycle margins, you know, we think our ITS margins could get back into that, you know, mid to high single-digit level in a normalized sort of market.

Phillip D. Yeager: I think an anomaly, but at the same time I think it has led to what is now a prolonged.

Phillip D. Yeager: Down cycle and so we feel the highs were higher than the lows are lower so there is.

Phillip D. Yeager: Normalized earnings.

Phillip D. Yeager: That is likely in the middle and higher than where we are today. If you think about mid cycle margin.

Phillip D. Yeager: We think our Ics margins could get back into that.

Phillip D. Yeager: Mid to high single digit level in a normalized sort of market and then our logistics margins will stay in this kind of mid to higher single digit margin level. So.

Phillip D. Yeager: And then our logistics margins will stay in this kind of mid to higher single-digit margin level. So while revenue is increasing, and so I think the other piece that we've tried to highlight, though, is just the cash earnings power of the business. And that puts us in a position to make some strategic investments, but also, as we've highlighted, return more capital to shareholders.

Phillip D. Yeager: While revenue is increasing and so I think the other piece that we've tried to highlight though is just the cash earnings power of the business.

Phillip D. Yeager: And that puts us in a position to make some strategic investments but also.

Phillip D. Yeager: As we've highlighted returned more capital to shareholders.

Phillip D. Yeager: capacity has been able to hold on here. So just would be curious, you know, what you guys are seeing there, a little bit more color, you know, some data actually suggesting net additions right now, which seems hard to believe. So would just be curious, you know, what you guys are seeing on that, and what you think kind of finally pushes some of that capacity out of the market.

Speaker Change: Great. Thanks, that's really helpful. Thank you.

Phillip D. Yeager: If I could just squeeze in one more near term you called out also at the beginning of the call. The capacity I think that's probably been one of the bigger surprises of this cycle just how long.

Phillip D. Yeager: He has been able to to hold on here so.

Phillip D. Yeager: Just would be curious what you guys are seeing there a little bit more color.

Phillip D. Yeager: Some data actually suggesting net additions right now which seems hard.

Phillip D. Yeager: <unk> believes that it would just be curious what you guys are seeing.

Phillip D. Yeager: On that and what you think kind of finally pushes some of that capacity out of the market.

Phillip D. Yeager: Yes, we are seeing capacity exit.

Phillip D. Yeager: Yeah, we are seeing capacity exits, at least in what we're looking at, but not at a rate that we would have anticipated at this point in time, which is, I think, a big part of why we said, you know, we just don't think that the opportunity to raise prices is going to be there really in the back half of the year, as we had originally hoped. So, you know, I think that we will see more capacity exits.

Phillip D. Yeager: And what we're looking at I think not at a rate that we would have.

Phillip D. Yeager: Anticipated at this point in time, which is I think a big part of why we said, we just don't think that the opportunity to raise price is going to be there really in the back half of the year as we had originally hoped.

Phillip D. Yeager: I think that we will see more capacity exits I think in the intermodal space. We're remaining disciplined on redeploying that capacity I don't think anybody's chasing that I think it's more about are you going to get the right business at the right return.

Phillip D. Yeager: So I think.

Phillip D. Yeager: For US we were also really only investing in our tractor fleet right now is to make sure. We maintain the age of our fleet and any driver additions are really around making sure we maintain share of our drayage percentages, we drive growth so.

Phillip D. Yeager: I think, you know, in the intermodal space, we're remaining disciplined on redeploying stacked capacity. I don't think anybody's chasing that. I think it's more about, are you going to get the right business at the right return? Great, appreciate the thoughts.

Phillip D. Yeager: I don't anticipate you're going to see a whole lot of capacity entering the market at this point in time, and you will likely see capex constrained from large carriers like us for the next couple of years, just because of the excess but it's still out there.

Christyne McGarvey: Great. I appreciate the thoughts.

Operator: Our last question comes from David Zazula of Barclays.

David Michael Zazula: Great appreciate the thoughts thank you.

David Michael Zazula: Thank you.

David Michael Zazula: Hey, this is David Zazula from Barclays, appreciate you taking the question. I guess on the incremental volume you're getting in incremental, if you could just talk at least qualitatively about the operating income per unit profile relative to kind of the existing book of business you are laying on top of, I'm just trying to get a feel for what you're getting in the incremental volume and more broadly on it, how you think of the returns you're getting on assets and kind of what would make you think of investing in additional assets as the cycle turns.

David Michael Zazula: Our last question.

Speaker Change: Comments from David Xu Lei.

David Michael Zazula: Barclays.

David Michael Zazula: Hey, this is David <unk> from Barclays I appreciate you taking the question.

David Michael Zazula: Yes.

David Michael Zazula: On the incremental volume youre getting from modal.

David Michael Zazula: Just talk at least qualitatively about the operating income per unit profile relative to kind of the existing book of business. You are laying on top of it I'm just trying to get a feel for.

David Michael Zazula: What you are getting any incremental volume and.

David Michael Zazula: More broadly on how you think of the returns youre getting on assets.

David Michael Zazula: And kind of what would make you think.

David Michael Zazula: Investing in additional assets as the cycle turns thanks.

Brian Daniel Alexander: Yeah, I'll get it started here. This is Brian.

Brian Daniel Alexander: Yeah, I'll get US started here this is Brian.

Brian Daniel Alexander: I think, you know, as we went into this bid season, we went in with our approach that we're going to continue to be focused on cost improvements on the rail, on the street, with our container turns. And a big part of that, too, was maintaining balance in our network and letting the velocity continue to have a good flow through. You know, I think, as a part of that, too, we stay focused on a margin per load day.

Brian Daniel Alexander: As we went into this bid season, we went in with our approach that we're going to continue to be focused on cost improvements on the rail on the street.

Brian Daniel Alexander: With our container turns and a big part of that too was maintaining balance in our network and letting the velocity continue to have a good flow through.

Brian Daniel Alexander: I think it was a part of that too we stay focused on our margin per load date and that helps US go after the over the road conversions that we need to and we've mentioned in the local east so.

Brian Daniel Alexander: And that helps us go after the over-the-road conversions that we need to, and we've mentioned in the local lease. So, you know, we feel that we've got the right discipline around it. And we stay focused on the cost to maintain yield discipline to approach those competitive bids with the right price to win. And as far as, you know, purchasing more capacity, we definitely have our ROIC goals, and we stick to those and make those decisions.

Brian Daniel Alexander: We feel that we've got the right disciplined around it and what we stayed focused on the cost to maintain the yield discipline to approach those competitive bids with the right price to win.

Brian Daniel Alexander: As far as purchasing more capacity.

Brian Daniel Alexander: We definitely have our ROIC goals, and we stick to those and make those decisions. We do have a great partner as far as our manufacturer of our containers and we do believe we can get those pretty quickly if we needed to.

Brian Daniel Alexander: You know, we do have a great partner as far as our manufacturer of our containers is concerned, and we do believe we can get those pretty quickly if we need to. So, you know, until we see an inflection in the market, we don't anticipate any additional containers.

Brian Daniel Alexander: Until we see an inflection in the market now we don't anticipate any additional container purchases.

David Michael Zazula: Very helpful. If I could just get a follow-up,

David Michael Zazula: Very helpful and if I could just get a follow up you did talk a little bit about the cost programs I'm wondering if you could give a little more color on the employee costs. It seems like youre doing actually a pretty reasonable job given the inflation, we're seeing in the market and keeping employee costs low so.

Kevin W. Beth: You did talk a little bit about the cost programs. I'm wondering if you could give a little more color on the employee costs. It seems like you're doing a pretty reasonable job given the inflation we're seeing in the market and keeping employee costs low. So anything you're doing as far as trying to keep that in check and keep the market up? Yeah, sure. One of the things, you know,

Kevin W. Beth: Or anything you're doing as far as trying to keep that in check and keep the market up.

Kevin W. Beth: Yeah, sure. One of the things, you know, our tech; we develop tech with a purpose. And one of those purposes is certainly employee efficiency. And really across the board, all of our different lines of business, we've been able to use fewer employees and handle more loads per employee. So if you were to look at our legacy headcount year over year, so this would be without the new final mile business, our non-driver, non-warehouse employee count actually went down 9%. You know, so we do think that those efforts have paid off, and we're able to control costs on an overhead basis.

Kevin W. Beth: Yeah sure one of the things.

Kevin W. Beth: Our tech we developed tech with a purpose and one of those purposes is certainly employee efficiency and really across the board all of our different lines of businesses, we've been able to use less employees and handle more loads per employee.

Kevin W. Beth: So if you were to look at our legacy head count year over year, So thats would be without the new final mile business, our non driver non warehouse employee count actually went down 9%.

Kevin W. Beth: So we do think that those efforts have paid off and we're able to control costs on an overhead basis.

Phillip D. Yeager: I would now like to turn the conference back to Phil Yeager for his closing remarks.

Phillip D. Yeager: Okay I appreciate it thanks very much.

Phillip D. Yeager: Thank you.

Phillip D. Yeager: I would now like to turn the conference back to Phil Yeager for closing remarks.

Operator: Great. Well, thank you very much for joining our call this evening. Kevin, Brian, and I are available, as always, to answer any questions. Have a good evening.

Phillip D. Yeager: Great well. Thank you very much for joining our call this evening and Kevin and Brian and I are available as always to answer any questions have a good evening.

Operator: Ladies and gentlemen, this concludes today's conference call with Hub Group Incorporated. Thank you for joining us. You may now disconnect.

Operator: Ladies and gentlemen, this concludes today's conference call with hub group incorporate and thank you for joining you may now disconnect.

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