Q2 2025 Hub Group Inc Earnings Call

Hello and welcome to the Hub Group, second quarter 2025 earnings conference call.

So Jagger hubs, President Chief Executive Officer and vice chairman and Kevin Beth. Chief Financial Officer and Treasurer are joining the call.

Statements made on this call and in other reference documents on our website that are not historical facts or forward-looking statements.

These 4 looking statements are not guarantees of future performance. And involve risk, uncertainties and other factors that might cause the actual performance of Hub Group to differ materially from those expressed or implied by this discussion, and therefore, should be viewed with caution.

Further information on the risks that may affect Hub. Group's business, is included in the following with the SEC, which are on our website.

In addition, on today's call, non-GAAP financial measures will be used. Reconciliations between GAAP and non-GAAP financial measures are included in our earnings release and quarterly earnings presentation.

As a reminder, this conference is being recorded.

It is now my pleasure to turn the call over to your host Phil joerger. You may now begin

good afternoon and thank you for joining Hub Group. Second quarter earnings call. Joining me today are Kevin Bap Hub, group's Chief Financial Officer and Garrett Holland. Our senior vice president of investor relations.

I wanted to start by once again thanking our thousands of team members across North America for their diligence, and focus on delivering for our customers and shareholders through this rapidly evolving environment.

The second quarter was challenged versus typical seasonality to the Tariff driven adjustments to shipping patterns.

Our more transactional service lines were impacted less than we anticipated, but we did experience a decline in demand due to slower import volumes near the end of the quarter.

Offsetting, those headwinds are contractual Services performed, well, and maintained resiliency.

Through this Dynamic environment. We are focused on executing our strategy of delivering best-in-class service at scale continuously improving our productivity while investing in high return initiatives and returning Capital to shareholders.

We are executing on this strategy as illustrated by the acquisition of Martin transports, refrigerated and remotely and our success in our cost Reduction Program.

the acquisition allows us to enhance our scale and capacity in 1 of the highest growth segments of our internal Network and expand our customer base while generating strong returns, due to our ability to capture synergies within our platform,

We have a robust pipeline of additional Acquisitions and plan to continue deploying Capital toward long-term growth opportunities.

We are also controlling what we can control by implementing our cost reduction program, and thus far, we've completed the vast majority of our initial $40 million goal while identifying additional opportunities for savings and efficiency gains.

This success is allowing us to raise our target to $50 million of total cost. Reductions?

As we look ahead near-term demand Trends off the West Coast are strong, and we are seeing indications of an early West Coast peak season.

Which coupled with several sizable startups in our Logistics Services should lead to improving Revenue through the remainder of the year.

It remains unclear, how long elevated import demand will persist as we are seeing variances in forecasts by customer but we believe we are in an excellent position to support our customers with our best-in-class team service capacity and solutions while executing on our strategic priorities.

I will now discuss our business segment performance beginning with its

I can't Revenue declines, 6% due to loss dedicated sites and lower Intermodal Revenue per load. While we increase operating income by 6% year-over-year.

In automotive volume increased 2% year-over-year. Despite a decline in import activity, at the end of the quarter, with local leads down 1%.

Local, Westtown 2%. Trans countdown 6%.

Mexico up over 300% and our refrigerator business growing 18%.

Revenue per load declined 9% year-over-year in a quarter due to lower Fuel and aoral revenue as well as a shorter length of all.

Dedicated Revenue also declined, due to small loss, sites and Equipment, count reductions in existing operations.

Despite these Revenue challenges we improved operating margins through increasing our percentage of insource range by 700 basis points to our stated 80% goal.

We also maintain Network fluidity and reduce MC repositioning cost by 43% year-over-year in the quarter along with lower rail drainage and insurance expenses.

Our service, with our rail Partners is excellent. And we are seeing customers convert volume to Intermodal to take advantage of the costs capacity and performance benefits.

Is completed, the majority of business and performed. Well, on our goals of network, balance and velocity, while maintaining yield despite the competitive environment.

As we look ahead, we anticipate an early West Coast peak season, due to inventory, pull forward in advance of potential, cherif implementation and seasonal sales.

as well as improved bid, realization rates, which along with new dedicated startups should lead to higher revenue from current levels,

In logistics.

Revenue declined. 12%.

While operating income declined, 13% year-over-year in the quarter.

The decline was driven primarily by our brokerage operations where load counts, decline, 5% and revenue per load, decline 9% year-over-year, due to a soft drive and Market, which we offset, partially with strength and lse on flatbed as well as better relative performance in our contractual services.

An area of strength for Hub Group has been our final mile division due to our excellent service competitive costs and flexible operating model.

This performance is leading to significant growth for the business as we will be on boarding, 150 million dollars of net, new annualized Revenue in the third and fourth quarter, with both new and existing customers.

This growth will lead to short-term startup costs. We are excited to onboard this new business into our Network and deliver for our customers.

These final mile wins will be executed in conjunction with new onboarding and consolidation and brokerage that, we believe will lead to improvements in Revenue as the year progresses.

We remain focused on driving profitable growth, but we are also remaining vigilant on our cost service and productivity.

And service level.

Due to the prior success of those alignment actions, we will be completing the transition from the vast majority of our remaining third-party warehouses beginning in Q3, which will lead to additional margin and service level enhancements.

We also focus on delivering improved results in our brokerage operations, reducing negative margin shipments, which were down 160 basis points, year-over-year in the quarter, while maximizing, our purchasing power, and enhancing our organizational structure to improve efficiency yields and maintain our excellent service.

We believe these growth and efficiency actions along with our continuous improvement process will enable profitable growth over the near and long term across the segments.

We are pleased with our performance, through the first half of the year in an extremely Dynamic environment. We remain focused on delivering best-in-class service through all of our capabilities, enhancing our efficiencies and investing in our business to deliver long-term growth.

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

Thank you. Phil, I have a lot through our financial results before commenting on our Outlook,

Our reported revenues for the second quarter was 9006 million.

Revenue decreased by 8% compared to last year and decline 1% sequentially.

ICS Revenue was 528 million which is down 6% from prior Year's revenue of 561 million

Is enteral volume growth of 2% was offset by lower Intermodal, Revenue per load and lower dedicated Revenue in the quarter.

Additionally, lower fuel revenue of approximately 18 million negatively impacted the Top Line.

The logistics segment revenue was $404 million compared to $459 million in the prior year, due to lower volume and revenue per load in our brokerage business.

Exiting of unprofitable business and CFS and subseasonal demands in Man of transportation and final mile businesses.

Lower fuel revenue of 9 million from the quarter. Also contributed to the decrease.

Moving down the p&l for the quarter, purchase transportation and warehousing costs were 656 million. A decrease of 71 million from the prior year due to strong cost controls, as well as lower Rail, and Warehouse expenses.

As resulted, in 130 basis, point Improvement, on a percent of Revenue basis, on compared to Q2 of 2024.

Salaries and benefits of 143 million or 1 million higher than the prior year, due to additional employee drivers, and Warehouse, team members, and the ASU transaction.

Total Legacy, headcount.

Which excludes acquisition employees drivers and Warehouse employees. The clients 3% from prior year, as we continue to manage head count across the organization.

To appreciate and amateur decrease, 5 million over 22 2024 due to our updated useful life assumptions.

Insurance and claims expense decreased by $2 million, as we continue to realize benefits from our safety focused and training programs.

when addressing for the vendor settlement expenses in the quarter, our general and administration expenses declined by $0 for 5% year-over-year, as our cost takeouts started to make an impact,

Altogether our adjusted operating income decreased 7% year-over-year, but our adjusted operating income margin was 4.1% for the quarter and increased 10 basis points over the prior year.

The ICS quarterly operating margin was 2.7%.

A 30 basis point improvement over prior year, the second quarter of logistics adjusted operating margin with stable year-over-year at 5.6% even with a more difficult brokerage environment.

Adjusted EBITDA was even up with $85 million in the second quarter.

Overall Hub, earns adjusted, ETFs of 45 cents in the second quarter down from 47 cents in Q2 2024.

Now, turning to our cash flow cash flow from operations, for the first 6 months of 2025 was 132 million.

Second quarter, Capital expenditures totaled at 11 million with spending evenly balanced across tractor, replacement and Technology.

Our balance sheet and financial position remained strong through. The second quarter, we returned 29 million, to shareholders, through dividends and stock repurchases.

Net debt was 96 million, which is 0.3 times adjusted digital, the lower stated net debt, to even the range of 0.75 times to 1.25 times.

Adjusted via less capex with 74 million in the second quarter.

The spread between adjusted BTS and adjusted cash EPS with 10 cents for the quarter.

And we ended the quarter with 164 million of cash.

Turning to our 2025 guidance.

We expect full year ETS in the range of a dollar 80 to 2 dollars and revenue to be between 3.6 billion dollars to 3.8 billion for the full year.

We project an effective tax rate of approximately 24.5%.

We also expect Capital expenditures in the range of 40 to 50 million with continued focus on technology projects.

recall, the upper end of our prior revenue and EPS guidance ranges reflected a strong bounce back in West, Coast import demand translating into a surge of volume in the back after the year allowing for higher pricing and peak season search charges

We Stand ready to meet customer needs, but have not Incorporated significant peak season search charges into our guidance at this time.

Combined with still lower demand visibility, we adjusted the upper end of our revenue and ECS guidance, ranges lower.

Realizing the upper end of our revenue and EPS guidance range will now depend more on the timing of our sizable, new business Awards in addition to Stronger PCS and activity.

We also recognize that the consumer spending has held up better than the weakening scenario, reflected at the low end of our previous EPS, guidance range.

While there is still risk of moderating demand through the back after the year, momentum with cost savings initiatives and benefits from new business Awards, gives us confidence to increase the low end of the EPS guidance range.

The path to the lower end of the current guidance range would reflect incremental weakness and consumer, spending the related decrease in volume and margin dollars would be partially offset by further cost management efforts.

The assumptions in the middle of the range are consistent with the return to seasonal, demand pattern in the back. After the year, directionally we expect higher EPS in Q3 for Q2 before some seasonal moderation in Q4.

For the IPS segment, we expect pricing to be relatively flat for the remainder of the year as we continue to focus on network balance and serving new customers.

Consistent with typical seasonality. We expect sequential operating income and margin improvements for ICS during the third quarter led by Intermodal.

We still expect dedicated Revenue to be less than the 2024 as new customers are not enough to offset lost customers and software demand.

For Logistics. Excluding our brokerage business. We expect new to demand will be partially offset by new business Awards, especially for final mile.

Productivity gains at managed Transportation help, mitigate lower customer, violence, and improving Warehouse utilization for CFS should help counter lower demand.

For brokerage, we expect volume through the remainder of the year to be flat to down from current volume results with pricing trending near current level.

We continue to protect profitability with expense management and brokerage offers attractive cyclical, levers in a market recovery.

While market demand was better than some feared at the time of our first quarter earnings call, the operating backdrop remains challenging during the second quarter. Nevertheless, Hub Group secured a meaningful new customer award through bid season and continues to respond with cost-saving measures.

Well, over half the savings outlined in Q2 may have been realized on a run-rate basis through the second quarter.

The teams continuous Improvement approach has identified additional opportunities, which gives us confidence to increase the savings Target to $50 million.

In addition to some seasonal improvements, cost savings support our outlook for sequential margin improvement in the second half of the year.

Despite Topline pressure operating margins stabilized, year-over-year and sequentially for both its and the logistic segments.

Performance through this Freight recession as me, measured by ibida. Margins and free cash. Flow reflects resilience and structurally higher performance relative to the prior cycle. Cross due to portfolio mixed changes and steady execution.

Our strong balance sheet also continues to provide significant flexibility and enables value. Add Acquisitions like the recently announced acquisition of Martin Intermodal.

Investments across business lines and leverage to recover and Freight markets.

Position Hub Group, Well for longer term upside.

With that, I'll turn it over to the team for concluding remarks.

Thank you. Kevin.

Potential growth.

For context Union, Pacific and Norfolk Southern are the exclusive rail partners of Hub Group in the United States.

For decades, we have worked collaboratively with both companies to drive growth and scale our operations through excellent service and Commercial alignment.

The proposed merger presents, a new and exciting opportunity for our partnership to grow and be differentiated.

There are several catalysts that should create significant incremental Intermodal conversion from over the world, including improved fluidity in the gateways leading to faster transits and better asset utilization, enhance fuel efficiency and access to additional lanes and markets.

These enhancements should lead to a large opportunity. For Intermodal conversion due to improved, reliability and service quality as well as improved Freight economics.

Finally, we believe that Hub Group is positioned for growth in both the current environment as well as with combined transcontinental partner due to our scale flexible model service, customer relationships and rail Partnerships.

While we appreciate the interest in this topic. There are many steps ahead that will take time and we have tried to clearly articulate our initial views on the merger and its potential impacts to Hub Group in the Intermodal industry.

As the merger progresses, we will ensure we maintain alignment with our partners and our customers to position Hub Group for success. Therefore, we would appreciate questions being focused on the company and our results related to that. We will open the line to any questions.

Thank you. 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.

To ask a question, please press *1 on your telephone and wait for your name to be announced to withdraw your question. Please press *1 again.

Please stand by while we compile the Q&A roster.

Our first question is, from Scott group of wolf research. Your question, please?

Hey, thanks. I appreciate it. Um, and hopefully you don't mind, but I'm going to break the rule if that's okay. Um.

The I just wanted to just a very big picture question, right? And we've been talking about

Intermodal, share gains for a long period of time. And

We haven't really seen them in a while.

How much?

How does you know, how big of a deal is this to unlock that potential?

And is there any way to like understand like what percentage of your business today? Actually gets interchanged and does single line service, you know, just does it really accelerate the Tam of what Intermodal can be?

Yeah. Thanks Scott know, I appreciate the question. Uh, you know, I, we do think it's a significant opportunity. Um, you know, about a little bit over 30% of our business is moving in the Transcontinental fashion. Uh, today. So so touching both railroads, um, and uh, you know, we feel as though there are significant opportunities to remove touch points, uh, remove some of the congestion that we saw, when demand was really surging, as you remember, during the co time frame and and our services as an industry, didn't need that demand. And so we feel as though with, uh, really those, those fewer touch points that uh, significant flow through and better asset utilization. Uh, that's going to reduce Transit time. Make us more competitive uh, with with over the road and we think can unlock some some significant value and in additional over the road conversion. So uh in our view a a huge opportunity 1, we're excited about and uh you know, feel as though uh with our positioning with the Pacific and North Oak, Southern we can be

You know, significant beneficiary of that.

Okay, that's helpful. And then just turning to the guide. Just, you know, you talked about strength right now. How do you get comfort that this isn't a

pull forward of peak season during this sort of tariff, pause window and things don't get. You know, if we typically see the bigger peak in Q4 that, we're not seeing the bigger peak in Q3. Do you have any insight into that? How do you get comfortable with that? And just give it that just uncertainty. Maybe just help with the guide, like, help us think about like the shaping of the year. And Q3 Q4 is, is 1 quarter in your mind higher earnings than the other

Um, but we are excited with our final mile business wins that. We think that that is going to really help, uh, keep that normal moderation in the fourth quarter, down to a minimum and

As we unload or on board the uh, new customer wins there, that will help the profitability in the fourth quarter. So overall with our mix of business again, you know, we don't have a great crystal ball to tell you, exactly what's going to happen. But we do anticipate its, um, to to take a step up here and third quarter, and then a normal seasonal, moderation, uh, a little bit backwards and fourth quarter while Logistics, uh, increases slightly in both quarters. Yeah, and this is Phil, I just added, I think there's uh, 2 components 1, is this a little bit of a pull forward with the the Tariff window, but also some seasonal sales that's being brought in as well. Um, we are staying really close with our customers and and there are several that are saying that, you know, might last through the end of the quarter and a little bit beyond that. Uh but also others who are saying this will last through the remainder of the year and I think it really depends on the inventory strategy that we deployed. And so we're trying to stay really close to our customers.

But I think at the same time, uh, it's very positive that we're seeing Peak Seasons search charges in in July, um, and we hope to see that momentum carry forward into August and September and obviously, through the remainder of the year as well. But, uh, it's good to see some tightness at this, uh, early stage, uh, really in the back half of the year.

Maybe just to that. Just so I can ask 1 last stop and then I'll pass it on. When did the peak search charges start last year and any sort of order of magnitude or are these bigger search charges in last year, similar smaller any color.

Yeah. On a on a dollar basis, the search charges are actually larger. Um, you know, I think it remains to be seen how, how many we're going to get but, uh, it they also started later uh, than uh, than this time last year. I believe it was really in the August September time frame where we really started to get into more Peak planning. Yeah, I I agree with with Phil Scott. Front of Dollar perspective, it was around uh half a million or so in third quarter. And then we we actually saw the vast majority in October and and even into uh, November

Last year, which is, you know, unusual and and we saw about 4 and a half million last year in the fourth quarter.

I would just highlight once again. We didn't build in a significant amount of search charge hours into uh the midpoint of the guidance.

Thank you guys. Appreciate it.

Thank you.

You're welcome.

Our next question comes from Bassam majors of Susana Financial Group.

Thanks for taking my questions uh in the prepared remarks, you talked about a big driver between the low end of the high-end at 25 cent Gap over the next 6 months and guidance uh being the timing of the onboarding of the business. Um, would it be helpful if you could kind of frame the Run rate of everything that you're talking about, if it's above and beyond what you talked about in final mile and you know, ultimately the the potential

Contribution and profit or earnings from that, thank you.

Yes, this is Ben. Thank you for the question. Um yeah the the final mile is definitely the the largest driver. Um you know we're really excited. We we Bond new business there uh some new logos for us in the final mile space at least you know customers that we're familiar with. Um but when it comes to onboarding you know you never really know exactly. It's it's everything's going to stay on schedule and also on from a profitability standpoint. You know, are there going to be some startup costs that you know are are are hindering that margin profile a little bit. Um so we are expecting, you know, if everything stays on schedule

We'll start to see some of that additional Revenue, uh, towards the end of the quarter, uh, this quarter. Um, and then, you know, sort of a roll out uh, into October in the beginning of November. Um, you know, the goal is to have a lot of those, uh, completed before Black Friday and the busy season, uh, that that brings with it. Additionally, uh, we're excited about the close of the Martin transactions that should also be happening here, right? Towards the end of the quarter and, you know, that will uh benefit fourth quarter as well.

Significant growth opportunities. So this is, um, you know, a big milestone and and we're excited to bring on the growth and and we're going to be investing in the business uh, to, to support it.

And if they both on board in the way that you see fit and what you underwrote in these deals, uh, do you have a sense of roughly the profit impact potential?

Yeah, it'll it'll be a pretty. If you think about the final mile wins the creative to the incremental or incremental to the existing Logistics, margins. So, you know, good flow through there on that 150 million annualized number. And then on, uh, Martin, we're anticipating about a penny or 2 acre in in the fourth quarter and then in 2026 more mid single digit accretion uh on the 2026 numbers. Yeah, so about that. Alright, thank you.

Thank you.

Our next question comes from Jonathan Chappelle of evercore isi.

Thank you. Good afternoon. Um, hate to harp on the guidance here, but Kevin, uh, you laid out all the different scenarios, but I'm just trying to understand the cost savings went up by 10 million. You had Martin, which is, you know, just a penny here and there but it's still a creative. You talked about some optimism On An Early Peek, uh, in the west coast in the third quarter. Um, so for the midpoint to come down,

What has changed to the negative? Is there? Something that was kind of core to the original midpoint, that's maybe, um, a little bit worse than you'd anticipated 3 months ago and it's partially offset by all those other good guys that you called out specifically. Sure. Uh, thank you for the question down. Um, yeah. You know, 1 of the things is, you know, we we expected to start seeing uh a little bit of a snapback on The Brokerage margin um at this time and unfortunately so far, you know, that we really haven't seen data points to really believe that that's going to happen. So you know, we're considering that now to be flat going forward, uh, both on volumes and rpu um, as well. So, you know, that was 1 of the, the negatives. Um and you know the overall customer demands is is still been a little less than we originally thought, 3 months ago? Yeah, and I I was just sad. I think, you know, we tried to be conservative on what would show up in search charge.

Charges. There's, uh, you know, at the midpoint a pretty minimal amount built in and then we did haircut, the realization on the final mile, uh, Awards as well. Just giving startup timing. So there's certainly upside to the midpoints and uh, you know, if we see things heading in the right direction, you know, we're, uh, and have more clarity on Q4, uh, you know, I think with, uh, we'll we'll be in a position to, to get more clarity on that, on the Q3 call. But, but, uh, there is certainly upside, uh, to the guidance that we can.

Okay, thanks for that. And then, uh, follow up. I know you've done most of your peak season in the first quarter and you reported that uh, on that 3 months ago. Um, but I have to imagine it's it's mostly done at this point. Uh, trucking's kind of been all over the map a couple little head fakes there but then another, you know, weak part uh, here in July. So there's any updates on peak season. Uh, I'm sorry bid season um and so we kind of think about, you know, pricing being baked down to the middle of of 26. Or is there any kind of um, you know, shorter bids that are where you make it? You you may be able to see more volatility if if Peak really does come through.

Yeah, no, the thank you for the question. Yeah, so you know, we're through the vast majority of annual bids. I think it could complete it through Q2 about 86%. So a little bit pulled forward actually from what we traditionally. See, um, I would say, you know, certainly competitive, but I think very rational, uh, competition is shorter, length of all and back, all Lanes, but opportunities to really Drive some yield and head home markets. And I think we came in with a few very clear goals. First, you know, we gained a lot of share in 2024, so big focus on maintaining that share. We're overcoming some, some tougher comparables. And then a lot of other folks, right now on that volume side, but we wanted to make sure we maintain that and Propel that growth for great service. Uh, 1 would also make sure we were growing a network balanced plan, that helped us continue to do reduce costs, but also get core pricing back on a positive trajectory, and I think, you know, the team did really

Across the board. We've seen that core price improving month-to-month and sequentially. Um, and uh, you know, we feel good about how we performed in this season. We've done a great job, managing costs, delivering a great service product, and we are seeing some more of those spot opportunities in particular off the West Coast start to come together and, uh, we have, you know, capacity available to support our customers as they need it.

Great super helpful. Thanks Phil. Thanks Kevin.

Our next question comes from Daniel embro of Stevens Inc.

Great. Thanks afternoon. Everyone. This is uh Brady leers on for Daniel embro. Um I wanted to Circle back to something. You said in the prepared remarks you know you mentioned increasing the cost savings Target to $50 million as you kind of continue to find more areas of improvement but given just broadly, we continue to be in a subseasonal truckload environment. You know, how how are you balancing? Finding more areas of improvement with these cost savings, but also not hindering. Uh, your ability to participate when the market turns. Um and then just you know is there a significant opportunity passed $50 million, you know, say if this subseasonal environment or to continue and to 2026, just any color that would be helpful.

Yeah, no thanks so much. Yeah, I think, you know, we initially published the target of 40 million, you know, about 2/3 of that was in transportation costs and other third and operating expenses. We've really outperformed on the operating expense side, as we found some, some really nice efficiencies there and and been about in line on Transportation costs. Um, we have found some additional opportunities to reference in the prepared remarks to A, A continuing consolidation of warehousing safe, uh, which is going to be about another 6 million dollars in savings. So we'll be executing on over the next 6 months. So we keep identifying additional opportunities. Um, those won't hinder us if we see an improving Market trajectory and there are certainly the right thing.

To do the position the business for growth. But also make sure that we're maintaining a competitive cost structure. So we can keep going out and win business. Like, what we have on boarding in our warehousing, uh, service line or in final mile. So it's really a balance of making sure we keep that, uh, flexibility to, to be nimble for our customers in the upside, just like, we are uh, with this uh, increase in West Coast Demand, right now.

And Brady, I just like to add that, you know, one of the places that we haven't cut is on our IT initiatives. And, you know, we really believe that because of those, that allows us to be more efficient. And as we're adding that efficiency, that's allowing us to be able to take out some costs, but yet still be strong enough to handle when the market returns.

Okay. Thanks, appreciate all the detail there. Um just as a follow-up. Uh dedicated is obviously a smaller piece of the pie and its but can you just give some color on how dedicated is shaping up year to date, you know?

As I was referencing earlier, just given the, you know, competitive truckload Market. Um, how is that affecting your go to market strategy and kind of what businesses you're targeting? And any expectations, that would be helpful. Thanks. No, I think it's a great question. Yeah. So, you know, in the quarter we had some lost sites that impacted us as well as just some equipment account. Reductions on existing sites and we had to uh some costs in the quarter of reallocations of equipment to make sure we would write sides to serve our customers.

Uh, you know, through now that we're through that, uh, we have some nice on boarding that are coming online as well as some driver sharing and and optimization opportunities. So, we're really executing on, um, but I think the thing that's got me, the most excited, there is that I have been spending time with our customers. And the feedback has been that our service is just fantastic. And so, um, you know, that is developing actually a great Pipeline. And, uh, I think for us the big takeaway is making sure that when we're going after dedicated opportunities, as we see the market tighten, it's not about going with customers who are trying to time the market and locking capacity. It's about going with customers and agreements where service levels are crucial for the success of that contract. Uh, and that's where we're really going to thrive and have continued to

Awesome. Uh, maybe just quickly as a final follow-up. And then I'll pass it along, but I don't think I've heard you guys give enter Moto volumes by month yet. Can we just get those?

Yeah, sure. Yeah, I know. So April was up 6. Uh, May was up 1 June was, uh, flat and then July month to date is up 1. Uh, so, you know, as we mentioned, I think last 2 weeks of June saw that kind of air pocket of demand, uh, impact the network. And then, uh, you know, first that kind of bled into the first couple of weeks of July, but we've seen a nice rebound since then. Um, and I would just once again highlight and I tried to hit on it. You know, we are, we did have some significant share games with timeline.

Last year, we're overlapping those. So we're not satisfied with the the growth levels that I think, uh, still still quite strong. Given that backdrop

All right, thanks so much guys. I'll pass along.

Our next question comes from Dan Moore of Beard.

Hey guys, thanks for the call.

Uh, and the time today, um,

Need to ask 1 or 2 questions here real quick.

Um,

First off, you know, it strikes me that next year could be a year where there's a lot of transition in business.

Um, not to focus on kind of the merger discussion itself. But more just how you think about, um, you know, being prepared for that, uh, recognizing that you're 1 of the only certainly in the public, uh, space, um, best aligned with, um, within us and, and up to the extent that that business does move, uh, or or considers moving. How do you position the company to take advantage of those opportunities? And then maybe as a, a dovetail second question, um, to that thinking about Capital, allocation you guys have been very

Um, we're very active in buying back stocks, and we're very active, um, you know, pursuing acquisitions. Um,

How does that? How does that shape that uh, that strategy as well? Thank you.

Yeah, no thanks so much. Uh, yeah and and, uh, great to hear from you. I really appreciate the question I think, you know, from a, a rail perspective. You know, we we do feel like we are, are really well aligned with UPN and that we work before. But, uh, with this Catalyst for growth, you know, it's a significant opportunity and we're we're excited to to vote on the path with them and try to support it. Um, I think uh, you know there's a few

Opportunities obviously is Transit tight and we think OTR conversion is there, but we also think unit costs will be coming down and there's an ability to be more uh, aggressive to try to differentiate the service products there. Um, so if you take better service better costs,

Should be a really good Catalyst for for OTR conversion. And and we think uh you know we want to be part of achieving those. Those very lofty growth goals that have been discussed. I think along with that, you did reference it, you know, we we uh, really think that we want to continue to invest in the enteral product, uh, not only in

In forage and and building out our Network even further. Uh, but also in in, uh, being a consolidator within the space, I think uh, the market transaction is is a good proof point of that. We think that we have great synergies there that are going to drive a highly recruited and high return on capital investment. And uh, we're, we're excited about that. And we we do feel as though there's other opportunities that are out there, um, on the capital allocation, I'll let Kevin. You want to jump into that. Yeah. And the capital allocation, you know, um, we currently are happy with our 6 lines of business that we have. Now, our m&a strategy is where, you know, going forward to continue creating scale, and geographical expansion. Um, you know, we're very interested in the momentum, we have with final mile and our consolidation fulfillment businesses, both are candidates for additional scale and geographical expansion, but as evident with the Martin transaction is Intermodal assets become available, you know, we are definitely going to remain opportunistic buyers

Um, so while we consider a larger transformational deal, we would um we do believe at this stage, really the tuck in businesses are going to become more available and we're starting to see those. So uh we're going to continue down that path and you know we are we're looking for good assets at the right price uh with a good management team that will allow for our continued growth.

Great. Thanks guys.

Thank you. Good to hear from you.

Our next question comes from Bruce Chan of stole.

Hey, thanks. And uh, good afternoon everyone. Um nice to see some of the progress here. You know, you've got a lot going on so maybe I'll just start with some clarifying questions on the uh new um refer business. Um seems like a nice fit um you know Phil appreciate the commentary around the accretion. Um you also mentioned a couple times the Synergy opportunity just want to make sure that's not embedded in that you know, accretion estimate. Um and I imagine it's also a separate from the 10 million dollars of incremental cost saves. And assuming that that it is, you know, maybe any thoughts on, you know what, you can generate either, you know, operationally or commercially in terms of this energy

Yeah, so uh, it's a great question so that that is separate from the cost savings targets that we've rolled out, but those synergies are really day 1 synergies, right? So they are related to chassis, contracts Dage costs, uh, rail contracts, as well as a, uh, not having to carry over any of the overhead expenses. So, on that accretion those are built in, uh, but are really day 1 and contractual in nature, and really, uh, already defined. So, um, we did build those in and, uh, but I think a good example of a win-win, uh, for, for us and the seller.

We've seen refrigerated intermill Revenue, increased, 12%, year-over-year and 2024, and it's at 9% increase year to date through 2025 volume. Increase to 18% this quarter. So it's definitely bright spot. We're going to be able to add to that. Um, and, you know, not only do we buy the equipment, but we also more importantly. We're all of the customer relationships that came with that, um, and no additional, uh, people came with the deal. So, you know, we really feel with our current structure, we're going to be able to slide this right into our current refrigerated team. And, uh, you know, just hit the ground running and just 2 hours going through the feedback from customers that said, extremely positive, um, you know, which, which is great. Um, and the transition is is, is going very well. We were actually going to because of the growth of the business past of capital requirements for investment into it regardless. And so this is a really nice way to as Kevin mentioned to attain, you know, book

of customers and a creative acquisition, as well as just necessary equipment to support the growth.

Okay, great. That's really helpful. And then maybe just um, you know, more of a theoretical follow up on the dedicated side. Uh, you know, we've got some new legislation coming with some provisions on, you know, bonus D and interest deductions. I'm wondering if you've heard any feedback from customers as to whether that might be, you know, a headwind to the value prop, you know, just because it it made me makes, you know, keeping it in Source, Fleet, um,

You know, more attractive on a relative basis.

Sure. Yeah no I think it's it's a good question. I think something that you you've seen over the past few years is there are businesses that have said they're going to um uh have their own fleets and operate them and there's others that have exited that completely. And so I think for those where it makes sense and they feel like it's a core part of the business, it'll stay that way. But for those that uh like working with scale providers, you know, like ourselves and others, you know that they'll continue down that path. I don't I do think the the bonus depreciation will be a benefit and hopefully we'll drive some additional Capital expenditures and and Investments across the country but um don't see it necessarily in the near term changing. Um the the dedicated model outside of changes that have already taken place.

Okay, great. Thank you.

Our next question comes from Jason Cidle with TD Cowen.

Thanks for operator. Uh, Phil Kevin and nurse for the team. Hope you guys are doing well this afternoon. Um, wanted to talk a little bit about the Transcontinental business. You said I was about 30% of your book, you know, in terms of the margins is it is it sort of an average margin business that I tend to get higher margins. And how can you put that into perspective for us?

Yeah, uh, thanks. So yeah. On the, on the transcon side is is typically a positive mix on both Revenue per load and margin uh, per load. And so um, you know, when we see uh like we are right now, a tight West Coast. Um, just due to the length of call um, and and typical margins. Um, you know, it's it's typically a creative to our our its margins.

And and then so you know you you talked about how, you know the big goal is always winning back some more business. When you, when you look at the transcon lanes, what's been sort of more important sort of the rail service or just the the falling truck prices. So I'm just trying to think about what's, what's up at stake? If you do get a transcon and obviously it would be beneficial for you since you brought on both of the Rails that are talking about it.

Yeah, I think you have to have both, right? And it makes you more competitive when our customers are making a decision on routing, it's great. But it's also Transit, consistency of service inventory carrying costs. It's a, it's a decision that they don't take lightly and I think right now we're providing a really good service. Um, but it does have some elongated Transit because of those touch points and uh to be able to take 24 to 48 hours out, makes that decision a whole lot easier for our customers. And I think we're showing right now not only are we hitting on Time Performance metrics. Um, but we have a really resilient uh, product that uh, is able to to, as we have challenges really rebound quick.

So I think our customers are looking at consistency, overall aggregate performance and then the resiliency when challenges occur, right now we have that and if you take 24 to 48 hours out, it should just make it incrementally even better along with likely a more cost competitive premise as well.

Yeah, that makes sense. Well, listen, I appreciate the time. As always, guys.

Our next question.

From Thomas, wattage of UBS.

Yeah, good, uh, good afternoon. So uh

Give you 1 first on uh on HUB. And then I you know, I'm going to work in a kind of related 1 if you don't mind. But uh um, you know, you've developed a portfolio of services. Uh you know you've got the you know, wins you described today which are nice and Last Mile, I'm wondering how much cross-selling there is going on, you know, between your big service, and your modal and some of the others you have.

Uh, I don't know if you have like, you know, kind of how many customers buy multiple services or anything like that. Just, you know, is that already been taking place in a meaningful way or is that kind of, you know, future opportunity to let's say, you know, put green boxes at at your warehouses and have orange and white or however you want to think about it. Well, I anytime I show up at a warehouse I like to see see green everywhere on the outside for sure and, uh, all green boxes. So that's that's certainly an important part is we do manage the transportation in and out of all of our facilities. Um, and that's been a big, uh, point of sale for for our customers, as well. When we are going to cross sell to them, I would say, um, you know, as you look at it with put some numbers on it. Uh for for 2 Services, it's over 80% of our customers are using 2 Services over 60% are using 3 and it falls off a little bit from there, but we do have several customers that are using all of our Solutions. Um, I think where we've seen the the uh, easiest

Kraus cell and the most opportunities has been final mile recently given the scale and service sensitivity of our retail customers around the big and bulky, but it also goes to the surface quality that we have. We've also done a really nice job integrating service offerings. So if you think about, uh, our brokerage is Overflow for Intermodal. Uh, Cross Dock Solutions where we're doing the inbound, and outbound transportation in different configurations. Uh, that has has worked very well, uh, as well. I think we've done a really nice job selling and dedicated, uh, but we always have more opportunities. I think when we look at an acquisition day 1,

we want to make sure we're saving money on the transportation side, especially if it's a warehousing or final mile offering. Uh, and then really targeting that cross-selling. I we, we, we do a good job of of it. We pay very close attention to it and track it on a weekly basis. And, uh, you know, but there is upside and, uh, you know, I think, uh, the final mile winds are food point of that.

Yeah. Okay great. Um, and then I guess the rail related question, you know, there's discussion on Watershed markets, um, from an air model perspective.

Do you see you know, good size Freight markets that you say oh hey I could do Dallas to Indianapolis or I don't know. You you make up the OD pair and because it's on 2 railroad today, that's not feasible in the future would be feasible and it and it's kind of a scale OD pair is that is that like a you know kind of

Apply in terms of the Watershed idea or you think that's more of a car load type of uh, application.

No, I think it absolutely applies and if you take it where it doesn't make sense is that there's 24 to 48 hours of touch points today at The Interchange and so to be able to flow that through it opens up a significant opportunity. We have not gone about sizing that yet we'll be working with up and NS on that and attacking that. But it takes that it takes out those touch points in time. So our it makes sense for our customers and if we're able to reduce the cost where it makes sense. Now, as well, we really think there's a a large over the road conversion opportunity there and are actually really excited about the opportunity. I think there is significant uh opportunity that exists within that and the plant plan to Target it with our partners.

Okay. So the idea of kind of new markets resonates with you. You think that's absolutely true that there would be? Yeah, absolutely. Okay, absolutely. Yeah, great.

Thanks for the time.

Thank you.

Our next question comes from Robbie Chancre of Morgan Stanley.

Uh, good morning. Good evening guys. Uh, uh, just a couple of follow-ups here, uh, on the, uh, Tech projects that you said that you guys are focused on. And you said you're going to, you know, hoping that the drive is productivity, can you elaborate on that a little bit more kind of just, you know, can you quantify that kind of what's the opportunity there and kind of maybe some more detail on some of these parts as well?

Final mile, I think we're doing, actually a wonderful job in utilizing some of the AI and, and uh, agentic Ai. And I think that's been a great uh, investment for us in brokerage. We're really on the, on the front end of that. I think, you know, we're we're just starting there, but we have some great intelligence tools that we've built out, um, and we're utilizing all of our information that comes from Intermodal, brokerage managed Transportation, uh, to really create better, uh, real time decision making and give our customers the most competitive costs. Uh, but also the right solution,

The 1 other thing I'd like to add is you know, because of these Transformations, you know we really feel good about our tuck in uh acquisition strategy because now that the platforms are where they need to be, you know, we could buy a company and they can move right into it into our platform. And, you know, this should be seamless for from, uh, bringing them on an onboarding them, and keeping their customer service at top quality, uh, level

Got it. So are you giving yourselves any explicit targets on headcount or shipments for employees or something as a result of this?

Yeah, so those are in place. And, you know, those did a lot of the driving for the costs, analysis and the cost to take out, you know, goals that we have.

Right and and super quick follow up, uh just the the projects that you said you needed to ramp up to hit the high end of the guide. That's just like regular seasonal project business, right? Or or is it like new launches or something more elaborate, or structural that? Yeah, I know there, there's kind of 2, 2 components. The largest is the 150 million dollars of net, new annualized revenue and final mile. That's really kind of the biggest chunk that we were talking about, you know, that should and, and, uh, contractually were set up to, uh, begin ramping. Those at the end of third quarter, start of the fourth, uh, you know, just what we were caveat. And I think is sometimes do you see delays or the full volume doesn't show up? Uh, overnight, right? And so, uh, I think we're, we were trying to be conservative in our approach there and then the second piece is really, just how long does West Coast speak? Uh, really continue. Um, you know, it remains a little bit unclear. Uh, but, you know, we're we're at least seeing some really robust Demand right now and uh, hopefully uh, we'll see that continue into the fourth quarter.

Very helpful. Thank you. Thank you.

Our last question comes from David Zazula of Barclays.

Hey, thanks for squeezing me in.

If I could ask about inner modal margins in our modal revenue, it ended up kind of in a relatively normal sequential range from what we can tell, at least not out of line with history. But the inner modal margin seems, from what we can tell, to be maybe a little behind where we would normally expect and didn't get the boost that you normally see in Q2. So maybe talk a little bit about what was behind the margin profile in the second quarter.

Yes, and thanks for the question. Um, you know, actually I would say seasonality. You know, we thought that the Intermodal revenue is actually a little down, you know. Normally we see Intermodal growth continued during the quarter. You know, where this where this quarter we saw, you know, April being our strongest month and then and then slowing up due to the the Tariff and that uh, sort of uh, little bit of a cliff there from from the ordering. Um, but really on the margin side. We were actually quite happy with it, uh, the its margin, um, you know, stepped up, uh, and actually, with sequentially the same but a higher than last year, by 30 basis points. Um, and that was with dedicated, having a little bit of a step back due to some loss customers. You know? So our increase of our Network utilization, uh, will the increase in our doing our own Dage have all added to our margin profile, as well as our rail contracts, you know, rail PT cost.

Uh did did come down and you know that is a testament to the rail contracts that are in place today.

If I could ask them.

Uh, you know, with the cost-saving measures, how much of that do you think you're going to allocate to logistics?

Uh, going forward. And you know, what do you think the impact would be on logistics margins? Yeah, uh, moving into quarters account.

Yeah, no, that's a good question as well. You know, I think, uh, the logistics margin, you know, we have two places, really, where the cost savings are going to affect logistics margins. At the highest is third-party carrier purchasing. Um, you know, we have done a lot of bids; there's still some more bids to do, but, you know, we've been uh,

Believe that, you know, they're still savings to come. Um so that's along with the final mile new business that that bill described in the last question. So we anticipate seeing sequential increases on the oi percentages for the logistic segment.

Excellent. And then clean up. I think frequently, you do discuss Intermodal. Yield about it in this release. Uh, do do you have what happened to animal yield during the quarter?

Yes, the re Revenue per load was down 9%, but I think we'll be highlighted in the prepared. Remarks is fuel, and mix were really the biggest headwinds there, uh, core prices, uh, relatively flat, not really kind of a year-over-year basis. It's not really a, an impact 1 way, or the other,

Thanks so much for the heart back. Thank you.

Thank you. I would now like to turn the conference back to Phil Joerger for closing remarks.

Great. Well, thank you so much for joining our call this evening. We appreciate your time and questions. As always, Kevin Garrett and I are available for any questions. Thanks so much, and have a good evening.

Ladies and gentlemen, this concludes today's conference call with Hub Group. Thank you for joining; you may now disconnect.