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 trough in the spot market.

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 are seeing some positive signs in the market with capacity exits and many customers orienting their purchasing decisions to value of both service and costs.

However, this capacity attrition is not occurring at a pace that is leading to more stability in the broader truckload environment. 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 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. The challenging broader industry fundamentals have more heavily impacted our intermodal and brokerage services.

However, we have outperformed expectations in early bid season as we focus on utilizing our improved rail and chassis agreements, enhance 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 in bid season, and our deliberate approach is helping to drive improved costs through our velocity and balance-oriented growth points.

Along with this, our brokerage continues to grow load count as customers recognize the value of our multiple service offerings, scale, and superior service. 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. In 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. Within managed transportation, our continuous improvements, technology, and purchasing power is driving customer retention and organic growth.

Last, within dedicated despite short-term headwinds due to start-up cost and increased claims expense, we are utilizing our award-winning service to grow 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 recovers.

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 restocking, 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. I will now discuss our reportable segments, starting with intermodal and transportation solutions.

ICS revenue declined 22% in the first quarter, driven by softer intermodal volume that declined 10%. Trans-con volume was down 6%.

Local East volume declined 2%, and local West declined 16%. 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 trans-con declining 2%.

In addition, the first quarter, month-over-month, illustrated growth 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. We are being successful in taking share in converting from over the road, while also creating balance and 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 volumes. Our improved cost structure is helping to support more competitive pricing while maintaining yield discipline.

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.

Our in-sourced rate was 77% throughout the first quarter, compared to 74% in the previous year, and improved driver productivity initiatives are further enhancing our cost per train, which will expand as we grow volume in 2024. Finally, our new bid awards are creating network balance that is reducing our repositioning costs.

We are pleased with the start of the second quarter, with Apri, 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.

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

Now turning to our logistics segment. 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.

Our acquisition synergies and leverage purchasing strength help improve our operating income 60 basis points when compared to the fourth quarter adjusted operating income. 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.

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 sequential volume growth.

The team continues to improve productivity that will expand as we further implement our brokerage IT initiatives throughout 2024. While we continue our logistics growth, our leverage 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 quarter.

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 100% utilized at opening. 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. I will now walk through our financial results before commenting on our outlook.

Our reported revenue for the first quarter of $1 billion. Revenue declined 13% compared to $1.2 billion last year, but was in line with fourth quarter revenue.

ICS revenue was $552 million, which is down 22% from prior year as expected, due to the challenging market conditions. Lower fuel revenue of approximately $32 million contributed to the decrease, as did lower revenue and lower intermodal volumes of approximately 10%.

Logistics revenue increased to $480 million, an increase of 2.4% year over year, as the contribution of the new Final Mile mileage 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 day of volume loss in the quarter.

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.

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 headcount. Depreciation and amortization expense increase as compared to 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. 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 pricing. This changed trading an earnings headwind of $3.5 million.

As a result, our operating income margin was 3.7% for the quarter, which was an increase over adjusted Q4 of 20 basis points. ICS operating margin was 2.4%, down slightly from Q4's adjusted OI percent of 2.6% due to the impact of the January storms, dedicated startup costs, and a larger than expected auto claims settlement in our dedicated business.

With this, its operating margin of 5% increased 60 basis points from the Q4 adjusted OI percentage of 4.4% due to strong results from Final Mile offsetting a lower brokerage margin. Interest expense and other income totaled $2.7 million, an increase of $1.1 million from last year.

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.

Overall, this translates into earnings of $0.44 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 spending related to $11 million of trackers. The remainder is technology projects and warehouse equipment.

We are lowering our full year outlook for CapEx, and now expect it to be between $45 million and $65 million as we have no additional container purchases planned, and lower tracker 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. We also issued our first quarterly dividend of $0.125 per share.

Through the first quarter, we have returned $33 million to shareholders through dividends and stock repurchases. 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 times to 1.25 times. We continue to expect EBITDA less CapEx for full year 2024 to be greater than the $257 million generated in 2023, demonstrating Hub's 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, and while Hub performed well in the first quarter, we anticipate a prolonged competitive pricing environment impacting our intermodal and brokerage line of businesses. 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 billion to $4.7 billion.

In our ICS segment, for the full year, we continue to expect intermodal volume growth in the high single digits, but price to be down mid single digits for the full year, due to our updated fuel revenue and market recovery assumptions. 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 or 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 a restocking demand, and more typical shipping patterns, including a traditional intermodal peak season and surcharge revenue during the peak season. 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 margin.

When there is a tightening of the truckload market with capacity exiting, we are well positioned to capitalize in 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 sale.

This quarter, we updated assumptions to assume that the challenges that we have experienced the last few quarters will continue into the fall. 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. 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, or 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 to any calls.

Hey, thanks. Good 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?

Sure Yes, Scott, this is Phil. So on year over year volumes, January was down 16%, February was down 6%, March was down 8%, and then April, month-to-date, is up 16%.

So a good trend that we're seeing there. I think that we've outperformed our our 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 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.

Yes, Scott, this is Brian. Just one thing to add.

Those at those year-over-year numbers, if we look at it month over month, we saw January that I mentioned at 5%, February at 9%, Marchwas at 5%, and then April through yesterday is at 11% over March. So we're seeing good momentum coming into Q2.

Alright. 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, if we had to give up?

Yes, I don't think it's material. I think it has been more competitive.

We're really focused on managing cost, and the velocity that we're able to generate in the network. So 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 it's not really incremental price.

It's just we think it's going to continue to be competitive. If you look at the broader landscape, capacity just is not exiting as quickly as we'd like.

We're not seeing a real ramp-up in the spot market 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 bits.

But yes, I'd like to add, this is Kevin. In our bids, the prices we are winning are what we were expecting.

And I want to point out that last year at this time, don't forget that, you know, I think we felt that we were above market. So we understood going into this bid process that we were going to have to come down, because we are already above market to begin with.

So the result of the bid through and our pricing strategy were in sync.

Okay. Maybe just to ask it a little differently and before I pass off.

So if I just think about like 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 costs from where we are in Q1?

Sure. So we're we aren't assuming rates really go down from here.

They're pretty well in line with where we were bidding last year. So that's why.

But we don't think they're growing that the back half that the price is going to be going up, right? So 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 taking up 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.

Thank you and good afternoon. 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 associated with some of the bids that could give you more of the leverage, if and when the spot market were to turn before next year?

Yes, I don't think we've seen a change to a shorter timeframe for a commitment time on bid. What 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's anything above that, we have an opportunity to earn a higher return.

And that's what Kevin was referencing on potential surcharges in the 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 you see that tightness.

Okay, thanks, Phil. And follow up, maybe difficult to answer, but is there any way to kind of gauge the competitive landscape of other intermodal providers versus truck?

Then thinking about the way of if you need excess capacity to come out of the market, 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 overcapacity may be a bit stickier? So maybe to talk about that in the context of that two-part question.

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

You know, I've been really pleased with our ability to compete with truck, 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. 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 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 I'm pleased with that.

I think the local east also can drive some really nice velocity and balance. And that will help us keep driving costs down, and improving the turns on our containers.

So to me, we're executing well on that portion of bid season, and it's good opportunities to be looking at .

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 services.

We go north and southbound with Mexico.

Following up on the cadence questions from earlier, if we look 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 will be above the first.

That gets you pretty close to halfway to your guide. Just 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 I'll leave it at that.

Yes, I'll start. This is Phil.

I do think we're certainly trying to be conservative just given how aggressive the front end of bid season has been. And that's why we assume there would be kind of very little pricing power in the back half, and that 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 that's still out there. So I think that that's really the conservatism to it.

And as Kevin mentioned, there's certainly upside as volumes come on. 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 I think we're just trying to be balanced based on what we know today.

Yes, I would just add to that. This is Kevin.

Certainly, as you said, when you look historically that seasonality comes into play. And we do see our OI increase quarter over quarter throughout the year, and 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 that peak surcharge availability is going to be. But we do see growth sort of sequential increases each quarter.

And from a higher level if I could follow up, if we look back 30 years, intermodal has been a tremendous secular growth story. If we only look the last seven or eight years, it's performed more like a capacity outlet and with a lot of cyclical volatility tied to truckload pricing and capacity.

How do you push back on the idea that intermodal has just become less secular and more cyclical? What do we need to do, or how far we can 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.

So again, I think a few things that have changed at least recently that I think are going to enable some of that strong growth that we've seen historically, first is the service resiliency that's being put into play. There's some pretty significant storms in January that could have in the past, given how lean things were run really disrupted overall service and taken some of the momentum out of the conversions that we 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 piece is how the rails look at intermodal now.

It used to be inflation plus pricing every year, not looking at the broader truckload market. That changed to focus on long-term growth as the growth engine for the rail industry, I think is a huge shift, and that's been more recent if you think about a more, more broadly within the industry.

I think the service levels that we're seeing right now, and we did talk about it, is the short haul conversion is a huge opportunity that's been untapped because of the service constraints. And right now, we're seeing evidence that that is shifting and that there is a customer preference to move into intermodal and the commitments along capacity are there.

I think if you think about sustainability and the importance to the supply chain going forward, 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, with near-shoring 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.

Yes. 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 growth.

And I'll just add one final thing. I think as a company, I'm not necessarily answering the question, but as a company, our acquisition strategy and investment the asset-light businesses that we have, that's stickier and OI has been more steady.

And I think that's really what I was trying to point out in our trough, the trough look, and the more than doubling of our OI from 2017.

Hi, good, thank you. This is Elliot Alper on for Jason Seidl.

Curious if you can speak to the capacity you currently have in your network? Your peers spoke to 20% excess capacity.

Really looks to hold onto that despite the market softness. Just how is Hub 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.

Sure. Yes, 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 staff by about 15% to support more of the volume. We've also seen our boxes turn faster on the rails.

So, picking up about an 8% improvement in the turn of our boxes, which helps improve our costs, generates more capacity for our customers. We do see as volumes grow to continue to unleash more of that capacity to support that, but then you did mention our other 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 improving as that volume grows, and we get more throughput through that.

And then we also mentioned our chassis program, right that that ramps throughout Q1. So it wasn't in full effect throughout Q1, kind of finished out in mid-March, but we'll get full effects of that in Q2, and throughout the rest of the year.

And just to add one thing, 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.

I'd just add, I think on the street, we've done a much better job. Our cost per drive 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 [for the company], that street economics is a big part of it as well.

Got it. Thanks.

And then maybe just a follow up, curious to hear your thoughts on the first few months for the Final Mile acquisition.

Sure. Again, 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 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's more of that to come.

As Brian said, I think culturally, it's been a great alignment. Both of our organizations are focused on service and the great reputation that we have together, I think, is enabling a lot of that cross-selling.

That’s has been great, great off right off the bat.

Hey, good afternoon, thanks for taking the question. 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-single digits, it's going to be a lot more impactful than 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 the things that Brian was mentioning in terms of the chassis and the density or is there something else some I'm missing here?

Because again, it usually feels like pricing down that much is going to make it hard to improve margins?

Yes, Brian, yes, you're definitely correct. Price definitely moves the needle much quicker than volume does.

We do believe that some costs are still in middle innings of the cost takeout. We will also be seen 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 of points, one way or the other throughout the year.

Yes, I think a lot of it depends on realization rate as well. And do we see kind of a typical seasonality there?

As Kevin mentioned, there's just upside. I think we'd see more typical seasonality would be three years in a row now without a real peak, which I think would be odd, but there's certainly some factors that are out there that could drive some increase.

West coast imports, and watching that closely and aligning with our customers around what peak might look like, but certainly that's upside potential, but as Kevin also mentioned, we are anticipating operating margin dollar improvement quarter-to-quarter through this year.

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 sort of the spreads that you're seeing there, because what we're tracking is still pretty competitive, which obviously you're seeing in the market as well, but I wouldn't have expected to hear that much success considering just how competitive that market especially is, and it is in the short haul.

So what are you seeing there and how you're getting those deals done?

Yes, we're seeing intermodal spread to contract truckload in the high 20%, some of the spot pricing compresses that into the single digit level, but that's still where we're able to compete. And in those shorter length to haul, we're still able to compete against truck within those ranges.

So, I think it began a focus on our costs, and to your earlier question, too, just to add that as well, we intend to stay balanced, right? That 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.

And I'd just like to add, I think we're providing a truck-like service, and it's been highly consistent. And I know I've referenced this couple of times, that it's about service levels I've seen in my tenure at Hub, and so I think that's a huge factor in building customer confidence.

So yes, we think that will progress throughout the year. And you'll see, as we mentioned, with April being up 16%.

A large portion of that will be locally flowing.

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 ITS margins, I know you mentioned there was a claims settlement.

I was curious if you could quantify the impact from that?

Yes, Justin, this is Kevin. Yes, so OI for ITS was 2.4%.

And no, we're not going to give the actual numbers on any claims settlements, but 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 start-up costs in the dedicated as we were growing in the Pacific Northwest, and we had that claim as well. So across the board that, you know, there are a couple of things, a couple of basis points back to where we were on OI adjusted for Q4.

And, rounding out the question, and I think revenue per load was down 15% in intermodal. I think two things Kevin referenced in his prepared remarks were fuel and .

The other thing I would just highlight is that mix impact from local east really outperforming those longer haul segments certainly was the revenue per load headwind in the quarter.

Okay. Got it.

So that intermodal yield number you said was down 15%?

Correct.

Okay, thanks. And I guess shifting to the Logistics segment, you talked about the growth you're expecting this year.

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 thoughts on what you view as the normalized margin for that segment pro forma for that deal?

Yes, I'll touch on the growth, Justin, this is Brian. We're really pleased with what we have set up within our logistics network as we build that 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. 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. I think as we do that, we do see our yields improve.

And the pricing becomes less of a topic the more we cross-sell and the business becomes stickier. So we do anticipate that that continued growth.

And I'll let Kevin maybe mention -- to speak to the margins.

Yes, so, on the margins here, unfortunately, right now, the brokerage margin is really dragging down the logistics segments. Now the truckload and the spot market are much lower than our overall margins.

So I think we're really probably at the trough as far as that goes. And I think the only upside as the truckload, both contract and spot market wouldn't inflect upwards.

And I would just round it out with I think the brokerage revenue per load is the big headwind. If you thought about the logistics business organically ex 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.

And I think our team's did a great job, in particular, selling the LTL solutions and our cross-docking network continues to expand as well. So a lot of really good things happening there.

And the brokerage I would tie more to we're dealing with market conditions, and a lot of our growth is in LTL, which the lower revenue per load. But if you look at those more contractual services, those are growing quite nicely on the top line.

Yes, good afternoon. I 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 heavy towards spot? Or is it 50-50?

Where are you right now on contract and spot and brokerage?

Yes, Tom, this is Brian. It stayed pretty consistent.

We're right about 50-50, 48-52. And I think that helps us position where we're able to leverage our contracted capacity, and freight with carriers to be able to then position that for improved spot pricing, that we can go to market with, and continue to win that volume.

We think that will 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 debt balance in our brokerage.

Okay. Yes.

Great. Thanks, Brian.

And then I think, you're getting growth coming in pretty significantly in intermodal. What do you think the dynamic the impact 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. 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 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 the you see competition from international, and capacity available in international, or is it more so where people want to keep the inventory and there's inventory in the inland empire? Just trying to figure out the different pieces setting aside competition within the domestic?

Thanks.

Yes, no, I think it's a great question. Yes, it's certainly a competitive set right now.

You typically see your point, when things are busy and 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 inland and be taking on some revenue. And so I think our customers are, if it's west coast oriented, the economics still point to utilizing transloading most of the time, although if pricing continues to drop, they might just use those boxes going inland.

But the utility you get in extra freight, you can fit into a big box, obviously its a pack. But we see less transloading on the East Coast, more IPI competition there, I would tell you, but yes, it's certainly something we're seeing right now.

But 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.

Do you think there is some negative effect of maybe the international player behavior 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?

No, it certainly does. Yes.

I think the potential east coast labor disruptions is going to be another driver of volume. And yes, I would I would say, though, that right now, it's certainly a piece of competition that we're dealing with ITI.

Thanks, operator, and good afternoon, everybody. Just to follow up here, on the commentary on Final Mile.

I'm wondering if it's possible to parse out what the organic growth might have looked like in that business and maybe how far you're into that cross-sell push that you talked about as an opportunity?

So just if I'm understanding you're asking of their revenue, how much was organic growth of the acquisition?

Yes. I mean, I'll take a shot at that.

I think the organic growth on our existing business would have been high mid, high single digits on a year-over-year basis. And we've seen some spring surge, which has been been great.

Obviously, with the addition of the acquisition, that's been much higher, and a very large incremental growth. When we think about cross-sell, we are ahead of schedule.

We had some overlapping customers that we're getting deeper with. And then we were able to open some doors with new clients where we did not have an appliance offering before.

Some of those wins have already started. Others, I would say, and the vast majority, are still kind of in that contract phase and are in a start-up process right now.

So that will start to really see the benefits of the cross-sell, I think as the year progresses, and we get into kind of the Q3, Q4 timeframe.

Okay, perfect. Yes, that was exactly what I was looking for.

And then just maybe a little bit more broadly, I know diversification of the model has been a real focus for you recently, and I know that we're still somewhat fresh from Final Mile. But when you think about additional M&A, are you back in the market at this point?

If so, are there any areas that you've identified as focuses maybe on the intermodal dray side? If properties become available there and maybe more on the retail consolidation, but any color there would be great.

Yes, I think if you look at our free cash flow generation and balance sheet, and we've gotten quite good at integrations at this point, or at least we feel we have. And so I think we are back in the market.

We're certainly looking and are active. But 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 a direct strategic growth there, we would be very interested in. But the focus it continues to be on really building out that non-asset logistics platform.

We feel that 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 mentioned retail consolidations, 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 very interesting for us. So we have targets that we are really focused on.

But really have a great pipeline, and I'm pretty pleased with how our team is doing in identifying new opportunities and vetting them very quickly.

Hey, great. This is Christyne McGarvey on for Ravi Shanker.

Thanks for taking the question. I wanted to draw on your comment earlier in the call about 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 normalized earnings power. And maybe just talk to us a little bit how you guys think about the normalized earnings power of the company as it stands today?

Well, sure. I think I totally agree with you.

I think the COVID pandemic there led to some supply chain disruptions. But I think they really led to some over earning and 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 that was, I think, an anomaly. 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 that it's likely to come in the middle, and igher than where we are today.

If you think about mid-cycle margins, we think our IPS margin could get back into that 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 while revenue was 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.

Great, thanks. That's really helpful to think through.

If I could just squeeze in one more near term, you called out also the beginning of the call, the capacity. I think that's probably one of the bigger surprises of this cycle, just how long capacity has been able to hold on here.

So just would be curious what you guys are seeing there? A little bit more color on, you know, some data actually suggesting net additions right now, which seems hard to believe.

So would just be curious what you guys are seeing on that? And what do you think kind of finally pushes some of that capacity out of market?

Yes, we are seeing capacity exit at least in what we're looking at. I think, 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 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 it originally hope so.

Yes, I think that we will see some more capacity exits. I think in the intermodal space, we're remaining disciplined on redeploying back 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 returns?

And so I think for us, we're also really only investing in our tractor fleet right now 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 percentage as we drive growth. So I don't anticipate you're going to see a whole lot of capacity entering the market at this point in time.

And you'll 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.

Hey, this is David Zazula from Barclays. Appreciate you taking the question.

I just saw on the incremental volume you're getting in intermodal, if you could 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 how you think of the returns you're getting on assets, and kind of what would make you think of investing in additional asset sales as the cycle turns?

Sure yes, I'll get us started here. This is Brian.

I think 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.

I think a part of that, too, we stay focused on a margin per load day, and that helps us go after the over the road conversions that we need to, and we've mentioned in the local east. So we're 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.

And as far as purchasing more capacity, 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.

So, until we see an inflection in the market. No, we don't anticipate any additional container purchase.

Very helpful. And if I could just get a follow up, you did talk a little bit about the cost programs.

Wonder if you could give a little more color on the employee costs. It seems like you're doing actually 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 margin up?

Yes, sure. One of the things -- 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. 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%.

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

Great. Well, thank you very much for joining our call this evening.

And Kevin, Brian and I are available as always to answer any questions