Title

Presentation

Operator: Hello, and welcome to the Hub Group First Quarter 2025 Earnings Conference Call. Phil Yeager, Hub’s President, Chief Executive Officer and Vice Chairman; and Kevin Beth, Chief Financial Officer and Treasurer are joining the call. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the prepared remarks. [Operator Instructions]. Statements made on this call and in other reference documents on our website that are not historical facts are forward-looking statements. These forward-looking statements are not guarantees of future performance and involves risks, uncertainties, and other factors that might cause actual results to — 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 filings 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 Yeager. You may now begin.

Phillip D. Yeager: Good afternoon and welcome to Hub Group’s first quarter earnings call. Joining me today is Kevin Beth, Hub Group’s Chief Financial Officer and Garrett Holland, our Senior Vice President of Investor Relations. I’d like to start by thanking our thousands of team members across North America for their efforts to support our customers and our Hub Group family through this dynamic market. These efforts drove a 40 basis point improvement in operating margins during the quarter and are setting us up for success, both in the current market and long term. Our customers have taken different approaches to managing through the implementation of tariffs, with the majority taking a wait and see approach, while others pull forward inventory depending on their end markets, product types and origin of their finished goods.

It remains unclear what the near and long term impacts will be as many of our customers have diversified their vendor base and supply chains to ensure fluidity through these potential disruptions. However, this has also created an increased focus for our customers to drive savings in their supply chain, which is supporting over-the-road conversions in Intermodal and increasing the pipeline for our consolidation and managed transportation solutions. There will likely be a near term impact to import volumes to the West Coast, but the magnitude remains uncertain as our volumes have remained steady. We are closely monitoring the situation, while staying in constant communication with our clients on their needs. Through this current turbulence in global trade, we are focusing on what we can control, winning profitable growth across all of our segments by leveraging our great service, decreasing costs through our newly implemented $40 million cost reduction program, and maintaining our strong balance sheet below our long-term leverage target, giving us flexibility to invest in our business, return capital to shareholders, which totaled $21 million in the quarter, identify strategic acquisition opportunities, and preserve our strong culture and team.

I will now discuss our business results starting with ITS, where we delivered an 8% increase in year-over-year operating margin due to improvements in dedicated operations, higher Intermodal volumes and the EASO joint venture. This margin improvement was partially offset by slightly lower revenue driven by declines in dedicated volume due to lower demand as well as small lot sites and lower Intermodal revenue per load. Intermodal’s volumes increased 8% year-over-year due to bid wins, a pull forward of inventory, and benefit from the EASO transaction. Local East volumes increased 13%, Local West increased 5% and Transcon shipments were down 1% year-over-year, while we had significant volume growth in Mexico through organic expansion and our joint venture.

Revenue decreased due to a 12% decline in revenue per load, which was impacted by fuel mix and price. We are executing well in bid season, onboarding wins with a mix of new and existing customers in network beneficial lanes due to our excellent service. We are closely monitoring award compliance, and although shipping patterns have been more erratic, we are seeing improvements as we onboard new awards. During the quarter, we reduced insurance expense, increased our insourced dray percentage, drove better container utilization and empty repositioning costs, while cost per dray and driver productivity remained relatively flat year-over-year. We have further actions in place to enhance these operational areas and anticipate further improvement in the quarters ahead.

In Dedicated, we are operating in a competitive environment. And while we have had losses of smaller sites to runway truckload, we have had a strong renewal rate and new wins we are onboarding. We improved our revenue per truck per day by 9% year-over-year in the quarter and are focused on delivering value to our customers through our strong service levels and cost reductions. In Logistics, our operating margin percentage improved 70 basis points year-over-year due to improved efficiency in our facilities as well as the completion of the network alignment initiative that was offset by lower margins in our brokerage. We experienced a larger decline in revenue at brokerage due to limited spot market opportunities and decline in rates as well as negative mix.

This was offset by better relative performance in our contractual Logistics offerings. Brokerage volume declined 9% year-over-year with a 10% decline in revenue per load, which was primarily driven by lower fuel price and mix. Our LTL offering is performing well, helping to drive sequential margin improvement from the fourth quarter. We also reduced negative margin shipments by 210 basis points year-over-year and are winning with new and existing customers in bid season, while reducing our purchase transportation costs. In our Managed Solutions, we delivered operating margin percentage improvement in all of our services, the largest being in CFS following the implementation of operational efficiency enhancements and our network alignment initiative completion.

This has led to an 1,100 basis point improvement in warehouse utilization year-over-year. We are focused on growth across all of our offerings and improving our cost basis through productivity enhancements, and we have a strong pipeline as we leverage our scale and service to compete and win in the market. With that, I will hand it over to Kevin to discuss our financial results.

Kevin Beth: Thank you, Phil. I will walk through our financial results before commenting on our outlook. Our reported revenue for the first quarter was $915 million. Revenue decreased by 8% compared to last year and was in line with fourth quarter revenue. ICF revenue was $530 million which is down 4% from prior year’s revenue of $552 million as Intermodal volume growth of 8% was offset by lower Intermodal revenue per load due to a change in mix and slightly lower dedicated revenue in the quarter. Additionally, lower fuel revenue of approximately $11 million negatively impacted the top line. The Logistics segment revenue was $411 million compared to $480 million in the prior year, due to lower volume and revenue per load in our brokerage business, exiting of unprofitable business in CFS and seasonal softness in our managed transportation and final mile lines of business.

Lower fuel revenue of $14 million in the quarter also contributed to the decrease. Moving down to P&L, for the quarter, purchased transportation and warehousing costs were $658 million, a decrease of $82 million from the prior year due to strong cost controls as well as lower rail and warehouse expenses. This results in a 220 basis point improvement on a percent of revenue basis when compared to Q1 of 2024. Salaries and benefits of $149 million or $5 million higher than the prior year due to additional employee drivers and warehouse team members and the EASO transaction. Total legacy headcount, which excludes acquisition employees, drivers and warehouse employees, was lower than last year by 7% as we continue to manage headcount across the organization.

Depreciation and amortization decreased $6 million over Q1 2024 due to our updated useful life assumptions. Insurance and claims expense decreased by $2 million as we continue to see our safety focus and training programs pay dividends. Even after the EASO transaction last quarter, our cost controls allowed our general and administration expenses to remain in line with prior year. As a result, our operating income increased year-over-year, with an operating income margin of 4.1% for the quarter, an increase of 40 basis points over the prior year. ITS quarterly operating margin was 2.7%, a 30 basis point improvement over prior year. First quarter Logistics operating margin was 5.7%, a 70 basis point improvement over Q1 2024. EBITDA was $85 million in the first quarter.

Overall, Hub earned an EPS of $0.44 in the first quarter, in line with Q1 2024. Now turning to our cash flow. Cash flow from operations for the first three months of 2025 was $70 million. First quarter capital expenditure totaled $19 million with majority of spend related to tractor replacements, with technology making up the remainder of the spend. Our balance sheet and financial position remains strong. Through the first quarter, we returned $21 million to shareholders through dividends and stock repurchases, as we purchased $14 million of shares and issued our quarterly dividend of $0.125 per share. Net debt was $140 million which is 0.4 times EBITDA, below our stated net debt of EBITDA range of 0.75 times to 1.25 times. EBITDA less CAPEX was $65 million in the first quarter.

We are pleased with our cash EPS of $0.55. The spread between EPS and cash EPS was $0.11 for the quarter, and we ended the quarter with $141 million of cash. Turning to our 2025 guidance, we expect full year EPS in the range of $1.75 to $2.25 and revenue to be between $3.6 billion to $4 billion for the full year. We project an effective tax rate of approximately 24%. We also expect capital expenditures in the range of $40 million to $50 million as we focus on replacement for tractors that have reached their end of life and technology projects. We do not plan to purchase containers in 2025. Our assumptions at the high end of the range include either a short West Coast slowdown of China imports or a strong bounce back of demands in the West Coast leading to a surge of volume in the back half of the year that allows for increased pricing for peak season surcharges.

The low end of the range would be due to an extended slowdown in China imports and/or the weakening of consumer spending. The decrease in volume and margin dollars would be partially offset by further cost management efforts. The assumptions in the middle of the range contemplate a volume decrease in the second half of the second quarter due to our customers’ changing shipping patterns to combat tariffs with a return to directional seasonality in the third quarter as consumer strength holds. Additionally, we should recognize additional cost saving benefits through the year as the team remains committed to discipline expense management. For the ITS segment, we expect pricing to be relatively flat for the remainder of the year, as we continue to focus on network needs and new customer acquisitions.

We think there is upside should we see a bounce back of volume, which would allow for peak season surcharges and pricing increases. Due to the expected second quarter slowdown, we expect sequential operating results to be flat to down from first quarter. Then we would expect to be back to normal seasonal operating income pattern. We expect dedicated revenues to be less than 2024 as new customers are not enough to offset lost customers and demand softness. For Logistics, excluding our brokerage business, we expect some general softness in demand, but there should be some mitigating factors affecting revenue. In our warehouse business if we experience lower transportation revenue, we expect to see an increase in storage revenue, and in our final mile and managed transportation business, we have a good pipeline, which, if onboarded, could offset slower shipping from current customers.

For brokerage, we expect volume for the remainder of the year to be flat to down from current volume results, but pricing to continue at current levels. The business has potential upside if we see a pronounced bounce back in inventory restocking. We continue to manage what we can control and our cost savings initiatives have resulted in improved profitability. We are pleased with the progress the team has made with the operating income percentage increase in both segments, ITS with 30 basis points and Logistics with 70 basis points of growth, resulting in a 1% increase in consolidated operating income or growth of 40 basis points on a percent to revenue basis. We also reported Q1 Intermodal volume growth of 8%, free cash flow of $51 million, and cash EPS of $0.55.

As we manage through this unpredictable environment, our longer term strategy continues to guide us. We remain focused on managing our people costs, reducing discretionary spending, and driving down transportation costs. At the same time, our strong balance sheet allows us to make value-added acquisition. As I have noted in the past, the important strategic changes we have made to our business, including our focus on yield management, asset utilization, and operating expense efficiency, and investing in assets light Logistics offerings have significantly improved profitability, predictability, free cash flow and returns. We believe these strategic changes allow Hub Group to be successful in a variety of macroeconomic environments. With that, I’ll turn it over to the operator to open the line to any questions.

Operator: Thank you. [Operator Instructions]. Our first question is from Scott Group of Wolfe Research LLC. Your question please.

Scott Group: Hey thanks, afternoon guys. So can you just talk about what percentage of Intermodal is tied to West Coast ports and then maybe, I think in the past, you gave us monthly trends, maybe just give us the monthly trends and what April was? And then, I know this a bunch, but all sort of in the same vein. But it feels like this import cliffs is starting this week, so just what you’re expecting to happen to your volumes going forward?

Phillip D. Yeager: Sure. Yes. So I’ll start. I’ll start with volume trends. January was up 18%, February was up 1%, March was up 7%, and then April was up 6%. Thus far, in May we haven’t seen the slowdown that is, obviously much anticipated. But at this point not showing up in our data. We think that’s going to be varying by customer and how much they have pulled forward, how much seasonal products they have, how much diversification in their sourcing strategy they’ve been able to execute on. As far as exposure with China, about 25% of our West Coast volumes, port related 30% of that coming from China. We are, obviously, anticipating that slowdown. Once again, will vary by customer. But we’re also going to have opportunities to reduce costs.

Our — repositioning costs are going to go down. We’re going to insource more of our drayage, as Kevin mentioned in the prepared remarks. Our storage revenue and warehouse utilization will improve. So we’re certainly monitoring it closely, but once again haven’t seen an impact at this point.

Scott Group: And what’s like the typical lag from when it shows up at a port to when it shows up in your volume. And do you have a sense, is there a lot of freight at the ports or near the ports and warehouses that they’re still, like that was built up to like — you still have volume to move even if there’s not a lot of new stuff coming into the ports, is that possibly happening?

Phillip D. Yeager: Yes, yes, I would agree with you. I think it takes a few weeks and we haven’t seen that show up yet. But yes, indications are there’s still good amount of warehouses and still clearing through the port infrastructure. So yes. But we’re staying very close with our customers on it. And once again, it’s going to vary by customer and by end market and by product type. And so, it really varies by customer and we’re — so we’re having to stay very close and just really watch those day-to-day, week-to-week award compliances and forecasts from our clients.

Scott Group: And then last one, I’ll pass it off. Any update you can give us just on bid season and what kind of pricing you’re seeing?

Phillip D. Yeager: Yes, yes. I would say it’s competitive, but certainly not irrational. If you look at Q1, there was actually a pull forward of bids. We had about 48% of our business gets bid in Q1 which we think was actually advantageous for Intermodal. Truckload, carriers came out with a little bit more aggression on rate. That led our customers, I think, to look at the cost differential, as well as the service products we’re delivering in Intermodal and push a little bit more conversion than they may have otherwise. In Q2, 38% of our business is getting bid out. I would say it’s been a little bit more aggressive, which is leading us to really say we think flattish on pricing for the full year. But we’ve executed our bid plan.

We’ve done really well in backhauling’s and efficient business for our drivers. We’re growing well in the East and in Mexico, and also with our temperature control products. We’ve added 50 new logos thus far through bid season. So really pleased with those results. And I think the focus for us to keep delivering a great service product, keep reducing costs so we can compete and win, and we’ll be in a good position, as we see volume normalize.

Kevin Beth: And Scott, this is Kevin. Just our normal cadence on bids is about 30% to 35% in first quarter and about 35% in second quarter. So you can see that, that bid pull forward that Phil was talking about.

Scott Group: Thank you guys, appreciate it.

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

Bascome Majors: Thanks for taking my questions. Maybe adding a little more qualitative commentary to that. Can you walk through how your conversations with your largest customers, which are the largest retailers, with sophisticated ways to deal with this situation, how has that evolved over the last six to seven weeks and are your forecast in the kind of high and low-end scenarios of revenue that you talked about, you are tied to what they’re sharing with you for their forecast, just trying to understand how quickly this is moving and how much visibility you think you do or don’t have at this point? Thank you.

Phillip D. Yeager: Sure. Yes, this is Phil. So I think we do anticipate a drop in import demand in the second half of the second quarter. I think the scenarios or potential outcomes we’re trying to lay out are, if we see a quick rebound and things snap back really quickly and we’re getting surcharges, then you’re at that high end of the range that we gave you. If it’s really prolonged and you started to see it impact the consumer, you could be at that low end. And based on what we know, there’s probably somewhere in the middle that things will land. And so that’s kind of the midpoint of the range. And based on what we’re seeing with our customers, the discussions we’ve had with them, there is some pull forward that’s occurred, certainly.

I mean, you look at our January volumes up 18%, there was certainly pull forward. But not enough where inventories are overstocked at this point. And there’s also a whole lot of seasonal shipping that needs to occur that hasn’t taken place yet. So our customers, many had already been proactive in diversifying their supply chains and vendor base and others are reacting more in real time. So I would tell you it’s also quite varied in how people have managed through it. Those that were more concentrated on Chinese imports pulled forward, those that didn’t are taking that wait-and-see approach. And so it really has been a mix. But once again, we’re watching it closely. And this is based — the guidance is really based on those variety of potential outcomes as informed by the discussions we’re having with our customers and what we anticipate happening.

Kevin Beth: Yes, Bascome, this is Kevin. I’ll just add. Certainly, we’re taking as many data points as we can get our hands on when we’re coming up with our scenarios. So yes, that factors in what we’re hearing from customers, but also what we’re reading and what’s available publicly.

Phillip D. Yeager: And this last thing I’d add is, the primary impact, at least in the near term, would be ITS or Intermodal. Our other businesses are going to be somewhat more resilient through this. Our managed transportation business is not as import heavy. Our warehousing business is going to see an influx of storage demand likely. And so we have some offsets and obviously, we’re doing a good job managing costs to ensure we’re in a good position.

Kevin Beth: And finally, one thing I would add is, this really gives Hub that opportunity to work with our customers and show them that we can save them money and come up with better transportation spend to really meet their needs. So that is an opportunity that we’re trying to take advantage of as well.

Bascome Majors: And if we work backwards from the holidays through this uncertainty and just think about retail inventory needing to move inland and hit store shelves by November, early December, when do you think that you’ll have the visibility in those decisions on how to manage through this will be made by those customers?

Phillip D. Yeager: Yes. I think there’s certainly an air pocket of freight that’s coming. I think there is going to be some replacement of that from other origin points. They’re, once again, are those seasonal items, back-to-school, Halloween that are going to need to be brought in or you’re going to miss sales. And then I think for the holidays, you typically see Q3 be our strongest shipping quarter. August — late August, September and then October are normally our strongest shipping months to get that products. You’re really seeing those decisions in the July time frame — late June or early July, and we should hopefully start to see it in the data at that point. I think if there’s clarity around trade, people are — the consumers remaining resilient and people are going to ship.

And once again, inventories just haven’t been overly built in a lot of the segments that we operate in. So we’re keeping a close eye on it though, and we’ll certainly continue to stay very close to our customers.

Bascome Majors: Thank you all.

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

Jizong Chan: Yeah, thanks operator and good afternoon everyone. Kevin, you talked about some of the additional levers that you can pull on to offset some of the pressure of the environment, kind of trends towards the bear side of the outlook, and that was certainly helpful. Specific to headcount, last year, I think you talked about headcount being down about, I want to say, 3%. Where was headcount this quarter and if you think about a potential deterioration in the market, where can that number sort of go to?

Phillip D. Yeager: Yes. This is Phil. I’ll start. So headcount was down 7%. As I mentioned in my prepared remarks, we have about $40 million of cost cuts that we’re executing on. Half of that has been implemented really at the time of the call. So you start to see that kind of back half of Q2 and more materially in the third quarter and we’ll implement the remainder as the year progresses. But two thirds of that amount is purchase transportation, so drayage, truckload, LTL as well as temporary labor in the warehouses. The other third is more salaries and benefits weighted with the reduction in headcount, not backfilling roles that are necessary, but we’re also doing a really nice job and have made some significant reductions in our outsourced labor there as well.

So once again, we’re controlling what we can. We want to be in a position where we can support our customers as we see a rebound in demand as well. So we’re certainly being thoughtful in our approach around it, but obviously see opportunities to reduce costs as well.

Kevin Beth: Yes. Just to add that. We also have some of our technology implementations are paying off. We’re seeing some reduced spend in our outsourced support systems that we needed for some legacy IT, as well as the consulting on the IT spend is coming down as well. So we have pretty much every facet we’ve looked under, and we’re finding things that are allowing us to decrease costs. And as Phil mentioned, several of those programs have already been implemented. Other ones are being implemented as we speak. And so we’ll see some of that benefit grow as the year progresses.

Phillip D. Yeager: And these improvements are on top of the reductions we made in the network alignment initiative. And I think the team has done a great job in reducing empty repositioning costs, which were down 17% year-over-year in the quarter. And then we have also been reducing insurance expense. Team has done a great job in reducing accident frequency and severity. And so that has been a tailwind as well.

Jizong Chan: Okay, that’s super helpful color. And then maybe just for the follow-up, looking for some updates on EASO in terms of business trends. I know you mentioned that the Mexican volumes there are pretty strong. Any evidence of sourcing shifts there yet and if you think about M&A, we’ve talked about that a lot in the past, but specific to Mexico, do you feel like there’s still opportunity to kind of fortify your presence there or do you think that you’re pretty well built out?

Phillip D. Yeager: Yes. I would say EASO has been a fantastic joint venture, and we’ve been off to a great start. Our volumes were about 4x on a year-over-year basis, and we’re cross-selling really well, have some significant opportunities we’re working on with our rail partners, and it’s very exciting. We have seen erratic shipping patterns with some of the news around tariffs being on and off. So I think the more we get clarity there, the better. But for the time being, most of our customers are back to normal shipping, and we’re seeing increases in volume just on an organic basis, even before some of the cross-selling and obviously, just the upside from having EASO in our numbers. We are continuing to look at acquisition opportunities.

We have a really good pipeline right now, some really interesting opportunities. I do think adding more solutions to support our customers in Mexico over time will be the right approach. And so we’re certainly going to be opportunistic within that. We also have a lot of interesting opportunities in the space right now that will help us continue to build scale and differentiation in the existing service lines. So a lot of good opportunities.

Jizong Chan: That’s great. Thank you.

Operator: Our next question comes from the line of Uday Khanapurkar with TD Cowen.

Uday Khanapurkar: Hi thanks, this is Uday on for Jason Seidl. I guess, just one on surcharges. Your guide originally called for modest peak season surcharges kind of preempting the pull forward. Are we still expecting that kind of in the base case? And maybe secondly, on the high end, are you assuming we see surcharges maybe earlier in the year than usual if this air pocket kind of gives way to a big influx?

Kevin Beth: Sure. Yes, this is Kevin. I’ll take that one. To answer your question on surcharges, the base case, there is none incorporated in the base case. Certainly, in the pull case, yes, surcharges are contemplated, not to the level that we saw last year of $5.5 million. But the timing of it is really in question. I think that’s really one of the big things that is unknown at this time, that depending on when if tariffs change or as Phil spoke about earlier, if that restocking really comes at a certain time, that is probably when we would see the surcharges. But without knowing what’s going to happen with tariffs, it’s really hard to predict when that would happen.

Uday Khanapurkar: Okay, that’s pretty helpful. And then maybe just another clarification. I mean you said it was advantageous that a big chunk of bid got pulled into 1Q. Is that indicating that the Intermodal pricing environment sort of deteriorated into 2Q and that we need some kind of stabilization in the second half to get to the flat year-on-year?

Phillip D. Yeager: No. No, I think what we were seeing at the initial onset of bid season was more aggressive truckload pricing and trying to push rates up and Intermodal was remaining similar to what we talked about, taking some rate in head hauls, still very aggressive in backhauls. What we’ve seen now in the second portion of bid season is just more truckload competition. So not really any change in the Intermodal space. It’s been more — or I guess, less opportunities for near-term conversion just given some of the pricing that we’re seeing from truckload carriers. But we’re still winning in the market. I mean we have a really good spread versus truck right now, around 30% in aggregate, and we have a really good value proposition with service.

I think the other thing is our customers are recognizing that if the consumer holds, there is going to be some significant shipping demand in the back half. And so they want to make sure they’re locking in that capacity and Intermodal is obviously a good opportunity, one, to reduce cost in the supply chain; but two, make sure they’re locking in capacity if there is a surge.

Uday Khanapurkar: Okay, that’s great. Maybe if I can squeeze one on Dedicated. I mean, how many bid seasons do you think it will take to kind of get rates to kind of the previous high watermarks in the previous cycle, any thoughts on that?

Kevin Beth: Yes. So Dedicated is multi-year contracts. So we’re constantly having renewals every year. Right now, it’s a little bit more competitive with one way. The rates are typically based off of driver pay with a fixed and variable portion. And while it’s been somewhat more aggressive, and we’re still doing a really good job on renewals, and we’ve done a lot of self-help on controlling costs and improving our operating performance, which is really supporting those improved margins on a year-over-year basis. So we feel as though there’s still opportunities regardless of what’s going on with rate, and we’ll constantly every year be renewing contracts and if wages are going up, we’ll be taking rates up and vice versa. So right now, though, obviously a competitive environment, but we’re holding our own really well with strong renewals, strong service levels, and we are being proactive with our customers and identifying efficiency opportunities.

Uday Khanapurkar: Alright, thanks for the time.

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

Jonathan Chappell: Thank you, good afternoon. Kevin, just trying to put a pin on some of these things, which I understand are difficult to put a pin on just given the uncertainty. But in the guidance in February, looking for high single-digit Intermodal volume growth and low single-digit pricing increases, given what you said for the midpoint today, volume decreases in the second half of 2Q, return to directional seasonality, ITS pricing flat for the rest of the year, what would that translate to for full year Intermodal volume growth and pricing?

Kevin Beth: Thank you, Jon for the question. Yes, we’re not — due to the varying scenarios that we really came up with and the uncertainty, we’re not providing full year forecasted volume numbers at this time. Like you said, we do anticipate a slowdown here in the second half of this quarter. But just without having some visibility into when that whiplash could come back and how strong that is, we’re not providing those amounts this time.

Jonathan Chappell: Okay, that makes sense. And on the pricing side, if it were to be flat from today, would that be — would that still be positive year-over-year in the second half or would that be kind of closer to flat year-over-year?

Kevin Beth: Yes, it would be pretty close to flat for year-over-year. And like Phil said, we do have good visibility to that with the bids being pulled forward. So it will be dependent on how the mix ends up being, and that is, again, making sure how compliant customers are with what they’re telling us and sticking to their actual guide of freight that they originally projected.

Jonathan Chappell: Okay, that makes sense. One just quick last follow-up. Again, in Feb, you were looking for a normalization of incentive comp, which I think you had expected to be a headwind. You talked about all the great things you’re doing on the cost side. Is that dialed down a bit as well or do you still kind of expect the same instead of comp headwind year-over-year 2025 versus 2024?

Kevin Beth: Yes. I think overall, we still expect some headwind there, but it is being muted a little bit now with the change in the actual headcount itself.

Jonathan Chappell: Got it, appreciate the comments. Thank you.

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

Brian Ossenbeck: Hey, good afternoon. Thanks for taking the questions. So maybe just a broader question on the network — Intermodal network and the utilization of it and sort of the balance overall. It sounded like you had some pretty good reduction in empty repositioning costs, but maybe you can elaborate a little bit more on that, do you still see pockets that are maybe a little bit less dense than you would like or were you able to address those during bid season?

Phillip D. Yeager: Yes. Yes. No, we are pleased with the progress on empty repos even with that January pull forward of freight. Reducing repo cost 17%, we felt like it was a really good outcome for us, and that was due to those bid wins and creating better balance and velocity. And so we’re pleased with that. We think we’ve continued to execute well in bids on the targeted lanes. We’ll likely see a step down just with the unknown of how far West Coast volumes drop with this import air pocket. But — so we’ll see another step down just due to less demand off the West Coast. But I think we’re controlling what we can control. And long term, you still want to be filling in those backhaul lanes. So we’ve done a good job with that.

The growth in the East is going to continue to create more balance and velocity there. Turn times in total were about 4% better on a year-over-year basis. So we’re pleased with that as well. And so we’re getting more out of what we have on the street. We need to keep that momentum. But yes, it’s about continuing to win in the right lanes, and we’re going out and executing on that.

Brian Ossenbeck: And it sounds like rail service is performing pretty well despite the volatility and the uncertainty based on the comments on downturn times and how is that translating to truckload conversion, it sounds like the spread is pretty favorable, but I’m assuming rail service is a big part of that conversation, too?

Phillip D. Yeager: Absolutely. Rail service has been really phenomenal and resilient. Both of our partners are performing very well. I think as you think about what could potentially happen with more of a surge in import demand, I feel far more confident in our ability to manage that surge as an Intermodal network than we were in the past just given the resilience of the operating models of our rail partners. So we’re excited about that. And same with us. I think we’ve certainly learned a lot through the last few years and built more resilience into our service product as well. So we feel very good about managing that for our customers. And — but once again, rail service has been really strong.

Brian Ossenbeck: Last follow-up on the same sort of topic. What do you feel about stacked boxes and where they are, given we have seen some pretty big differences in the growth in different regions. So I guess, maybe an update in terms of just general positioning for boxes, other equipment and dray, and what’s the current percentage stacked, if you can give that? Thanks.

Phillip D. Yeager: Yes, yes. Yes, we have somewhere around approximately 20%, 25% of our boxes stacked at this moment in time. We think we have about 35% incremental capacity before we have to really put any capital into containers. So we have a long way to go. We did improve our insourced dray percentage by about 400 basis points sequentially. We’ve done a really nice job here in the second quarter thus far. So we should see another step-up on insourced dray percentage. And we’re doing some targeted hiring, but really just getting more utility out of our existing team. And so we feel good about the momentum there. And I think we have plenty of capacity and on the drayage on the street, we’re doing a really good job. So a lot of good work by the team.

Brian Ossenbeck: Okay, thank you Phil. Appreciate it.

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

Thomas Wadewitz: Yeah, good afternoon. Wanted to ask you, I know there’s not a lot of visibility on volume, right? And you kind of gave us some of the parameters for how to think about that or high level. If we said, well, for 2Q and kind of sequentially, would you — what’s your kind of base case for 2Q Intermodal volumes versus 1Q, April sounds like it looked pretty good, but you think full quarter is down or maybe kind of flat factoring in some softening later in the quarter, how would you think about that?

Phillip D. Yeager: Yes. This is Phil. I think it’s a little unclear what the drop will be and the timing of it. If we’re still plenty being trans loaded and still in warehouses, that’s going to delay that drop. Once again, we haven’t seen it in our numbers yet. So if it’s three weeks out, I would tell you, we’re still anticipating volumes being up. If it’s in the next two weeks, then that could vary. But at this point, I would tell you, we’re still anticipating volume growth for the quarter, but it really does depend on how large that drop is and what the timing is as well.

Thomas Wadewitz: Okay. And so volume growth sequentially or year-over-year?

Phillip D. Yeager: I would say year-over-year. Sequentially, it’s probably unlikely, I would guess. But once again, it’s hard to know. If we’re in the second week of June and we still have product flowing, then we’re going to be up. And I think at the same time, we tried to give an indication of the exposure we have to China imports. I think our customers have diversified their supply chains. And if 25% of our West Coast volumes are port-related and 30% of that is China, it shouldn’t be an outsized impact, and we’ve done really well with growth in Mexico and growth in the local East. So those should be some offsets to that import demand drop.

Thomas Wadewitz: Right, okay. Wanted to also ask you a bit about how you’re thinking about ITS and Logistics operating margins looking forward. Do you think kind of stable — I mean, I know 2Q has got the wrinkle with some weakening in volume, but how do you think about where we go from the kind of 2.7% and 5.7% in 1Q and what might be some key levers to potentially see improvement off the 1Q level?

Kevin Beth: Sure. Tom, this is Kevin. We don’t provide quarterly guidance on this. But what I will tell you is, again, it depends on that timing and if there is that falloff. But without that, we would expect to see the directional normal seasonal increases that you would see in third and fourth quarter for both ITS and for Logistics. I think right now, second quarter is a little bit more up in the air. If there really is the falloff that everyone is talking about with the imports, then that may be sequentially down.

Thomas Wadewitz: Okay. So probably versus 1Q, some improvement in the second half, but less clear for 2Q?

Kevin Beth: Yes.

Phillip D. Yeager: Yes.

Kevin Beth: And again, those cost items that we talked about, the $40 million of different projects that we have, they’re going to be kicking in. And I think we’ll be able to help even if there is some muted volume in the second half, especially maybe in the beginning of July.

Thomas Wadewitz: Okay. Maybe one last one, and I’ll hand it off. But what do you think about the kind of the key lever for Intermodal margin improvement, you used to run it at a lot higher level, and I feel like it’s just been the big weight on truckload and Intermodal has just been excess capacity and difficulty getting rate. Is that really the thing you just got to get a stronger rate environment and then that Intermodal margin improves a fair bit or what’s kind of the key lever if you look a little further out?

Phillip D. Yeager: Yes, this is Phil. I mean, I don’t really recall when we were running at a much higher margin. I think we’ve actually done a great job improving the trough-to-trough margin profile and actually more than doubling it. So I feel like we’ve actually done a great job. We did run higher in COVID when our boxes were being used for storage. But yes, so I guess that would be the time where it was higher. But at the same time, I think we do need more velocity in the network. That’s priority one. We need to continue to in-source more drayage, which right now, we’re running over 80%. We’ve got our chassis programs in place. We’ve got variable rate in our rail contracts. So yes, I mean, I still think mid-cycle, this is a mid-single-digit operating margin business in that 5% to 6% range.

And as you get to the peak of a cycle, it could be much higher than that. So demand would certainly help, but I think we’ve done a really good job controlling what we can control and improving the margins of the business.

Kevin Beth: Certainly, price moves the lever easier than volume does, but that day is going to come. And I think we’re ready for that growth opportunity.

Thomas Wadewitz: Alright, makes sense. Thanks for the time.

Operator: Our next question comes from Christopher Kuhn of The Benchmark Company.

Christopher Kuhn: Yeah, hi good afternoon. Thanks for taking my questions guys. Appreciate it. Can we just go back to the Logistics margins, I mean they were up 70 basis points. The brokerage business still seems like a pretty big drag on that. I mean, are the other businesses within that improving margins or is that all just the actions you took last year? And what is the underlying margin in that business now that you’ve done a pretty good job despite the brokerage being a drag?

Phillip D. Yeager: Yes, thank you for the question. Yes, we do agree we think we’ve done a very nice job improving the margins. The 70 basis points in this environment was pretty strong. If you look at it, on a year-over-year basis, there was a drag from the brokerage offsetting some of the improvements we made. In particular, in the consolidation business, where we’ve done a much better job on managing our labor expenses, improving customer retention levels, improving service and then obviously aligning our space to our needs. And we have some upside for growth, and that should certainly be helped with some of the storage needs of our customers. But yes, we’re continuing to drive improvements in our managed transportation business in final mile as well as in warehousing.

I think on the brokerage, it has been a headwind. We have done a nice job reducing our negative margin load. That was down over 200 basis points in the quarter. Our productivity continues to improve. But with the limited spot market opportunities that have been out there, it’s kind of kept a lid on the margin profile, though we’re still profitable within that segment. But no, I appreciate the question. I think we are doing a good job managing our costs there, but also bringing on nice new profitable wins and see more margin upside ahead.

Christopher Kuhn: Yeah, no, that’s helpful. And just to your last comment, we haven’t heard that maybe some shippers are keeping inventory in containers. I don’t know if you’re seeing that, but just curious as to whether that might be something you might see in the next quarter or two?

Phillip D. Yeager: We haven’t seen that yet. And I think there may be some customers who overdo it on pull forward. We haven’t seen it at that level yet, but certainly something we’ll watch, but not — we haven’t seen that at this time.

Christopher Kuhn: I appreciate it, thanks.

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

David Zazula: Hey, thanks for taking my question. Kevin, I noticed the lowering of the CAPEX guide. I wonder if you could give some color on that. I think you said you already were not putting anything into containers this year. So what are you cutting, what areas are you kind of looking at to trim down the CAPEX for the year?

Kevin Beth: Sure. Yes, thank you for the question. Yes, the change in the CAPEX, as you noted, went from $50 million to $70 million was the original. We’re now down to $40 million to $50 million. It really reflects less fleet investment and steady upgrades in this environment. We’re continuing to have no additional container investments. No change on our IT front. The projects that we had anticipated are we’re still planning on it and moving forward with. Really, one of the things that we were able to do is really find some solutions to be able to use some of our equipment down in Mexico. So that was an opportunity that allowed us to decrease that spend as well.

David Zazula: Awesome. And then on dedicated customer retention, I mean, you mentioned it is an issue, and I think it had been an issue in the past. Is it something that is accelerating, is it something you’re more concerned about now in the back half, is this something that due to the unstable environment, just it’s harder to get customers to resign contracts?

Phillip D. Yeager: Yes. This is Phil. I think the sites that we lost were pretty small and mostly turned over to one-way truckload. And so our retention levels are still around 90% if you look at just on a contract basis and on a percent of revenue would be even higher than that, just given its smaller sites. So we feel as though we’re in a good spot. We’re providing really good service levels and being proactive on identifying efficiency opportunities. And as I mentioned, we have some new onboardings we’re bringing on with actually some new and existing customers. So I think we’re doing a good job managing that business. We have good operational controls. We just need to continue to execute, and we’ll be in good shape.

Kevin Beth: And I think when you look down the road, this is going to be an opportunity for growth. When those one way rates change, we’re going to be able to bounce back on with our dedicated solutions and hopefully win some contracts that way.

David Zazula: With you bringing in some new customers or additional volume with additional customers, is the end market profile of Dedicated changing at all, are there some types of customers where it’s easier to get them to look at Dedicated now versus a year ago or two years ago?

Kevin Beth: Yes. Most of our Dedicated business is retail-centric and the — but we also have a strong actually industrial set of customers and a few consumer products as well. And so the new wins are mostly in the retail and consumer side with companies that are performing very well through this turbulence in global trade and see a need to lock in high service capacity. So it’s — and the wins are in areas where we have density. So our ability to surge with them should be pretty strong. So we feel good wins and good network lanes with good customers.

David Zazula: Thanks Kevin, thanks Phil, appreciate it.

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

Phillip D. Yeager: Great. Well, thank you everybody for joining our first quarter earnings call this morning or this afternoon. And as always, Kevin and I are available for any questions you might have. Thank you, and have a good evening.

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