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spk03: The two new entrants on the UP we've competed with for years, so it's really nothing new. I would suggest that the Union Pacific is right now investing about $600 million into the intermodal product. Their service thus far has been under where, in fact, their on-time performance under where we would want and certainly where they would want. But they certainly are making a lot of investments in personnel, adding on locomotives. And so we are hopeful that the transition will be smooth, and they certainly are working very diligently towards it. From our standpoint, we're also trying to enhance our service levels and also our operations, having less time on the street for containers when they're empty, that type of thing, which helps with the flow of chassis, et cetera. We're the Union Pacific's largest customer, and we have a great relationship with them, and they're a very good operating railroad. So we're looking forward to continuing to grow on the UP and Norfolk Southern.
spk12: And when it comes to expanding your dray driver capacity in-house, can you just talk about where that percentage is now maybe versus the last couple of quarters and what those – what those markets look like given just the overall driver market, but again, others trying to rearrange the network. I don't know if that has any overlapping impact in some of the areas you're looking to add people, and is equipment a problem still?
spk04: No, we haven't had an issue with delivery of equipment. We have seen some delays in some of our containers coming over, but the commitments that Our OEMs made to us on tractors have continued to be filled, so we feel, you know, very good about that. You know, from a driver hiring and percentage rate perspective, we have seen an increase in our ability to bring on new drivers. Part of that is actions we've taken around wages, but also, you know, I think we are much better at marketing and recruiting to get new drivers as well, and our percentage increase of in-house gray, about 400 basis points sequentially quarter to quarter. So we feel really good about the progress we're making there. And actually, we've seen an increase thus far in the third quarter as well, sequentially from that 400 basis point improvement. So, you know, all positive there.
spk12: And maybe just one clarification for Jeff. It looks like in the other line where I believe you have the gain on sale, which was up a bit sequentially, it looks like That also went up a pretty decent amount. I don't know if you have an accrual or something in there, if you could just clarify that. Thank you.
spk05: Yeah, we did have higher legal and outside services spend this quarter.
spk06: The implied guide for the rest of the year has that coming down slightly, but those are the drivers.
spk07: Okay, I appreciate the time.
spk00: Your next question comes from the line of John Chappell from Evercore. Your line is open.
spk02: Thank you. Good afternoon. Phil, I think you'd mentioned a couple times customers looking to lock in capacity. Kind of a two-parter there. Is that having any impact on your average contract duration? Are you getting more extended contract periods as customers look for more security? And the part B to that would also be, you know, we're obviously hearing a lot about economic slowing, et cetera, and I think you've already addressed that in a question earlier, but are you seeing any recent scaling back in that kind of rush to secure capacity over periods of time?
spk04: Sure. So our contract terms generally are one year with our customers. I would say generally, you know, an intermodal. We have – with a few key clients where, you know, those contracts really have some teeth. We have elongated some of those commitments, especially in kind of core network lanes for us. And we've gone as high as five years with some customers unlocking those in with, you know, kind of market-driven price escalators or declines. And so that is, I think, something we like to do, but we like to do it with, you know, the right customers and partners that, you know, will have mutual commitment to that over the long haul. As we think about scaling back, we haven't seen that yet. I still think there – and, you know, we've done really well in bids. I still think there's a lot of feeling from our customers in the discussions that I have with them that we're going to have a strong peak and that it will be tight. And, you know, while I think some folks have tried to take advantage of the stock market more aggressively, most are trying to live up to the contracts and ensure – that they have capacity during this upcoming peak season and going into next year because, you know, it really hasn't become all that clear. I don't think anybody, you know, if we're heading into more of a down cycle or it's about to tighten again, and I think we'll certainly see that over the next, you know, couple of months as peak season really plays out.
spk02: Okay. Thanks for that. And then for my follow-up on truck brokerage, You've been in this period of really elevated top-line growth, obviously, some driven through acquisition. I think you still have a quarter, maybe plus, of acquisition comp, so it'll keep that revenue up. You turned positive there on the gross margin side, 30 basis points, but still the first positive, I think, since the second quarter of 2020. Are we starting to get to the point where truck brokerage, X acquisition, where that volume growth starts to slow a little bit? But some of those levers that you spoke about, whether it's cross-selling or whether it's, you know, efficiencies within the business, do you start to see continued positive gross margin momentum there?
spk04: Yeah. So what I would tell you is when we acquired Chop Tank, we had a much lower gross margin profile than the rest of our business. truck brokerage, and with some of the changes that we've made in the pricing and yield management strategy, we've actually seen a massive improvement there and plan to continue that. And so I think as you look out, you will see improvements in yield as this sort of acquisition settles into the numbers. So I think you'll see year-over-year improvements there, and that's what we're seeing in the core business that was there before.
spk07: Does that make sense? Okay. Thank you, Phil. Thank you. Thank you.
spk00: Your next question comes from the line of BESCOM, Majors from Susquehanna Financial Group. Your line is open.
spk14: As a housekeeping question, can you share where you're coming out in your model, the new forecast on EBITDA and free cash flow?
spk05: Sure. EBITDA would be just over $600 million. I'll give you the components there, too. $600 million of EBITDA. Cash taxes, probably around $110 million. $10 million or so of interest. And then our CapEx guide is $240 to $250. Now, we do end up financing 90 or so percent of the CapEx.
spk14: Thank you for that. And, you know,
spk13: In that light, with the buyback discussion from earlier, I think the quote was, at these levels, it's a pretty compelling opportunity. We can run the numbers on the cash generation power of the business. You've got a net cash position slightly. The stocks traded as low this year as six times your recently updated EPS guidance. So rather than talk about what the plan is specifically going forward, I was hoping we could back it up and think high level about the philosophy behind how the buyback looks to you guys as a capital deployment opportunity. Has this changed? Do you have enough where you can do both, still diversify the business and buy back a needle-moving amount of stock going forward, given how successful the business is today? Thank you.
spk05: Yeah, it's a great question. It's something we think about a lot. We talk about that with our board. You know, our priority is to grow and diversify, invest in containers, do more dredge in-house, which requires some level of tractor investment. We've had really good success with our acquisition in the last couple of years. The cross-sell potential, which is core to our thesis around M&A, is real. We've proven that time and time again. We've proven we've been able to take out costs and drive up yields, and we want to continue to do that. We think that's a really good financial return. It also has the benefit of diversifying the revenue over time as well. You've seen that now with our non-intermodal revenue comprising close to half of our total revenue by the end of the year. But to your point, the return on return of capital on share repurchases, you know, it's a double-digit free cash flow yield, and it's pretty compelling. So it's something we'll continue to address with our board. We do have the authorization that we intend to execute on, and we are considering additional levers that we have in that regard.
spk13: In the path forward for that, is that a decision that you think would be made quickly or something that will take time throughout the year?
spk05: I don't have an answer for that yet. It's something we will evaluate. If there is a compelling case to be made and we have the support to do that, it's not something we would wait on.
spk04: I would tell you we have a strong alignment with the board that that will likely be a ongoing portion of our capital allocation strategy. And, you know, we, especially at these levels, to Jeff's point, very compelling investment.
spk06: That's great to hear. And thank you for the candid responses.
spk07: Thank you.
spk00: Your next question comes from Justin Long from Stevens. Your line is open.
spk11: Thanks for taking my questions. I was wondering if you could share what the monthly intermodal volumes look like through the second quarter. Any update on July as well? And I think, Jeff, you mentioned back half expectation is for intermodal volumes to be relatively flat on a year-over-year basis. I was a bit surprised by that just given you'll be taking delivery of additional containers and it sounds like your expectation is rail service should get a little bit better. So curious if you could share what might be offsetting those tailwinds.
spk05: Sure. For the quarter, April was down 1% year over year. May was up 5%. June was flat, which led up to up 1% for the quarter. July, on a business day adjusted basis, is down about 4%.
spk04: I would just highlight, I think, in the last two weeks of July, we saw sequential improvements, and that has played out through the first week of – or first few days of August here as well. So we are anticipating sequential improvement to offset that July decline. On the container side and the utilization, you know, I think where we're coming from on the flat volume is we saw a deterioration quarter-to-quarter utilization of 4%. Year-over-year, we were down 8%. And so we have in the past kind of bet on improving rail service and improving customer dwell, and that hasn't necessarily come to fruition. And so maybe it's conservatism, but at the same time, we haven't seen enough sustained improvement in fluidity to really adjust up the volume guide, if that makes sense.
spk11: Understood. And any update on the number of containers you're expecting to take delivery of in both the third and fourth quarter?
spk05: Sure. It's around 6,000 for the year, which will give us a growth year over year of 13%. About 25% of those have come in to date, and the rest will be here by the first week of November.
spk04: And I referenced this earlier, but we pushed out the remainder of the order that we had talked about on our prior call, mainly due to delivery date. We weren't going to be able to get them prior to Thanksgiving and get them into the network, you know, really prior to that end of the year. So felt as though that would be appropriate.
spk11: Got it. And last quick one on the guidance. Jeff, on EPS in the back half of the year, are you expecting the cadence to be relatively similar looking at the third quarter versus the fourth quarter, or do you think one quarter looks better than the other? And then on the buyback, is that $75 million getting factored into the guidance?
spk05: Sure. The $75 is not in the guidance, so there would be accretion further to that. In terms of the cadence, we do have a big rail cost increase on 9-1. So Q4 will obviously have a full quarter's worth of that. So that would be the delta.
spk11: Okay. Very helpful. Thanks for the time.
spk06: You're welcome. Thank you.
spk00: Your next question comes from the line of Bruce Chan from Stiefel. Your line is open.
spk10: Hey, this is Matt. My last call for Bruce. Congratulations on the extremely strong first half of the year, and thanks for taking the question.
spk05: Thank you.
spk10: Could you provide a little bit more color on Chop Tank and perhaps how the integration is progressing and how you think the business might perform moving into a potentially slowing economic environment? And lastly, if you could also offer any comment on what you're seeing across the M&A landscape at the moment and how you think the opportunity set there will sort of evolve over the next, you know, say six to 12 months. Thanks.
spk04: So I'll start with ChopTank, and I'll let Jeff discuss the M&A pipeline. But, you know, I think we found a really great cultural fit there with ChopTank. The integration has gone extremely well, both from a systems, cultural, operational, customer perspective. They have a great focus on refrigerated but are a very good – general drive truckload broker as well. But I do think that refrigerated piece is a differentiation that we did not have before that we could bring to our customers that is a very tight capacity type. It is a high capital expenditure to get into that business. And so we've had a lot of success in cross-selling that to customers. But also they have a phenomenal inside sales team that is really helping us grow with our core hub customers that we had not necessarily been successful in cross-selling brokerage to in the past. So we continue to find each week new customers to bring on board. And, you know, I think we have seen the margin profile improve significantly since we purchased the business, which I think is sustainable in a downturn and will allow us to continue to generate it. you know, significant free cash and continue to grow. So we feel great about the acquisition. I think it was, you know, a big win for both teams because they're getting, you know, a ton of access to, you know, the large shippers that we have that they not necessarily would have been able to get in with before. So it's all beneficial to both teams.
spk05: Yeah, in terms of the market environment, you know, we found success in the acquisitions we've done have really been on one-offs. Negotiations, we reach out to the owner. We create a relationship. Sometimes it takes six months or a couple years to come to fruition. Cultural fit is important to us, so investing that time up front is important. The reason I say that is most of the commentary you're going to hear around the market really has more to do with sale processes, broad-based auctions. We'll look at those opportunities, but that's really not core to what we do. I think those will probably slow just based upon a rising interest rate environment. In our industry, so much of the M&A activity is driven by private equity. A rising rate environment probably will put a chill on some of that activity, but that's not really the part of the market we're playing in.
spk07: That's really helpful. Thanks, guys. Thank you.
spk00: Again, if you would like to ask a question... Press star, then the number one on your telephone keypad. Your next question comes from the line of David Zazula from Barclays. Your line is open.
spk01: Thanks for taking my question. So maybe you did specify it earlier, but the top end guide of CapEx coming down for 2022 Was that totally driven by you moving containers into next year or was there something else to that?
spk05: No, it was primarily the containers that we pushed to next year.
spk01: Okay. And then I guess with you and others bringing containers on the market with the rails kind of, you know, bringing the capital to bear hopefully and, you know, with turnaround times hopefully improving, are you concerned broadly that we would go from a capacity short market to a market that's more a washing capacity and maybe give a little more color to the extent you believe that is a concern at all to your answer to Scott's question about how your cost and pricing model would set you up for success if the environment changes?
spk04: We don't see that at this time. I think we're in a very good position to continue to grow with our customers. There's a lot of demand out there. You know, I do think that there's a ceiling on OEM manufacturing as well. So trailer ads in the truckload market are going to be somewhat constrained as well as new tractors. And so, you know, we think intermodal as supply chains normalize will be a good option and as our service improves as well. So, no, we don't see that at this time and, you know, still feel very confident in our ability to continue to grow in the intermodal space.
spk01: Great, thanks. And then just as a cleanup, could you give the employee count for the quarter?
spk06: Sure. It's 2,225. Thanks very much.
spk00: There are no further questions at this time. Mr. Dave Yeager, I turn the call back over to you.
spk03: Okay, great. Well, again, thank you for joining us on our second quarter call. As always, if you have any further questions, Jeff, Phil, and I are always available.
spk07: So, again, thank you very much and have a good evening.
spk08: This concludes today's conference call. You may now disconnect.
spk07: Please wait. The conference will begin shortly. We'll be right back. We'll be right back. We'll be right back. Thank you. We'll be right back. Thank you. We'll be right back.
spk09: The conference will begin shortly.
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