Hub Group, Inc.

Bill Yeager, HUB's President and CEO, Brian Alexander, HUB's Chief Operating Officer, and Jeff DiMartino, HUB's CFO, are joining me on the call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. In order for everyone to have an opportunity to participate, please limit your inquiries to one primary and one follow-up question. Any forward-looking statements made during the course of the call or contained in the release represent the company's best good faith judgment as to what may happen in the future. Statements that are forward-looking can be identified by the use of words such as believe, expect, anticipate, and project, and variations of these words. Please review the cautionary statements in the release. In addition, you should refer to the disclosures in the company's Form 10-K and other SEC filings regarding factors that could cause actual results to differ materially from those projected in these forward-looking statements. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to your host, Phil Yeager. You may now begin.

Good afternoon, and thank you for participating in Hub Group's fourth quarter earnings call. With me today are Brian Alexander, Hub Group's chief operating officer, and Jeff DiMartino, our chief financial officer. I'm honored and privileged to be able to serve as Hub Group's third chief executive in our 52-year history. I wanted to thank our board of directors for their support, but in particular, our executive chairman, Dave Yeager, who led the company as CEO for 26 years with vision, integrity, determination, and humility. He's been a phenomenal leader and I look forward to continuing to work with them to deliver on our long-term goals for the organization. I wanted to also thank all of our team members for their continued commitment and focus on supporting our customers in a constantly evolving environment. Our team delivered a record year in 2022. We were able to grow all of our service lines in both revenue and profitability, reaching $1 billion in revenue in both logistics and brokerage for the first time as an organization, while equipping $3 billion in intermodal revenue. We continue to execute on our strategy to deliver world-class service and invest in our core business and technology while diversifying our service offerings through organic and acquisition-driven growth. We delivered on that strategy while maintaining a phenomenal balance sheet, generating strong free cash flow, and returning capital to shareholders. As we look ahead to 2023, the freight economy has changed from this time last year. Inventories have elevated and we have seen capacity loosen. However, we anticipate another year of variations in demand with a stronger second half of 2023 based on continued consumer strength and a need for inventory restocking. While this backdrop may create short-term challenges, we believe that Hub Group is well positioned to grow in this environment given the many improvements we have made to our business over the past several years. In intermodal, we anticipate increased conversion to rail from over the road resulting from an improved and more consistent rail service product that along with our rapidly increasing in-source drainage percentage, improved rail agreements, and lower outside drainage costs, will help our customers reduce costs while driving efficiency and sustainability in their supply chain. Our dedicated pipeline is strong, and we have improved our processes and leadership team, which we believe will help us deliver another year of profitable growth driven by our high service levels and engineered solutions. We have also diversified our revenue streams to be more non-asset-based, which now represents 40% of our annual revenue. In brokerage, we are offering more diverse capacity alternatives that increase scale and have enhanced our technology to drive improved purchasing efficiency and service levels, which is enabling continued cross-selling wins with our customers. Our logistics business continues to develop into the premier end-to-end supply chain solutions provider with our investments in people and technology, as well as acquisitions like TAG Logistics. We are helping our customers save money through our continuous improvements while providing a world-class customer experience that is able to bring the analytical, technological, and execution benefits of managed transportation to fruition for our clients. All these enhancements to our business model will allow us to continue to grow while maintaining strong profitability and returns. We will continue to invest consistently into the business through cycles in order to ensure we can support our customers in a variety of environments, through both capital investments and technology and capacity, as well as acquisitions that help us deliver more value, while maintaining our strong financial position and utilizing our buyback authorization to reward our shareholders. Our team is focused on delivering another excellent year in 2023, and with our aligned strategy, as well as focused on execution and efficiency, we feel we are in position to deliver another strong performance. With that, I will hand it over to Brian to discuss our service line performance.

Thank you, Phil. I also want to thank our entire team for delivering a record year as they support our vision for growth while also providing our customers a best-in-class service experience. I will now discuss our service line performance, starting with intermodal. In the fourth quarter, ITS revenue increased 5%, driven by a 19% increase in intermodal revenue per unit, as well as continued growth in dedicated trucking. With the lack of a traditional peak season, Intermodal volumes declined 12% in the fourth quarter, with a 9% decline in the local west, 9% decline in TransCon, and decline of 17% in the local east. Gross margin as a percent of sales decreased 266 basis points year-over-year. We are actively offsetting this decline in margin with an increase in in-source drainage, up in year-over-year fourth quarter from 47% to 65%. improved rail agreements, lower outside drayage costs, and several other operating cost improvements. In addition, we've already started to experience improvements in efficiency with rail service, which will help drive conversion volume and improve our box turns. These improvements in intermodal efficiency have us well positioned to grow our volume and maintain operating margin discipline. Now turning to logistics. Logistics revenue increased 9% in a quarter as we continue to deepen our value to our customers through our integrated approach to supporting their end-to-end supply chain needs. We are well positioned for growth in our consolidation and fulfillment business, taking advantage of the capabilities that TAG has brought us, which have already enabled several large transportation and warehousing wins. Gross margin as a percent of sales increased 217 basis points as we maintained our focus on operational discipline, field management, and customer continuous improvements that drive organic growth. We have a great pipeline of new onboardings and have improved our logistics field size and close ratio as we offer more integrated supply chain solutions. In addition, our logistics offering has continued to grow the volume it contributes to our other lines of business to support multimodal capacity. With these enhancements, we are in a great position to continue our trajectory of profitable growth. And now I'll conclude with brokerage. We are very proud of our brokerage team as they performed well against challenging market conditions in the fourth quarter. We remain focused on service to our customers and leading with a competitive price and capacity. This generated an 8% increase in year-over-year fourth quarter volume and an increase in gross margin as a percent of sales 61 basis points, but a revenue decline of 11% year over year. Our acquisition of Shop Tank helped drive disciplines in our purchasing, as well as cross-selling growth in our LTL and DRY offerings. Transactional moves represented 52% of our volumes throughout the quarter, while our contract business provided consistent volume and margin expansion as we improved purchasing. We are well-positioned to continue our growth through our integrated approach to our customers, high service levels and expertise in our capacity types, including refurb, dry, LTL, and drop trailer. With that, I'll hand it over to Jeff to discuss our financial performance.