Hub Group, Inc.

Hello, and welcome to the Hub Group first quarter 2023 earnings conference call. Phil 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 full 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 joining Hub Group's first quarter earnings call. With me today are Brian Alexander, Hub Group's Chief Operating Officer, and Jeff DiMartino, our Chief Financial Officer. I wanted to start by thanking all of our team members across Hub Group for their tireless effort to support our customers and one another in this rapidly evolving environment. The market has shifted from this time last year. Capacity is loose, customers are more fluid, rail service is improving, inventories are elevated, import volumes are down, and the employment market has become more balanced. The improvements that we have made to our company over the past several years through our diversification, technology enhancements, yield and cost disciplines, and intermodal operating improvements are supporting our ability to successfully compete in this environment and support our customers with world-class service. In intermodal, rail service has improved, as have customer turn times. However, Given slower import demand and elevated inventories, as well as a more aggressive pricing environment, volumes have underperformed our expectations. Our insourcing of drayage, reduction in third-party spend, improved rail partnerships, as well as our enhanced operational discipline and service levels have enabled us to perform well in bid season. As bid awards are realized, we anticipate improved volumes, velocity, and network balance, which will help offset lower pricing and accessorial fees. We will maintain our focus on providing outstanding service and improving our cost structure to drive long-term growth. I am very pleased with the performance of our other service lines, which are generating strong results in a challenging environment. In brokerage, we are maintaining order count and taking share while enhancing margin percentage through our great sales team, improved systems, enhanced purchasing power, and successful cross-selling. We are growing our dedicated business with improved returns through organic and new customer wins. The acquisition of TAG has been very successful, and we are expanding our warehousing footprint to support demand from our cross-selling and insourcing synergy opportunities. Lastly, we are driving organic and new customer-led growth in our managed transportation and final mile businesses due to our industry-leading service level, scale, and continuous improvements. We have an extremely strong pipeline of new onboardings across all of our offerings, and we are bringing value by integrating these otherwise separate solutions to our customers which provides increased savings and enhanced service. We have an extremely strong balance sheet and are generating significant free cash flow, which will allow us to stay focused on executing our strategy of providing best-in-class service, investing in our asset-based solutions, diversifying our service offerings, and enhancing our technology platform. We will execute on this strategy while maintaining a strong focus on cost controls and efficiency enhancements while returning capital to shareholders. We believe this focus will help us navigate the currently challenging environment successfully and lead to long-term growth. With that, I will hand it over to Brian to discuss our business unit performance.

Thank you, Phil. And I also wanted to thank our experienced team for their efforts in leading and executing through a changing freight environment and delivering continued value to our customers. I will now discuss our reportable segments, starting with our intermodal and transportation solutions. In the first quarter, ITS revenue declined 9%, driven by softer intermodal volumes that declined 12%. Transcon intermodal declined 6%, the Local West declined 12%, and the Local East declined 17%. Intermodal revenue per unit increased 3% in the quarter, and we continue to grow our dedicated trucking operation with a revenue increase of 5% in the first quarter and a strong pipeline for the rest of the year. Softer import volume and elevated customer inventories generated softer volume and lower accessorial revenue, which led to a decline in ITS operating income as a percent of revenue by 400 basis points year over year. We continue to offset price pressure with several cost improvements that include, but certainly are not limited to, lower outside dray costs, improved rail agreements, and an increase in in-source drayage from 58% in the first quarter last year to 74% this year. These cost improvements have more runway through the second half of 2023. In addition, rail transits continue to improve in the first quarter and are much more consistent, leading to improved service and street economics. We are pleased with the wins we have so far through bid season, and we expect them to start to materialize in the second half of the year. We will continue to invest in our intermodal business, even in a down cycle, to deliver a superior service product that helps bring cost savings and sustainability to our customers, which in turn we believe will continue to drive long-term sustainable growth. Now turning to our logistics segment. As we continue to deepen our value to our customers with our integrated approach to supporting an end-to-end supply chain, we were successful in expanding our logistics operating income as a percent of revenue by 70 basis points in the first quarter. and despite the challenging freight environment, our brokerage held volume close to flat and grew market share with several new customers. Our overall logistics segment experienced a revenue decline of 13% in the first quarter, but as illustrated in our yield improvements, we have been successful in executing on lowering the cost of purchased transportation and integrating our service offerings. We have successfully integrated our past to non-asset acquisitions and continue to harvest cross-selling synergies. We continue to be very pleased with our brokerage team as our chop tank integration has provided non-asset mode diversification, buying leverage, and continued cross-selling upside, which will further position us for growth. To support our growth, we onboarded two new multi-purpose logistics locations in the West in the first quarter. And we expect to onboard at least two more in 2023 to take our warehouse logistics square footage to over 10 million by the end of this year. These locations are strategic to our hub network of freight as they support inbound and outbound multimodal hub volume and service our customers' supply chain needs. We have a great logistics pipeline of new onboardings with launch dates in Q2 and Q3. Our logistics deal size continues to grow and our close ratio remains strong. With these enhancements, we are in a great position to continue our trajectory of profitable growth. With that, I'll hand it over to Jeff to discuss our financial performance. Thank you, Brian.