Hub Group, Inc.

Hello, and welcome to the HUB Group Third 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 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 four looking statements. As a reminder, this conference is mere 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 third quarter earnings call. Joining me today are Brian Alexander, Hub Group's chief operating officer, and Jesse Martino, our chief financial officer. Over the past few years, we have transformed our earnings, returns, and free cash flow profile through a clear strategy of organic investment into our core business while enhancing capital efficiency through technology deployment and a creative non-asset-based acquisition. In ITS, we have created a less asset-intensive model that provides industry-leading service and value while becoming more efficient through enhancements to our drayage and dedicated operations. In logistics, we have built a service leading end to end solution for our customers that provides best in class scale and technology. This evolution of our business has resulted in HubGird being a more diversified and resilient company with an improved customer experience as well as significant free cash generation. Our operating model changes have proven effective as we have managed through this challenging freight cycle with a full year forecast that we expect will likely be our second best year in our company's 52 year history. With that performance in mind, and with the benefit of extensive feedback from our board, as well as existing and potential shareholders and equity analysts, we've taken the opportunity to reassess our capital deployment strategy. I'm excited to announce the results, which are also highlighted in the investor presentation, which is available on our website. First, we are establishing a long-term leverage target of 0.75 to 1.25 times net debt to EBITDA. We are not in a rush to achieve this target, and we'll do so methodically as we continue to invest in our core business, grow via acquisition, and return capital to shareholders. Second, we have received authorization from our board for a $250 million share repurchase program, while retiring our current authorization, which had $83 million remaining. We believe this new and larger program demonstrates our commitment to returning capital to shareholders and the long-term value we see in Humphrey. Third, our board is authorized a two-for-one share split that will be effectuated early in 2024 through a share dividend, which we believe will enhance liquidity in our stock and support long-term investment. Last, in the first quarter of next year, we plan to begin paying a quarterly cash dividend equal to 50 cents per share annually on our new share accounts. The transformation of our business that I described earlier has provided us with the free cash flow and balance sheet profile that allows us to implement these four capital allocation initiatives, which will provide greater consistency regarding return of capital while allowing ample opportunity to continue to invest in our core business and execute on our acquisition strategy. Now turning to the quarterly results and outlook. As we discussed in our last call, we felt as though the third quarter would be our most challenging and that did come to fruition. However, We saw improvement in demand throughout the quarter and increased tightness in the West Coast, indicating a need for some inventory replenishment. However, peak season has been muted, and we do not anticipate a sharp inflection in demand in the fourth quarter. Demand was soft through July and August, leading to volume declines and intermodal. Rail service has remained strong, and we executed improved volumes per business day in September, while onboarding wins in shorter haul markets. We continue to focus on improving operations on the street, reducing our cost to serve, and maximizing the efficiency of our team. Although we have made significant progress, we still have opportunity to improve operational fluidity and reduce costs. We believe there's considerable intermodal conversion opportunity in the upcoming bid season, and our commercial organization is focused on returning to growth. Our rail partners have remained committed to providing a great service product, and we believe that the combination of quality service Cost benefits versus truck and greenhouse gas emission reductions will lead to share gains from over the road and create improved balance and velocity in our network. Our logistics business performed well, once again, illustrating the resiliency of our model. We executed well in brokerage, leading to share gains due to our strong service and value proposition, while driving new wins in organic expansion in our warehousing, managed transportation, and final mile services. Our pipeline for logistics and dedicated opportunities is very strong and we remain focused on excellent execution for our customers. While we are experiencing some improvement in demand, the length of time it will be maintained remains unclear. With bid season approaching, we are focused on returning to growth and intermodal, leveraging our strong service and cost structure to drive conversion from truckloads. As bid award realization rates improve, capacity attrition accelerates due to low spot rates and customer demand increases we will be in a strong position to support those opportunities given our excellent team, creative solutions, and available capacity. We will maintain our focus on providing world-class service and efficiently operating our business while executing on our long-term investment plan. With that, I will turn it over to Brian to review our operating results.

Thank you, Phil. I would like to start by thanking our talented team for their efforts and dedication in leading and executing through a changing freight environment and positioning us for growth with our customers. I will now discuss our reportable segments, starting with our intermodal and transportation solutions. As Phil mentioned, and we anticipated, our third quarter was challenging with ITS revenue declining 30%, driven by software intermodal volume that declined 16%. Transcon volume declined 9%, the local west declined 18%, and the local east declined 14%. Continued soft import volume, elevated seasonal inventories, and an oversupply of truckload capacity generated softer volume and lower accessorial revenue in the third quarter, which led to a decline in ITS operating income. Throughout the year, we have improved our cost structure and feel well-positioned going into the upcoming bid season. In retrospect, we held the line on price for too long in 2023, which has impacted our volumes. We have made the appropriate structural and process changes that are focused on regaining velocity and balance in our network and feel confident in our timing and disciplined approach for the 2024 bid season. We continue to be pleased with our dedicated trucking growth and yield expansion, along with a strong pipeline of confirmed wins scheduled to onboard in the fourth quarter and early in the first quarter of 2024. As I've mentioned in our previous calls, we have been improving our intermodal cost structure throughout the year. Our new rail agreements are helping us move with the market to provide compelling volume for our customer base, and rail service improvements have helped us better manage our equipment costs. On the street, we have continued to improve our trade costs by increasing our in-source trade from 62% last year to 78%, and have lowered our costs of third-party purchase trade. We continue to execute and see additional opportunity to improve our street economics through regional planning improvements and fixed cost reductions. We will continue to defend our incumbency and have incremental wins that will set us up for long-term success. In addition, the recent expansion of our cross-border rail solutions have already generated new wins that will expand in 2024. We will continue to invest in our intermodal business for the long term and are confident that these investments, along with improved rail service, will help support further conversions from over-the-road to intermodal. While the near-term results are impacted by low volume, we are confident that our actions will position us for growth and deliver high levels of service for our customers with sustainable profitability. Now turning to our logistics segment. As we continue our diversification strategy to deepen our value with our customers with our integrated approach to supporting an end-to-end supply chain, we were once again successful in expanding our logistics operating income as a percent of revenue by 40 basis points. Despite the challenging trade environment, our brokerage team continues to stand out with growing volume and margin expanded throughout the quarter. Our third quarter brokerage volume was up 5% led by share gain with existing customers and continued new customer onboardings. Our overall logistics segment experienced a revenue decline of 12% in the third quarter, but has a strong pipeline of confirmed wins with onboardings in the fourth quarter and start of 2024. In addition, we continue to harvest cross-selling synergies with our most recent non-asset logistics acquisitions. While we continue to drive logistics growth, we are also improving our costs as we leverage our ability to establish new multi-purpose logistics locations to support our growth and lower our costs. As mentioned in previous earnings calls, these locations are strategic to our hub network of freight as they enable the continued growth of our LTL, Final Mile, and e-commerce solutions and support inbound and outbound multimodal hub volume to service our customers' supply chain needs. We saw the benefits of these new locations in the west and central regions supporting the growth of our LTL solutions in the third quarter, and we expect the success to accelerate heading into 2024. We will also continue to invest in our non-asset-based final mile offering as we continue to onboard new customers and build more density, driving stronger service and enhanced margin performance. Our logistics pipeline remains strong with larger deal sizes and improved close ratios. Our non-asset-based logistics growth strategy is playing out well, and we are in a great position to continue our trajectory of profitable organic growth and continue to integrate future acquisitions. With that, I'll hand it over to Jeff to discuss our financial performance.