Hub Group, Inc.

Hello, and welcome to the HUB Group fourth quarter 2023 earnings conference call. Phil Yeager, HUB's president and CEO, Brian Alexander, HUB's chief operating officer, and Kevin Beth, 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 joining HubGrid's fourth quarter earnings call. Joining me today are Brian Alexander, Hub Group's Chief Operating Officer, and Kevin Best, our Chief Financial Officer. I'm proud of the way our organization executed to support our customers and one another in 2023, while also delivering the second-best financial performance in our company's history in a challenging year. We face difficult market conditions with higher inventory levels, excess capacity, and flowing import demand. This led to challenging fundamentals in our more transactional service line. However, our execution of our strategy over the last several years of delivering world-class service, investing in equipment and technology to drive productivity, diversification of our service offerings to deepen our value to our customers, and maintaining cost discipline enabled us to successfully manage through those challenging conditions and deliver strong results. We completed several key strategic priorities this past year that will pay dividends for years to come. We improved our rail and chassis agreements, providing us with expanded reach and flexibility while enhancing our cost structure. We treated a record level of share of our control drage, enabling improved service and cost. We continued our diversification strategy, closing an accretive acquisition that helped us build scale and capabilities in the big and bulky final mile space. And finally, we completed our capital allocation plan, delivering a clear growth and returns-oriented investment strategy. These are just a few of the many strategic initiatives we executed on this past year, which we delivered while prioritizing our team and customers, positioning us for long-term success. We are leveraging the momentum at the end of last year to deliver for our customers and shareholders again in 2024. We believe that the current global supply chain disruption and the normalization of inventory levels will lead to increased shipping demand and West Coast imports, which along with accelerated capacity exits, will progressively lead to improved industry fundamentals. In ITS, we have a great deal of momentum in bid season, as we are providing significant savings versus trust while executing an excellent service product. We believe that with our improvements in service and productivity, as well as our enhanced partnerships, we will be in a position to deliver strong volume growth this year. Our initial results have shown the quality of our value proposition, and we will continue our focus on enhanced balance, velocity, and productivity throughout bid season. We've also driven incremental growth in dedicated, onboarding new wins with existing customers based on our service, quality, and scale. We believe these factors will lead to improved performance in our ITS segment as the year progresses. In logistics, we are in the process of integrating our recent final mile acquisition and are excited about the initial results. We are taking a best-of approach and finding significant cross-selling cost synergies that will allow us to accelerate growth in the business. In brokerage, after a strong year where we increased total volume count, we are seeing some signs of improvement in the market, which along with our continued cross-selling, high-quality service, and productivity enhancements will lead to improved performance. Finally, within managed transportation and consolidation, our value proposition of service, technology, and savings is resonating with our customers, and we have a solid pipeline of new onboarding that will support Groves in 2024. Despite a challenging industry backdrop, we executed on our strategy and our position for continued long-term success. We are focused on having a great year in 2024 through delivering best-in-class service, investing in the business for the long term, maintaining our cost discipline, and deepening our value to our clients. This focus will position us as a provider of choice for our customers and will accelerate profitable growth as market conditions shift. With that, I will hand the call over to Brian to discuss our segment results.

Thank you, Phil. I will now discuss our reportable segments, starting with intermodal and transportation solutions. ITS revenue declined 28% in the fourth quarter, driven by softer intermodal volumes that declined 11.6%. Transcon volume was close to flat, Local East volume declined 8%, and Local West declined 17%. While year-over-year volume declined in the fourth quarter, we drove sequential Transcon and Local East volume growth. This momentum in shorter lengths of haul is a good early indicator of truckload volume converting back to intermodal. In addition, this sequential improvement is showing the early results of the enhancements that we have made to the Local East and our discipline focus on margin per load day that will continue to drive TransCon growth. We continue to improve our cost structure in IPS that drove a 30 basis point improvement in sequential operating income, excluding acquisition related fees. We continue to implement several cost controls that will accelerate in 2024 and better position us to compete while maintaining yield disciplines. From a cost perspective, our new rail agreements are moving with the market and improved rail service has helped us better manage our equipment costs. In the West, we're implementing a new hub control chassis program in the first quarter of 2024 that will improve our costs and service reliability. Our in-source dray held steady at 80% throughout Q4 compared to 69% in the previous year. And with improved driver productivity initiatives, we have the capability to further improve our cost per dray as we grow volume in 2024. We're seeing a slow start to the year in weather events that impacted January volume, but we are focused on returning to growth in intermodal this year, which will be driven by truckload conversions back to intermodal inventory destocking and normalization, increased West Coast import and transload activity, our adjustments to our bid approach with a focus on regaining velocity and balance in our network, and improved bid realization. We feel confident in our timing and disciplined approach for the 2024 bid season and are already seeing incremental wins that will ramp in late Q1 and early Q2. Our dedicated trucking team finished the year strong with a great growth story and yield expansion. We are entering 2024 well-positioned for further growth with a strong pipeline of organic and new customer opportunities. While the near-term IPS 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. I wanted to start by welcoming our new final mile team to the hub group. The integration into our existing final mile operation is well underway. We are now positioned as one of the top final mile providers with a diverse offering that now includes appliance deliveries in a larger network of locations. These locations now bring our hub network to 11 million square feet, strategically placed in 75 locations to service our customer supply chain needs. We have a strong pipeline of cross-selling opportunities that are quickly materializing into wind that will launch in early Q2. Our brokerage team continues to be an industry standout as they thrive through a challenging freight year and grew volume while improving team member productivity. We have well-planned IT initiatives set to roll out in 2024 to further enhance our brokerage technology while we stay true to our hub values of innovating with a purpose. 2024 is off to a good start for brokerage, and we are seeing early signs of smart pricing inflation that will support volumes and yield expansion. With a long tail of hub customers to cross-sell, we are excited for our brokerage team to continue profitable growth in 2024. While we continue our logistics growth, we're also improving our costs as we leverage our close to $1 billion in LTL under management. This leverage improves our LTL buying power and creates density to support consolidations, which help drive a 16% increase in our fourth quarter LTL volume. We are also continuing to enable our multipurpose logistics locations to support our continued growth of our LTL, final mile, e-commerce, and warehouse solutions, while also supporting inbound and outbound multimodal hub volume to service our customers' supply chain needs. With that, I'll hand it over to Kevin to discuss our financial performance.