J.B. Hunt Transport Services, Inc.

Good afternoon. Thank you for attending today's J.B. Hunt First Quarter 2022 Earnings Webcast. My name is Hannah, and I will be your moderator for today's call. All lines will be muted during the presentation portion of the call with an opportunity for questions and answers at the end. If you would like to ask a question, please press star 1 on your telephone keypad. I would now like to pass the conference over to Brad Delco, Senior Vice President of Finance. Please go ahead.

Thank you, operator, and good afternoon. Before I introduce the speakers, I would like to take some time to provide some disclosures regarding forward-looking statements. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates, or similar expressions are intended to identify these forward-looking statements. These statements are based on J.B. Hunt's current plans and expectations and involve risk and certainties that could cause future activities and results to be materially different from those set forth in the forward-looking statements. For more information regarding risk factors, please refer to J.B. Hunt's annual report on Form 10-K and other reports and filings with the Securities and Exchange Commission. Now I would like to introduce the speakers on today's call. This afternoon I am joined by our CEO, John Roberts, our CFO, John Culo, Shelly Simpson, our Chief Commercial Officer and EVP of People and Human Resources, Nick Hobbs, Chief Operating Officer and President of Contract Services, Darren Field, President of Intermodal, and Brad Hicks, President of Highway Services. At this time, I'd like to turn the call to our CEO, Mr. John Roberts, for some opening comments. John?

Thanks, Brad, and good afternoon. Thank you for joining our call today. We see the start of 2022 and this first quarter's report is both encouraging and revealing. While overall labor and other supply chain issues have continued, we leveraged experience, focus, and technology to move through this period with success. Execution across all disciplines within the organization is running at solid performance levels, yet we have clear opportunities for improvement. Our equipment utilization continues to underperform due to consistent challenges with philosophy and the persistent need for new driver hires. We added 1,889 net drivers during 2021 and have so far increased our driver force by just over 1,400 this year. Our hiring teams are built out to levels not seen before in our history. The increased ability to improve hiring performance are enabled by the increases in driver compensation, improved benefits, reliable schedules with predictable home time, and a company environment centered on growth for future career expansion. For the past 18 months, our entire people and human resources discipline has been in a comprehensive refresh, presenting the opportunity to make meaningful changes in the quality of services these capable teams can bring to the most critical area of our business. all of our people, current and new. As noted, we announced a multi-year expansion plan for our intermodal fleet recently, coinciding with a renewed commitment between BNSF and JBHT. The opportunities that lie ahead in serving our customers are rejuvenated by this commitment, and we anticipate leveraging this unique and industry-leading position. The transportation dynamics of driver shortages and increasing labor costs, high fuel prices, congestion, reliable capacity, not to mention the remarkable impact that Intermodal has in the scope three emission reductions for our shippers gives us confidence in our decisions here. Another important recent development is the formation of our Inclusion Council. consisting of a highly cross-functional group of managers and executives whose purpose is to continue to guide the organization towards new awareness and action. This will no doubt make us a better company. Our leadership team is here and will cover each business more specifically for you. But before that, I will turn the call over to John Kulo for his thoughts on the quarter. John? Thank you, John. Good afternoon, everyone. My comments today will review our recent performance in the quarter, providing some additional perspective to the results on a consolidated level. I'll provide a quick update on capital expenditure plans for the year, and then I'll spend a little bit more time talking about our priorities around our capital allocation in light of recent market events and opportunities we see to capitalize on long-term sustainable growth in our business. Overall, we are pleased with our performance for the first quarter of the year, highlighted by revenue growth of 33% and operating income growth of 61% versus the prior year period. These results were tempered by some fairly meaningful labor challenges at the start of the quarter related to Omicron variant outbreak. The most notable impact from this challenge was in our DCS business, as driver availability and productivity were impacted. We also saw challenges in our rail velocity and intermodal, and in product availability in our FMS network. That said, the market tightness presented our highway businesses opportunities to step in to meet customer needs, and our technology platform, JV Hunt 360, provided us an efficient and effective avenue to source capacity for and on behalf of our customers. This continues to prove out the resiliency of our multimodal business model and our broader mode agnostic supply chain solutions offering. We had discontinued providing COVID-related costs on a quarterly basis a few quarters ago as the numbers were not meaningful to our consolidated results, but we did incur a little over $7 million in direct COVID-related costs for paid time off for those needing to quarantine and also for those needing time to get vaccinated in the quarter. Weather also presented some challenges to our network businesses, but no more or less than what we had expected given our line of work. I would say, similar to my comments last quarter, labor continues to be an area with the greatest inflationary pressure in both professional driver and non-driver salary wages and benefits, and we expect that trend to continue throughout the remainder of the year. In the first quarter, we recognized approximately $18 million of gains on sale of equipment in the quarter, which are atypical for us. We had very few trades last year, as we hold most of our equipment to support our organic growth. Below the line, our tax rate was 24.4, slightly lower, while our interest expense was modestly higher year over year, netting us the gap EPS of $2.29, or a 67% increase year over year. Continuing to maintain a strong balance sheet with $145 million of cash, zero drawn on our revolver, and up to $750 million capacity on the revolver, and our net debt balance remains below our targeted level of one times trailing EBITDA at 0.6. Last quarter, I provided CapEx plans of 1.5 billion for the year. And while we are slightly behind plan through the first quarter due to continued constraints and equipment availability, 1.5 billion remains our target for 2022. The quick update on our capital allocation priorities is that it hasn't changed. We will continue to prioritize supporting the growth of our business with reinvestment as needed, remaining committed to our investments and capacity to help serve our growing customer base. We recently increased our quarterly dividend to 40 cents a share, or 33% from prior levels, in keeping with our dividend strategy. We also intend to incorporate mindful share repurchases and opportunistically execute on M&A opportunities. We remain conservatively leveraged to maintain our investment grade rating. However, we are not afraid to increase leverage as opportunities arise. I want to reemphasize that investments in our business will continue to be supported by sound financial discipline and maintaining fair and reasonable returns on our invested capital. This keeps our business strong, healthy, and capable of growing to meet the growing needs of our customers. This concludes my remarks, and I'll now turn it over to Shelley.