Hello, and welcome to the Hub Group First Quarter 2021 Earnings Conference Call. Dave Yeager, Hub's CEO; and Phil Yeager Hub's President and Chief Operating Officer; and Geoff DeMartino, Hub's CFO, are joining me on the call. [Operator Instructions].

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 are forward-looking to be identified by the use of words such as belief, expect, anticipate and project and variations of these words.

Please review the cautionary statements and relief. In addition, you should refer to closures in the company's form 10K and other SEC filings regarding factors that could cause actual results to differ materially from those protected 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, Dave Yeager. You may now begin..

Good afternoon and thank you for participating in Hub Group's first quarter earnings call. I'm joined today by Phil Yeager, Hub's President and Chief Operating Officer and Geoff DeMartino, Hub's Chief Financial Officer.

On April 19th, Hubbard celebrated the 50th anniversary of my parents starting the company in a one-room office over a flower shop in Hinsdale, Illinois. Over the decades, thousands of people would work to ensure that Hub grew and prospered. My thanks go to each and every one of them for their contribution to position Hub for future success.

The first quarter continued to exhibit strong demand as our customers are aggressively replenishing inventories. Going forward we expect positive economic conditions that will continue to benefit our customers. The macro outlook remains favorable with GDP growth of 6%, strong retail sales and historically low inventory to sales and strengthen imports.

On the supply side, the outlook for truckload capacity continues to be constrained due to a shortage of drivers, issues with truck production, rising insurance expenses and driver regulatory changes.

We believe that the combination of strong demand and the tight supply of transportation capacity creates a positive pricing environment that will be partially offset by increased costs. With that, I'll turn the call over to Phil to review our business lines..

Thanks, Dave. Congratulations to the entire Hub Group team on 50 years of success for our focus on service, innovation and integrity. I'd also like to congratulate our chairman and CEO, Dave Yeager, on his 25th year as our CEO and his 100th earnings release.

His drive determination and steady-handed leadership has enabled us to be successful for 50 years and will set us up to continue to succeed for 50 more. For the quarter, We continue to prove the strength of our model through a dynamic market, delivering strong results with significant improvement opportunities ahead.

In particular, in our intermodal segment has been moved past weather disruption and realize the benefits of enhanced pricing. For the quarter, intermodal revenue was up 6% and volume was up 2% year over year.

Transcon volumes increased 9%, local west increased 11% and local east declined 11% year over year as the impact of weather and network disruption impacted volume.

Gross margin as a percentage of sales declined 190 basis points year over year, as their intermodal segment was most impacted by the weather disruption with a 6% volume and a $3 million gross margin impact in the quarter.

The dislocation of the network created inefficiencies leading to increase repositioning costs and outsourcing of drayage, which along with slower fleet turns could not be offset with our higher pricing surcharges and enhanced productivity of our trucking fleet.

As we look ahead, we see robust demand through the end of the year, along with the continually improving crank and environment.

We continue to invest in our fleet by adding an additional 500 containers on top of our previously announced 2,500 work, which along with our purchase of 3,300 containers last year and investments in our tracking fleet will allow us to meet the strong demand for our service and reduce our costs.

Logistics had a strong quarter with revenue increasing 8% and gross margin as a percentage of sales increasing 180 basis points year over year. We executed on gross margin improvements in our outsource logistics segment, which along with new business onboarding negated losses of business from last year.

This improvement was offset by customer mix, weather and cost increases in Cape stack. We are addressing this through several internal improvement initiatives that we will see benefits from throughout the remainder of the year. NFC has been an extremely successful integration.

We are executing on our cost synergies and our onboarding new wins from Hub customers while continuing organic growth from existing clients by leveraging our great service. We have a very strong pipeline across logistics and with our value proposition to help reduce costs and improve service, we anticipate strong demands going forward.

Brokerage performed well, with 30% revenue growth on a 6% decline in volume, as well as the 110 basis point decline in gross margin as a percentage of sale. We continue to support our clients in the spot market as our mix move to 51% contractual, 49% spot during the quarter.

We grew our LPL volumes and our team's strong wins through our enhanced value proposition. We have made great strides in our dedicated business. We have enhanced our operational discipline and go-to-market strategy, which resulted in 11% revenue growth and a 90 basis point compression in gross margin as a percentage of sale.

The enhancements we continue to make to our processes, cost structure, systems and management team will allow us to further improve our service products and ensure we continue to enhance our returns in the service line, which are now at much improved level. With that, I will turn it over to Geoff to discuss our financial performance..

Thank you, Phil. We are pleased with our Q1 performance, despite the challenging weather impact during the quarter. Revenue grew in all of our service lines with total company revenue up 10%. Gross margin was $109 million or 11.8% of revenue, which is an improvement over our Q4 2020 rate of 11.1%.

We continue to exhibit strong cost control with quarterly costs and expenses equal to 9.2% of revenue as compared to 10.1% last year. Cost of expenses were flat year over year, despite the acquisition of NSD in December 2020.

Salaries and benefits expense for the quarter increased primarily due to incentive compensation expense, partially offset by lower salaries and lower head count. Our non-driver head count is down by 9%, excluding the impact of the NSD acquisition due to our efficiency and technology initiatives.

Q1 general and administrative expenses declined by over $7 million as compared to the prior year due primarily to lower professional fees, lower travel expense and higher gains on sale. Off Grid diluted earnings per share for the quarter was $0.51. This compares to $0.40 of diluted EPS in the first quarter of 2020.

Our tax rate for the quarter was 21.9%. We generated $56 million of EBITDA in the quarter and ended with $226 million of cash on hand. We continue to have solid liquidity and low levels of net debt. We view our capital structure as an asset and our priority is to reinvest in the business through capital expenditures and strategic acquisitions.

We are raising our 2021 EPS expectation to $3.20 to $3.40, up from $3.10 to $3.30 that we announced in February. For 2021, we expect revenue will grow in the mid-teens percentage range with intermodal volumes of high single digits and revenue growth across all of our business lines.

We forecast gross margin as a percent of revenue of 12.5 to 13% for the year, increasing throughout the year as we progressed through the bid season and realize rate increases.

our outlook is based on the assumption that positive economic conditions will continue to benefit consumer demand and that low customer inventory levels will drive the need for restock. For the year, we expect cost and expenses of 365 to $380 million.

For Q2, we anticipate cost expenses will range from 92 to $94 million and will continue to increase throughout the year as we book more variable compensation expense in line with growth in overall profitability. We expect our tax rate to be 24 to 25% for the full year. Our 2021 capital expenditure forecast is $165 million to $175 million.

We increased our container order for 2021 and we'll be adding 3000 containers which will result in net growth of 2,750 after retirements. We'll also be adding 150 refrigerated containers. We've ordered approximately 700 trackers.

The majority of which are for replacement of older units and the remainder will support growth in our drayage and dedicated fleet. Dave, back to you for closing remarks..

Thank you, Geoff. Our outlook for the remainder of 2021 remains very optimistic demand is strong in all of our business lines. As our customers continue to need cost-efficient solutions that offer high levels of service. With that, we'll open up the call to any questions..

[Operator Instructions]. And our first question comes from Justin Long from Stephens..

I wanted to start with the question on whether -- you mentioned the volume headwind and intermodal and Phil, you pointed out the 3 million of costs as well, but all in, do you have an estimate for the EPS headwind from weather in 1Q? And then Geoff would love to get any thoughts around second quarter and what's baked into the guide from either a margin or PPS perspective..

Sure. It's a good thing. A great question. I think I highlighted it in intermodal first because that was the most impacted business unit that we had. Obviously, we had 3 days of intermodal network shut down in our Western network and obviously some challenges in the Eastern portion as well. That was really the largest impact.

We did see some benefits in the truck brokerage side where we were able to maintain some of the freight that was delayed or needed support in the spot market. That certainly an offsetting benefit. Cape stack had some headwinds as well but I think really wanted to highlight it in intermodal because that's where the biggest challenge was.

If you look at volume we were up 6% in intermodal in January and that's not adjusting for business days, down 8% in February and then up 8 in March. We've seen that trend improve in April with sequential improvement there, which came in around at 19% volume growth. I just wanted to make sure I highlighted that.

And Geoff, if you want to hit on the numbers from the weather impact..

Sure. You've kind of got it. Most of the pieces there, Justin, it’s kind of low to mid-2s probably net after you capture that the pieces that Phil talked about..

In terms of the second quarter, Geoff, any color you could give there?.

Sure. We have actually faced a pretty easy comp relative to last year, but now we expect we'll have sequential growth over -- even over Q1. Phil mentioned the April in a motive volume growth of 90% year over year, just sequentially, April from March up 4% on a business day adjusted basis.

So we expect we'll continue to grow, based on the demand profile. And we're starting now to, we have about 40% of our volume, intermodal volume repriced, starting to get some of the benefit of those price increases, and obviously, more to come. But another 25 or 27% in the second quarter, will be group-priced as well..

Okay. That's helpful. Second question is more bigger picture. UP just had their Investor Day, and there was clearly more of an emphasis on growth. The commentary seemed to suggest that intermodal would be leading the charge on that front.

Would it be fair to say that you've seen an inflection point in that relationship as it relates to both growing together and providing better cost visibility? And if that is the case, how does that change your longer-term framework for PUBS, intermodal volumes and margins?.

Hi, Justin. This is Dave, and I'll leave the last part of it to Geoff and Phil. The relationship with the Union Pacific, I don't believe there's ever been better or stronger. We're working very collaboratively.

And so it's really a very, very strong collaborative environment whereby we are focused on growth, and investing in our intermodal product, and they certainly are encouraging us and supporting us in doing that.

So we've never been in a better position with both of our rail partners, and I think that this will really act as a major driver for us to be able to continue to grow in the future..

Yes. And this is Phil. I would just add, I think we have a really constructive contractual framework at this point that helps with that relationship. That's been phenomenal for us, in having better visibility to cost, but also to work more strategically on other items, where we can drive growth, or improve our operations together.

We're really excited about the investments in Colton, and in Minneapolis. We think both of those are great growth avenues for us, so we love seeing that, and being able to bring new lanes to our clients.

Colton, in particular, is a great set up with our current infrastructure in Southern California, as well as just where our customers are domiciling their distribution center. So really, a great opportunity for growth there. As we look ahead in intermodal, I think you have a driver shortage, you have tight truck capacity, delays in delivery of trucks.

I don't think that's going anywhere anytime soon. You also have escalating fuel prices. And, I think, a great backdrop with larger corporations with their focus on carbon emissions, and lowering that carbon footprint, and we think intermodal is a great way to do that.

So all of the qualitative and quantitative factors are pointing towards kind of prolonged growth for intermodal, and so that is a big part of why we're going to continue to invest in it and make sure we're generating a strong return, as well..

Our following question comes from Scott Group from Wolfe Research..

I want to start on gross margins. So I think you beat the first quarter, your guidance, by about 50 basis points, but left the full year guidance unchanged.

What's the thought there, especially given the pricing environment just keeps getting better?.

Yes, we didn't guide specifically for Q1. I think we said we'd be up from our Q4 adjusted rate of 114. So I think we're on track. We think we can get to the upper 12, even up to 13, as more of that pricing takes hold. We are seeing very strong pricing dynamics and that has to work its way into our volume and revenue as business is repriced.

So we expect to continue to stay on that path throughout the year..

Yes. If I look back, in '18, the last time we had that really good pricing, you started the year in an 11%, ended the year, nearly 14.

If we're starting the year now at almost 12, is it realistic to end the year, perhaps, over 14, maybe closer to 15 on gross margin?.

I'm not sure we would go quite that far. I think, with a strong pricing environment this year, and if conditions stay the way they are, we certainly think that would be possible into next year, but I'm not sure we're going to end up quite that high for this current year..

I think a lot of it also depends on peak. We're getting peak plans set up right now, feeling very good about the plan for getting in place. So that certainly gives us some upside, I think, versus our forecast that really comes to fruition.

So I would just highlight that as the potential upside, and based on what we're hearing from clients and the discussions that we're having, we're anticipating a really strong west coast peak season..

Okay.

And then just lastly, do you have thoughts on re-emergence of AB5, and what the potential impact could be?.

Yes. Hi Scott, this is Dave. We were watching that very closely as, obviously, we do use a fair amount of independent contractors. So it's something that, definitely, we're making a lot of different plans in case certain actions are taken, particularly out in California.

We do have a large company driver fleet in California, but it doesn't support a hundred percent of our needs. So it's something that we're working through, just in anticipation that the legislature, in fact, will continue down the path they're going..

Any way to ballpark what a cost impact could be, if any?.

I think that would be pretty tough to quantify.

Obviously, the independent contractor model in the drayage network is very important, but we also know that our partners, who we keep a very close contact with, are migrating their model to be able to continue to operate and be successful, regardless of the overall regulatory environment, whether that's shifting to more of a broker model, or to a company driver model.

And I think we've done a great job of building out an infrastructure ourselves, where we've taken more share of our own drayage out there, and have an infrastructure, going forward, to support more volume, where, I would say, in a very competitive driver market, that is one of the markets where we've been very successful in adding drivers.

So I don't see that there is a cost impact, because I think our vendor base will continue to navigate through the regulatory environment very successfully..

Our next question comes from Todd Fowler from KeyBanc Capital..

Hey, great. I apologize if I missed this, but I think that, last quarter, you talked about expectations to realize pricing in the mid to high single-digit range, and on the intermodal book, it sounds like you're about 40% implemented.

Do you have updated thoughts on pricing? And can you speak a little bit to where contract renewals are currently?.

Yes, this is Phil. I would highlight that after the weather disruptions, we saw an even greater inflection point in pricing, I think with the chip shortage and continued delays in new production of vehicles as well, and the continued driver shortage, that the price environment has continued to improve.

We're renewing at double digits at this point, and anticipate that's going to continue..

Okay. That's great. And then just to follow up on your comments, to Justin, about the environment, the constraints, and looking at the environment a little bit more longer term, you're taking up the container fleet additions here this year, modestly, expectations for high single-digit intermodal volume growth.

Is this an environment where, I don't want to see you're turning down volume, but there's an opportunity to even get more volume? And so, just given some of the constraints, too, on the ability to add capacity, that there could be more of a tail where we see sustained growth on the intermodal volume side for a couple of years at this point, or how do you think about balancing the pricing that you're able to get, and volume growth in this market?.

Yes, with the renewals that I was just referencing, we are seeing growth as well, so that I think the conversion to intermodal is continuing. Customers want to lock in capacity, they don't want to have another piece where they're buying in the stock market. And I think that will continue through the remainder of the year, and into next year.

I think that the weather, we certainly missed volume opportunities, and the recovery from that took us a little longer than I would have liked. We had a 15% slower fleet turn in the quarter. A lot of that was rail transit, but also delays in unloading at destination, and sourcing of enough dray capacity to dig out quickly.

So I think all those factors in April, and now in May, have trended positive, we're seeing transits really tighten up, which is great, and that alone will generate incremental capacity, even on top of the orders that we've done. We think that there will be, we haven't modeled this, but we think there is upside in our turns in the back half.

And that could create incremental capacity to handle more demand than we are today. But certainly, the demand is there, and as we can create capacity with, our deliveries will be taking place, really, from June going forward, which will really benefit us earlier as well. So, very, very bullish on our ability to dig more..

Yes. Okay. That sounds good. That makes sense on the velocity, plus the container additions, helping the ability to handle more volume. And congratulations on the milestone this year..

Our next question comes from Elliot Alper from Cowen..

Great. I wanted to stay on intermodal, talked a lot about volume growth, I guess.

How should we think about intermodal in the second quarter into the 4 year, on a margin perspective, and what may be baked into guidance? And then, any other color the rails are telling you about congestion right now?.

Sure. This is Geoff. I can speak to the margin of improvement. Much like we saw, Q4 into Q1, we expect continued expansion of the margin in intermodal, in particular, it'll increase throughout the year, again, as more and more of our business gets repriced. For us, price is a very big lever to our gross margin percentage.

So maybe slight improvement going from Q1 to Q2, but we'll continue to ramp up throughout the course of the year. That was one of the key drivers in the increase in our guidance for the year, was we anticipate pretty strong intermodal pricing throughout the course of the year.

We do have some costs that come into play as well, particularly in the short term, but I think we'll see that margin expansion throughout the rest of the year..

Yes. And I would just add around from our rail discussions, we're certain, and we're seeing it in the numbers, we are seeing improvement in fluidity. I think part of that is getting past some of the weather events, making sure that congestion is down, and then also from a chassis availability perspective, we're seeing improvement there.

And that's in part working with our clients to help in unloading times, and making sure that we have the capacity available to pull the freight. So all of those factors are heading in a positive direction, and we anticipate really, heading into peak season, to be in a much better position. And so we are seeing the sequential improvement..

Okay. That's helpful. And then secondly, at the UNP Investor Day yesterday, they talked about some drayage operations, investing in leveraging autonomy in the future. Curious if that's something you'd consider in the future..

Sure. Yes. I think we're going to continue to experiment with different technologies. So we actually just launched an electric vehicle pilot. I was really excited to take place in it. I think that's a great step for us in the short-haul configurations that we have.

There's some weight and infrastructure cost challenges that need to be overcome, but really exciting step there. I think in a very closed or confined sort of area, the autonomous technology can be applied, and that's something that we're looking at very much as well.

I don't think you're going to see that in long-haul trucking anytime soon, nor in short haul. I think you'll continue to have a driver in the truck, but could have a much safer vehicle, which I think would be a big win for everyone. In those confined sort of terminals, I think there is an opportunity to really utilize autonomous technology.

And that's something that we're, with UP, and other partners continuing to research and look for opportunities to deploy..

Our next question comes from Bascome Majors from Susquehanna..

You made a comment earlier about sequential increases in the cost and expenses relative to incentive comp. Is that just leaving some cushion in the cost guidance in case revenue and potentially income guidance tends to move higher? Just trying to understand the cadence of those accruals and how they work..

Sure. Yes. And we talked about this a little bit on last quarter's call because in 2020, we did not meet our criteria paid bonus. So we are anticipating and budgeting to pay a bonus in 2021. We pay for performance and we accrue bonus as we start to recognize more and more profit throughout the year.

So we're starting off low, and we anticipate continuing to build that up throughout the year as our gross margin and other operating profit contribution is supportive of the level that would allow us to pay a bonus for the year..

And back to 4Q, on the exit rate, I mean, is there an opportunity for you to be above your kind of 5% long-term target, either seasonally in the fourth quarter or exiting on a run rate, assuming things stay that way into early 2022?.

We certainly think it's possible. We've done a really good job, I think, in the last 24 months or so to take out operating expenses and really improve the cost structure through efficiencies and technology. And I think you saw in the Q1 numbers, we were able to leverage those expenses and we anticipate to continue to do that.

And we'll add back some headcount and incur some additional costs as we grow, but with mid-teens revenue growth, we certainly don't expect to be growing our operating expenses at that rate so we'll be leveraging those costs.

And we could be exiting the year at that 5% range, or it could take place in the next year, a little bit of a swing based on how strong pricing is at the end of the year..

And I might've mentioned the renewals that are coming in.

We've certainly seen an improvement in the pricing environment, but we're also coming off of a lower base where a lot of the customers that bid at this time last year got a benefit from really concerns around what was going to happen with the pandemic, right? So the opportunity to bring those rates up and back into line with market is a large percentage swing.

Obviously, we've maintained the commitment. I think the other swing factor that we have is, once again, peaks and the surcharges that we'll be out in the market to provide capacity.

Obviously we have additional costs to make sure that the capacity is available, but we think that that will be higher than last year as well and give us some upside to potentially be on a run rate on that target.

What I like about some of these renewals that are coming in now is that pricing will be effective through the first half or first 3 quarters of next year, which will give us a benefit through really the first half of '22..

Last one on a similar topic, the rail inflation.

Can you talk a little bit about how much visibility you have into '22 at this point and how you think that'll compare to what you're viewing this year on the PT side?.

Yes, we have very good visibility and anticipate it will be similar to this year. [indiscernible] similar to last year..

And our next question comes from Tom Wadewitz from UBS..

Yes. Wanted to ask you a bit about, I guess, the fluidity and constraints that you see in the system.

What are the most important pinch points and how do you think that they could potentially alleviate as you look forward? I guess maybe East West Rails and how much drayage is a constrained at the present time?.

Sure. This is Phil. We have seen, obviously, during the storms and at the beginning of the year, transits were elongated on the rail side. The unloading times were up, which was constraining capacity and drain capacity was at a significant premium, given some of the surges that were out there.

We've done a nice job, I think, of making sure that we are sticking with our rail partners and understanding where they have congestion both at the terminal level, as well as online and making sure that we're proactively working through that with them, which I think is part of why we've seen an improvement in transit.

On the street, we've done a good job in a very competitive driver market of maintaining our driver force. We haven't added as many as I would like, but we have done, I think, a very good job there. And we've done a great job, in my opinion, of continuing to align with our third-party carriers and ensuring that we have available capacity.

There are some constraints on the drayage side, on night and weekend sort of work, right? I think that's where we've seen constraints as we move to a more 24/7 supply chain. That has certainly been something that has been a challenge. But, once again, working with our drivers and our third-party partners to really overcome that.

And then lastly, last year, our customers, and early this year, were really struggling with getting folks into work for warehousing. And that was certainly a constraint on capacity, a constraint on chassis availability, which downstream impacts terminal fluidity and online fluidity as well.

As the vaccines have been rolled out more broadly, we've seen a significant improvement in folks coming back to work. Something that is still out there, and I think this is the challenge for all industries, is the continued government subsidies where that might not incentivize work long-term.

It's a good thing for the consumer, but not necessarily for our unloading time. So that is something that we're closely monitoring with our clients every day. And we, once again, have seen significant improvements from where we were in the fourth quarter and even the first quarter of this year.

So all of those I would say are heading in the right direction. I don't see a negative out there for us. Just want to make sure that we continue down that path, and I think we'll be in very good shape to have a strong peak..

Great. What about -- I think the numbers you offered, I didn't catch them all in terms of like a Transcon East and West, but I think the east number was down a lot for intermodal volume and west was up.

Is that something you think would normalize or is that big spread in volume performance likely to persist through the year?.

Really, it was to do with our bid wins. We did win a lot off the West Coast and then saw significant demand even beyond that. So given the commitments that we had made it pushed more capacity to the West Coast, but we are seeing as the year progresses, more of a normalization on those growth rates and should continue to see that.

For us, a big focus is making sure we take out empty repositioning costs, try and to create more balance in the network. And through growth in the local east, we can have more of that.

Now, I don't see the demand on the West Coast really stopping any time soon, or at least in 2021, but we have been successful through bid season and creating more loaded inbound into those markets, which will benefit us in available capacity and costs going forward..

So would you think eats volumes are up or that's just a function of repositioning containers out of the east?.

I would say east volumes will trend upward on a year-over-year basis going forward. That would be my... but maybe not at the percentage that we're continuing to grow on the west. But obviously our growth last year was mostly off the West Coast, so we'll have somewhat easier comparables in the east.

So I would anticipate, as you look at the kind of remainder of the year, you'll see eastern growth from us..

Our next question comes from Jon Chappell from Evercore ISI..

Phil, we're approaching about a year now anniversary in some of the customer losses that you noted in logistics, brokerage and dedicated.

You said in your prepared comments that logistics are onboarding a lot of new customers that you're offsetting customer losses, but where do you sit with all 3 of those businesses in kind of resetting the customer base and getting it to the point where your capacity can handle it efficiently?.

Yes, so I would highlight, from a productivity perspective, maybe I'll go there first. So in our brokerage, we had an 8% productivity improvement year over year in the first quarter. And we've really improved productivity 30% since the implementation of our brokerage work match. So really pleased with that.

In logistics, in the first quarter, we had a 28% productivity improvement, which is great, and that is largely attributable to changes we've made to our workflow, making sure we have the right customers and that we're really pushing automation, in the business. So all of that has been very positive.

On the dedicated side, I really pay attention to our revenue per truck per day, which was up 12% year over year in the first quarter.

So as we look at those items, the increases we're continuing to get in dedicated and the improvement in operational practices, we're very bullish on our ability to continue to improve margins there and bring on profitably new wins. There's a lot of demand out there for dedicated.

So we're actually being very selective in what we are bidding on and where, to ensure that it's going to meet our return criteria. In brokerage, given how efficient we've become, I feel...

and the investments we're making continually into technology, into working with our carriers more proactively, I feel as though we're going to continue to be able to grow there. But we're also growing our inside sales force, which is going to allow us to sustain growth even as the market starts to cool off a little bit.

And then lastly, in logistics, our pipeline across our outsource transportation management, our home delivery and CaseStack is the best that I've seen it. And there are some large revenue, but much better operating margin wins coming on in our outsource transportation management segment, CaseStack.

We're bringing on new wins, some bigger customers, but we need to focus on the small ones as well, that have a little bit of a higher profitability. And then lastly, just with NSD, the cross-selling to our Hub clients has been great. It's opened up doors that the NSD team could not have gotten into before.

And we've improved the pricing structure by removing layers of margin that were in there before to be more competitive. And so that's bringing on new wins, which is allowing us to beat the forecast on growth. So I feel like the non-intermodal segments all have a great upside, and we're in a very stable and strong position right now..

And I was going to ask about the cross-selling and NSD, but since you addressed it, let me ask another question. It's pretty noticeable how much your cash balance continues to increase. And obviously, you guys have a track record of making some well-timed acquisitions.

And I'm sure the pipeline's full, and I'm sure you're looking at a lot of things right now, but just curious with the tightness across the entire supply chain, I would think maybe the valuations are also getting a bit stretched.

So is there any general comments maybe Dave can make about valuations as you look at inorganic growth? And if they're just not there right now and you're not willing to chase anything, is there any other uses of capital that you would think about in addition to your normal capital spend?.

I can answer the one part. I think Geoff would be more qualified on the overall evaluations, but we do review with the board every quarter whether or not we do any stock buybacks, dividends, et cetera.

And honestly we do believe that the most efficient use of the cash is to continue to expand the business into a variety of other verticals while investing in our more asset based or asset intensity businesses of intermodal and dedicated.

Geoff, did you want to?.

Sure. Yes. Like Dave said, we've got some pretty stringent criteria. We don't feel like we should be chasing every last dollar when it comes to acquisition, but we are pretty selective. It has to meet the criteria, and then when we do find something we like, we do spend a pretty good amount of time on diligence and making sure there's a cultural fit.

The acquisitions we've done, I think have been pretty reasonable valuations just given the growth profile, both what that business has been doing on its own, but also probably more importantly, is what we can do with that business under our roof.

We've had really good success with both, well, actually in all 3 of the recent acquisitions in terms of the cross-sells. Nonstop, we're very, very pleased with. That business is doing very well with existing customer base, but also the opportunities that we're able to bring to bear with our customer base and our sales force as well.

So we can kind of make that work if the potential is there, but we're not going to certainly chase and go after a highly competitive auction type situation..

[Operator Instructions]. Our next question comes from Brian Ossenbeck from JPMorgan..

One of the other themes from the investor day yesterday with Union Pacific was ESG. And you mentioned it earlier, the focus on conversion, lowering the carbon footprint.

Maybe you can just give a little bit more color into if that's actually happening on a regular basis or if it's still part of the conversation, how that's been working coming to the bottom line and actually making those conversions.

And then separately, can you talk about the spread in between truck and rail as you see it now in the east and the west?.

Sure. Yes, on the ESG front, we have a great story, much like our rail partners do. Last year, for example, the use of our inter-modal product saved about 1.6 million metric tons. We're about 70% more efficient than over the road.

And increasingly we're hearing more and more customers request that and look for that type of support as they're trying to achieve their own environmental goals with respect to their carbon footprint. On your question on the spread between rail and truckload, I have that here.

So in the west in Transcon, north of 60% on a per-mile basis, intermodal contract versus truckload contract. In the east, kind of low double-digit percentage gap..

And I would just highlight on the intermodal versus truck pricing, I think that gap will close pretty dramatically as changes are put into place in renewal. But there is a premium on capacity and service right now and so that's certainly something we're looking at.

And we have a good understanding, I think, of where the market is and where we can price, so that'll be important going forward..

Okay, got it.

And just on the follow-up on the ESG, is it something that shippers are viewing as is nice to have and get the support for it and get the, I guess, credit in their reporting? Or do you feel like it's starting to be monetized or quantified in some way that you're seeing it actually be the trigger for new business? It's probably pretty hard right now, considering capacity is so tight, but I guess how is it coming up in the conversations maybe now versus the last 12 months, and where do you see it going?.

I would say that it's certainly moved to be a much higher priority. I don't know that it's the deciding factor, although I think that varies by customers. There are some customers that are taking it extremely seriously and really making a conscious decision based on that. Obviously, cost is always going to be a factor as well.

Right? So I think given the capacity environment, it's tough to say whether it is cost or if it's actually the carbon emissions decision, but it is certainly a much larger factor. And once again, that's escalated, especially with a lot of the companies that we work with who are out making commitments on carbon emissions.

This is a really easy way to make a lot of headway towards those goals. So we are outselling it very aggressively.

We are establishing automated reporting for our customers so that they can factor it into their scorecard, which has been, I think, a great win in ensuring that they understand every week they're getting value out of that and doing their part in the transportation and logistics group to help the company achieve their goal..

Our next question comes from David Zazula from Barclays..

Maybe for Phil or Dave, just a question on big picture drayage strategy, as you've seen kind of a cycle of increased intermodal demand, kind of coming up and the ability of your drayage systems to handle.

Any thought on how you want to try to reposition your drayage systems, be it like a split from company versus outsource or other ways to look at drayage to better position yourself for the next cycle?.

Sure, yes, I think it's a great question. So we traditionally in the past have been about 30% owner-operator, 70% company, and it really shifted to be about 60% company, 40% owner-operator at this point in our own drayage network. We're being much more successful in adding company drivers.

I think we have a great value proposition with new equipment, great benefits, great pay to be out in the marketplace with. We are continuing to add independent contractors in the right markets, where we think there's a sustainable model there though.

So for us, we do believe that continuing to invest in the fleet, putting capital towards that, is going to be the most cost effective and highest service solution for us. But we also maintain extremely strong partnerships with outside capacity and third parties that we've been working with for many years and will continue to work with.

I don't have a set percentage in my head. For our fleet, I think we want to get to 80% company driver over the next several years, but as we grow, we need to be nimble in our ability to take on more third party or contract that as the market changes, which is going to allow us to maintain margins more effectively throughout cycles.

So that would be my view. We don't really have a target in mind but do want to continue to invest to allow us to grow our own footprint..

Great. And then just as a quick follow-up, with kind of the brokerage market being as hot as it is, you mentioned that 51-49 split.

Are you looking to be a little more aggressive into the spot market or try to take the contract percentage up to try to capture the current market?.

Yes, so we traditionally run somewhere between 70 and 80% contracts, sometimes even north of that. So this is a little abnormal for us. Part of it is some of the changes we've seen. We have some lower project, long-term project freight, as well as some lower logistics volumes which fall into our contractual bucket.

So longterm, a lot of our customers do annual RFPs and the spot opportunities are going to be outside of that. So longterm, I don't see this as the split. I think it'll move back closer to that sort of 60 to 70% contractual on a longer-term nature.

But I think that this year has been an aberration in our stock market exposure, but we're certainly going to continue to step in to support our clients..

We have no further questions. I'd like to hand the call over to Mr. Dave Yeager for closing remarks..

Great. Well, again, thank you for joining us on the earnings call today. As always, Phil, Geoff and I will be available for any questions if you have some additional comments. Thank you again..

Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect..