Hello and welcome to the Hub Group First Quarter 2022 Earnings Conference Call. Dave Yeager, Hub's CEO; Phil Yeager, Hub's President and Chief Operating Officer; and Geoff DeMartino, 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. [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 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 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, Dave Yeager.

You may now begin..

Good afternoon and thank you for participating in Hub Group's first quarter earnings call. Joining me today are Phil Yeager, Hub's President and Chief Operating Officer; and Geoff DeMartino, Hub's Chief Financial Officer.

I'd like to thank the Hub team for the hard work and focus on delivering great service to our customers as we achieved record earnings for the first quarter of 2022.

Our non-asset-based logistics and truck brokerage business units experienced accelerating growth as they provide reliable and economical services and intermodal gained momentum throughout the quarter with continued focus on the customer and delivering excellent service.

There's been a great deal of discussion of late on spot rate declines and a looming recession. While no company is immune to an economic downturn, I strongly believe that Hub is well-positioned for growth through 2022 and into 2023 and beyond. Each of the business units has built in defenses that will assist them if a slowdown should occur.

Dedicated consists of long-term agreements that commit capacity to a customer at a specified price. In today's environment, many customers are focused on securing consistent capacity after experiencing the shortages of last several years. Both of our non-asset-based businesses can adopt to the vagaries of the economy.

Truck brokers are able to perform well in both tight and loose capacity markets, taking advantage of the arbitrage through pricing.

Our logistics business is focused on bringing value-added services to our customers in high-growth areas, whether it's transportation management that brings technology to customers, allowing them to better control their supply chains, home delivery or LTL consolidation, all bring enhanced control with reduced costs for the customer.

Lastly, intermodal represents 55% of Hub's revenue. Intermodal is the growth engine for the rail industry as well as for Hub.

The advantages intermodal offers to our clients include dramatically better economics than over the road, 4x more fuel efficiency than over the road, thereby offering ESG advantages, significant capacity and generally consistent service.

As the price of fuel remains at elevated levels and the driver shortage continues, intermodal is now experiencing more truck conversions than we've seen in several years. Hub is very well positioned in this growth business with 45,000 containers and 6,500 new boxes being added to the fleet this year.

We have excellent relationships with our rail partners and have differentiated ourselves as a superior service provider.

Through our strong balance sheet, we've made significant investments focused on growing intermodal, while diversifying our service offerings, improving our efficiency through technology and continuing to enhance our operational discipline which will help set the company up for growth in a variety of market conditions.

And with that, I'll turn it over to Phil to review our performance..

Thank you, Dave. I wanted to start by thanking all of our team members across North America for their constant effort and focus on delivering a world-class customer experience. Before I begin discussing our service line performance, I wanted to highlight a change to our reporting.

Given the integration of our intermodal and dedicated organization systems, equipment and drivers, we've adjusted our reporting to discuss our asset-based operations as one business unit, Intermodal and Transportation Solutions.

We believe this will appropriately reflect our performance in our asset-based operations in the future as we continue to leverage our density and improve the utilization of all of our resources. I'll now discuss our service line performance for the quarter.

Intermodal and Transportation Solutions revenue increased 35% in the quarter with a 790 basis point improvement in gross margin as a percentage of sales.

Our revenue growth was driven by 4% intermodal volume growth and a 35% improvement in revenue per unit which was partially offset by a decline in dedicated revenue despite an increase in revenue per truck per day.

Our intermodal revenue per unit improvement was partially driven by mix as we grew Transcon moved to 11%, Local West, 7% and Local East declined 5%.

We experienced a decline both year-over-year and sequentially in rail service but have seen positive trends at the end of the quarter and into this current one as our rail partners make progress in improving staffing, chassis availability and terminal congestion.

Despite those headwinds, we executed well, driving a slight sequential improvement in utilization due to enhancements in customer and street dwell as well as a large increase in year-over-year on-time performance to our customers.

We've seen a very strong bid season thus far and anticipate continued growth in intermodal volumes and pricing which will be supported by a great pipeline of new dedicated onboarding. Logistics revenue increased 6% year-over-year, driven by strength in final mile and consolidation, as well as new onboardings in managed transportation.

Gross margin as a percentage of sales increased 240 basis points year-over-year as we continued our strong execution and yield management across all of our offerings.

Our value proposition of great service, continuous improvement, technology and supply chain savings is resonating with our customers and leading to a strong pipeline of wins we have brought on in the first quarter and will continue to see throughout the remainder of the year.

Brokerage revenue improved 132% year-over-year, driven by a 51% increase in volume and 54% improvement in revenue per load, mostly due to the acquisition of Choptank as well as organic growth in our coal truckload and LTL offering.

Gross margin as a percentage of sales declined 360 basis points year-over-year as we executed higher revenue per unit spot shipments which comprised 59% of our volume in the quarter. We continue to see success in our integration of Choptank and are performing well on our cross-selling synergies.

We are continually identifying ways to leverage our increased scale and generating large wins in bid season which we anticipate will drive ongoing strength in this service line. With that, I will hand it over to Geoff to discuss our financial performance..

Thank you, Phil. We are pleased with our Q1 results which featured record quarterly revenue and profitability. Revenue grew 41% with strong growth across all lines of business. Our yield management, cost recovery efforts and focus on operating efficiency led to gross margin of 16.6% of revenue and operating income margin of 8.9%.

We continue to leverage our gross margin performance against our operating expenses which were 7.7% of revenue, down from 9.2% last year. Salaries and benefits increased due to our recent acquisition as well as higher incentive compensation expense.

G&A was up slightly as higher gains from the sale of transportation equipment were offset by higher expenses related to the acquired business. Our diluted earnings per share for the quarter was $2.58 which is over 5x the prior year. We generated $150 million of EBITDA in the quarter.

With cash of over $200 million and net leverage of close to 0, we have substantial flexibility to invest in our business through capital expenditures and additional strategic acquisitions. We continue to have a bullish outlook for 2022 and are revising our guidance upward.

We see further demand from our customers, driven by strong macro trends, growth in consumer spending and low inventory levels. We expect supply chain conditions will continue to be constrained and that our yield management and operational efficiencies will lead to further growth in earnings.

For 2022, we are expecting diluted EPS of between USD9 and USD10 which is a wider range that we would typically provide as the outlook becomes less clear towards the end of the year. We expect to grow revenue to over $5 billion, putting us well on our way to achieving our goal of $5.5 billion to $6.5 billion of revenue by 2025.

We expect intermodal volumes to grow throughout 2022, supported by our container deliveries and improving rail service. We forecast gross margin as a percent of revenue of 15.6% to 16.0% per year, as rate increases, surcharges and accessorial revenues offset higher costs for rail transportation, third-party drayage and driver wages.

For the year, we expect cost and expenses of $420 million to $440 million. We expect our earnings for Q2 will be similar to that of Q1. In the back half of the year, we expect seasonal strength in yields will be offset by rising transportation costs. Our capital expenditure forecast is essentially unchanged at $240 million to $265 million.

We have been receiving our 2022 containers and expect to grow our fleet by 6,000 or 14% this year. In 2021, we introduced our long-term revenue and margin targets.

Our recent acquisitions of Choptank, NSD and CaseStack and the significant investments in our fleet are illustrative of the types of strategic investments we will make in our business, adding scale while also introducing new service offerings with strong cross-sell potential. Dave, back to you for closing remarks..

Thank you, Geoff. We're very pleased with our first quarter results, as well as our April performance and the big results we've seen thus far. We look forward to continuing to deliver solid results for the remainder of this year and into 2023. At this time, we'll open up the line for any questions..

[Operator Instructions] And our first question comes from Todd Fowler from KeyBanc..

I guess, with the big step-up in the outlook here for 2022, I don't know who wants to take this but maybe if you could put some framework around what's driving the big step up relative to where we were in February and kind of your confidence around how the year is going to play out, the visibility that you have into probably some of the contract wins in the pricing and some of the differences between the high and the low end of the guidance..

I think we do feel confident in the updated guidance. We've performed very well in bid season thus far. We're about halfway through with awarded volumes. The cadence just as a reference point is about 38% was done in Q1. We'll see 40% done in the second quarter and then 20% in the third quarter.

We've seen very strong pricing, call it, mid- to high teens to start this season on renewal and are seeing volume growth as we convert truckload volumes back to intermodal. So really feeling very good about the demand outlook. Our customers, I think, are looking to lock in capacity. We've really stepped up for them over the past couple of years.

And so we're seeing some great opportunities to continue to drive growth. I think with an hopefully continually improving service product as well, we're seeing some momentum in rail service. We think that's really going to help us.

You look at where fuel prices are, that's a tailwind and I think our customers continue to look for opportunities to enhance their sustainability goals which we are supporting as well. I think the unknown is what happens with imports from China.

I think that's a bubble of freight that is going to impact back half demand actually in a positive way as hopefully that congestion eases and, once again, put us in a position where, I think, with the investments we're making in the fleet, the cross-selling that we're doing to get deeper with our customers, sets us on a good trajectory to hit what we've laid out in the press release and in our remarks..

Got it. That's helpful. It's a good overview. And just as a follow-up, how do we think about the sustainability of some of this going forward? I'm kind of backing into the guidance implies operating margins in like the 8% range. You've talked about 4% to 5.5% in your 2025 target.

So, how do we think about kind of the run rate off of this going forward, obviously taking into consideration that we understand that there's some limited visibility around the economic environment but just the sustainability of the margins at this level?.

Yes. So when we gave the long-term guide for both revenue and the profitability, it was meant to encompass periods of strength which we're clearly in as well as softer times as well. We just think the outlook for 2022 is going to continue to stay strong. We upped the guide just based on the strength we saw in Q1.

We don't give quarterly guidance but we have our internal forecast which was exceeded really due to strength in yields primarily driven by intermodal. The other businesses are performing as expected but we really saw an outperformance by intermodal. We expect that will continue for the foreseeable future..

And I'd just add in, Todd. I think Dave hit on it really well in his prepared remarks that we've done a nice job diversifying the product offerings, getting deeper with our customers. We're really seeing a lot of momentum on in-sourcing more of our own drayage, we have a lot of tailwinds in intermodal.

And so, I feel as though we're well positioned to Dave's point, I think, in a variety of market conditions and you'll continue to see that momentum..

My model goes back, we would have taken several years to add up to a $10 number. So, congratulations..

And our next question comes from Scott Group from Wolfe Research..

So, just staying on the guidance would imply, I guess, lower earnings in the second half of the year than the first half of the year based on what you're saying.

Is that something you're seeing that you would expect? Is this just, hey, it's so good and who knows how long it lasts and we're not -- we're just not sure, what should we make of that sort of implied lower second half and first half?.

Sure. I would say that, again, we expect Q2 will probably be similar to Q1. And so, at the upper end of the range, it implies that the quarters are going to be roughly even throughout the year. We did kind of have the lower end of the EPS range just based on -- we don't know what things are going to look like when we get Q4.

Certainly if it stays like this, we expect we'd be at the upper end of the range but wanted just to build in some flexibility. We do have rail costs and other transportation costs going up sequentially in the back half of the year. They will be an offset. Typically we would see higher profitability levels towards the end of the year. We don't expect it.

In other words, we're at kind of the yields we would expect to be at for the full year right now. So we do have the rising transportation costs that could weigh on margins slightly in the back half..

And do you have visibility -- are those rail cost increases higher than normal this year -- that come later this year?.

They're in line with what we're expecting..

And then, if I -- just going back to that last question about the operating margins of 9%, can you just directionally just rank for us now which businesses are doing best on the margins which were, to your point, you've changed the business at a bunch.

I want to understand what's performing best and worst right now?.

You mean, from sort of a yield perspective, yes, I think, Intermodal Transportation Solutions is our highest yielding business. Obviously, the highest asset intensity.

That would be followed by Logistics which is completely non-asset based but more customized solutions, including consolidation, final mile and managed trans which we think are demanding somewhat of a higher operating margin profile. And then, brokerage would be the last, obviously our fully non-asset and probably the most competitive space.

But we do believe that we're in a very good position there with the return profile we're generating, I think, the investment we made in Choptank and moving into the Reaper space and continuing to build scale in full truckload, have been really positive. We have a great runway there.

And I think something we haven't highlighted quite enough is probably the fact that 20% of our brokerage business is drop which gives us, we think, advantages to go out and win with the acquisition of Choptank on top of that in a variety of ways with our customers and we're seeing that take hold. So, that would be the ranking though.

And once again, I feel very good about the progress in each business unit..

And just really quick, with this new reporting structure, you're still going to give us intermodal volume and yield trends and revenue trends going forward, right?.

Correct..

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

And congratulations on the results. Obviously remarkably strong earnings. Let's see. The revenue per load number is also pretty off the charts big. I think you said like 35% growth in intermodal revenue per unit.

How do you think -- how should we think about the progression of that? I mean, I know the comps get -- I think they get probably pretty hard in 4Q.

But do you assume that some of them may be demurrage or accessorials or whatever fall off through the year or do you assume that they persist and you kind of -- you get the contract pricing through just coming through? Just wanted to get some thoughts about how you're thinking about the pieces of that revenue per unit on intermodal..

Yes. The revenue per unit, obviously, to your point, the comps do start to get tougher the later in the year. But we do not have a feeling that surcharges or search capacity solutions or accessorial revenue will be dipping off. They just from a comparable perspective will be somewhat more or moving off of a higher base.

So -- but we are still seeing very strong pricing. I think, you look at the differential of intermodal versus truckload pricing, there's still a large gap there. You factor in then fuel prices as well at an elevated level. There's a lot of value for clients out there to continue to convert business to intermodal.

So, we're feeling very good about the pricing opportunity and I think there's a lot of runway to continue to convert business. So we're pricing to that and it will be in excess of our cost inflation..

Okay.

So from kind of an absolute perspective, you wouldn't expect revenue per load to fall off sequentially like later in the year?.

No, no..

Okay. How are you thinking about -- I mean, maybe a comment on what rail service was in 1Q or container turns and then how you think about the opportunity for turns to improve? I know you're expanding the fleet. So that gives you some volume growth from the start.

But, I guess, where were turns in the quarter and how much confidence you have they can improve?.

Sure. So, sequentially we saw a very slight improvement in utilization. We actually saw a sequential deterioration in rail service but it got better throughout the quarter and we've seen thus far moving into Q2 actually some more sequential improvement, in particular, in the eastern portion of our network and we're pleased to see that.

And I think it's a great story to go to our customers to talk about that improving rail service product. On the Street and customer side, that's really where we saw the improvement sequentially that helped us get an overall improvement in turn times. And we think that's going to continue to progress. We're doing a really nice job adding drivers.

Our customers are not back to fluid but we're seeing that we're starting to get some improvements there. Not anything once again to write home about on either of those, we still have a lot of work to do but progress nonetheless.

I am hopeful that as rail service continues to improve into the back half of the year, we continue to add more drivers to our fleet. Our customers get better staffing at their warehouses and there's less congestion that we will see better turn times. And I think the volume is there to unlock that latent capacity and turn our fleet even faster.

So we're bullish but working hard to improve..

So you think like sequential improvement in utilization is reasonable when you look at the next few quarters?.

Yes, yes. Absolutely. I do believe also that our Western partner will start to see some enhancements in their service levels by the end of this quarter..

Next question comes from Jason Seidl from Cowen..

I appreciate you guys taking the time here. I'm just curious sort of piggybacking on that last question.

What's baked in, in terms of congestion in the supply chain in the back half of the year? I mean, if we go into sort of meltdown 2.0 like we had last year, is this something that's going to put you towards the bottom of your range or are there sort of lessons learned from the last time that you could do even better than that?.

Yes. We think that, with the solutions that we have to offer our customers and what we experienced before that, that congestion, although it can add incremental cost can add incremental pricing power as well which has a strong flow-through to the bottom line for us.

So, our estimate would be that if that did take place, we would have even more enhanced pricing power and would be able to utilize that to our benefit. All that being said, we're going to live up to the commitments we've made to our customers as well. And we feel as though that's a really important thing for the long-term.

So, as things would come up for renewal, we would be taking actions to ensure that we're getting a market-based sort of rate and return on our investment that we're making. I don't know if Geoff could add anything to that..

No. To your point, Jason, we are sort of factoring that into our planning. We think there's a little bit of a bubble right now in China, that a lot of that freight is going to be hit in the water soon and we'll be showing up just in time for the West Coast port negotiation. So, certainly in the cards for the second half..

Should be interesting nonetheless.

Also, on rail service, just curious, I mean, have the railroads talked to you guys about their service plan sort of to the extent that they've been all dragged in front of the STB and sort of been chastised publicly about this? And do you think that, that actually could work in your favor?.

Sure. So, we know that our rail partners have been working very hard on their service product for quite some time now. I think, you heard on both of their calls that -- both of our partners calls the focus and emphasis on it. I think it's been there for a while.

And it is a across-the-board sort of effort, including capital investments, bringing on more resources and getting terminal congestion and contractors really in the right place. So, I think it's taken some time but we are seeing momentum that we hope is going to continue.

And I think, you heard on probably both those calls the level of detail and metrics and focus that they have on it to get it right. And that's something we're going to our customers with to show, hey, we do think that there is a real run rate here for service improvement and an opportunity to convert more.

And so, we're sharing those statistics on a daily, weekly basis and hoping to garner more volume from truck. So, feel very good about the plans and effort and improvement that's coming..

And just to add to that, in the interim, as our rail partners are, in fact, working on their service, we're putting in a lot of efforts, as Phil had outlined earlier to -- so for us to improve on our turn times, working with our clients to unload faster. Once again, that just makes the fleet better, make it more fluid.

So, the rails are improving, I think that we are also at this point in time..

Yes. I think that's a really good point. Our on-time performance to our customers in the quarter was up pretty significantly on a year-over-year basis. And that has continued into the second quarter and we think will be better for the full year..

Next question comes from Jon Chappell from Evercore..

Phil, you had mentioned customers looking to lock in capacity. I'm guessing that was under the premise of the first quarter. As we've gotten into April and the rest of the capacity bottlenecks, so to speak, have kind of eased a little bit.

Have you seen any slowing in willingness to lock in proactively? And also, what's been the trend on contract durations and pricing momentum as we've gone from an incredibly tight supply chain to one that maybe we see the light at the end of the tunnel?.

Yes, sure. So, duration has remained very similar, mostly year long contracts. Our customers are large organizations. They don't want to be running constant RFPs but we haven't seen some customers do six month rates. That's not totally uncommon but I would say the vast majority are locking in for one year.

I don't think a lot of people are looking at what's happened recently in the spot market and kind of pulling that to say that's going to be the remainder of the year.

I think everybody thinking, especially after the last two years that it will once again be a challenging peak season that the disruption in China right now, the pending potential labor challenges in Southern California, that is going to lead to some bottlenecks and locking in with providers who are going to bring capacity and commit is a really smart thing.

And I think, everybody also understands the incremental costs that are coming into the system around hiring drivers and rail costs and all those. And so, we've been having very active discussions with our customers.

And I would say, pretty much everyone has continued to stay focused on how do I make sure lock in capacity and mitigate risk in my supply chain..

Okay. That makes complete sense. And then, second, probably I didn't know this was coming.

When you're talking about an EPS range of $9 to $10 and the type of cash that that throws off to your business, you've generated a pretty good track record recently of a good accretive acquisition or two annually, what's that environment look like right now? Do you still focus on the logistics and the truck brokerage as a way to continue to grow out in that business and have valuations changed at all that make you maybe a little bit more looking to do more organic growth given this cash buffer?.

Yes. Great question, John. When we announced our long-term targets last summer, we said that about half that growth would be organic and half through acquisition. So, our plans for capital deployment are centered around adding assets to our intermodal business and then looking to do acquisitions in the non-asset parts of the market.

And to your point, building on to our logistics platform, adding new lines of service, things that we think have high cross-sell potential. Choptank was a great example of that in brokerage.

We were able to both scale up and add a refrigerated transportation capability that we were frankly lacking in the past and that has been very successful so far in terms of cross-selling that to our customer base. We're going to continue to look for those types of acquisitions.

We have probably the most complete pipeline that I've seen in my time here at Hub. I mean, we have several active opportunities we're pursuing. And I'm hopeful that we're going to get at least one acquisition done in 2022..

Got it. It looks like you're getting all that organic growth in one year..

And our next question comes from Bascome Majors from Susquehanna..

Could you talk a bit about what the EPS range would translate to from a free cash flow perspective?.

Sure. Yes. So that range is going to result in EBITDA -- bear with me one moment -- EBITDA of around $600-or-so million. We don't have a lot of interest cost and cash tax is probably in the $50 million range. We are financing the majority of our -- pretty much all of our CapEx is financed..

All right.

So that would translate to something in the, call it, $250 million, $300 million free cash flow at least?.

Correct, yes..

All right. And if we walk that forward to next year, I mean, I hate to ask what about the other side of this question when you just raised your guidance 50% in the fourth month of the year.

But there's obviously a lot of concern about the cycle even for businesses that are doing really well of yours, can you walk us through how you stress test the model if the environment does change, like 2014 to '15 shift or a 2018 to '19 shift, just how do you get hurt? And how do you mitigate that? What does the downside scenario look like in 2023, '24 if we're in that type of timeframe? Thank you..

Sure. We haven't gone that far in our planning yet. We did this play in 2018 and we're thinking through it now. But what do we need to do in the event of a downturn, I think we took a lot of costs out in 2019 and early part of 2020 in anticipation of a downturn that, frankly, just really didn't happen.

We did take the cost out which is, I think, one of the reasons why we're seeing such attractive operating cost leverage as we were able to reduce those costs into what we think is a permanent state. We didn't add a lot of cost in on the way up here; so, we think we're going to have some cushion there.

Our model is -- we're benefiting from price that's having a strong impact on our yields. We do have -- with almost all of our business in intermodal being contractual, we'll have a tailwind carrying us through into a potential downturn. But, look, we're going to do the same thing we did last time which is watch our bottom line carefully.

We also have made some pretty big moves to diversify away some kind of pure transactional business, adding the acquisitions in the logistics side. And even in the brokerage side, the acquisition there was a business that's serving food and beverage type customers. So, we think those two factors will also help to mitigate any downturn driven by price..

And I would just add, I think we have a lot of momentum in our drayage operation. We're getting a lot more productivity there and really getting a nice driver add on a week-to-week basis. Our retention numbers have come back in line and so turnover is down significantly on a year-over-year basis.

And we think that can continue and we can make some serious progress on that in-source percentage of dray. The only other thing I would highlight in intermodal is, we've also done a lot of work with our rail partners to align our contracts so that in a variety of conditions we're able to compete more effectively.

And so, that would be something, I would say, as we look out is something we didn't have in a prior change in market conditions..

You asked -- you mentioned that on the rail cost side.

On the customer side, do you have any commitments that are because of this situation and capacity-constrained railroads, do you have any customer commitments that are extending beyond 2022 at this point?.

We do, yes. And we -- so in our logistics business, I would tell you, that's the vast majority of those contracts as well as in dedicated, right? So you look at both, those are multiyear sort of engagements. And then, on intermodal, we do it selectively with the right customers.

But, yes, we have multiyear, some as long as five years on commitments for volume and pricing with clients in place. So, that is a really good question and a great point and something we're continuing to put an emphasis on in our marketing strategies right now..

[Operator Instructions] Our next question comes from Justin Long from Stephens..

I wanted to ask about revenue per load, up 35%.

Obviously a big increase there and you talked about pricing but is there any way to help us unpack that number a little bit more and think about that number ex-fuel and maybe provide any color that you can on the impact from surcharges and accessorials?.

Sure, yes. So, the revenue per load increase in the quarter was 35%, 60% of that was kind of core price, if you will. Steel was maybe 800 basis points, surcharge assessorial mix would account for the rest. The accessorial is really -- were not a big driver, frankly..

Okay..

I would just add, mix-wise, Transcon continues to be a growth engine for us. We think that has a wider moat if we see a change in truckload pricing..

Okay. Helpful and it kind of leads me into my next question. Phil, you said earlier that through the first half of bid season, you've seen mid to high teens pricing. What's getting baked into the guidance for pricing trends in the back half of bid season? I know that the comps are a bit tougher but just wanted to get your thoughts..

We're expecting low single digits by the end of the year, certainly still positive year-over-year. But with 80% of our repricing is done in the first half, the impact of the last quarter or two is not that meaningful in the overall picture for us..

Yes, I would say that is us looking at a murphier [ph] picture, right and probably conservatism. We're going to continue to push for strong pricing and the value proposition that we have in saving our customers' money on converting truckload business..

Great. And last quick one for me is on intermodal volumes. So, 4% growth in the first quarter.

Anything you can share on what's reflected in the guidance for intermodal volumes for the remainder of the year?.

Yes, we're expecting sequential improvements as well as year-over-year improvements. We're modeling mid-single for the full year..

And is that cadence pretty consistent? I would guess, it's going to pick up significantly in the back half.

So, any color on that you can provide?.

It does pick up in the back half, yes. So we would expect the 4% in Q1 to be the low point of the year from a year-over-year perspective..

Our next question comes from Brian Ossenbeck from JPMorgan..

Maybe just on the demand side.

Can you elaborate a little bit more on the truckload conversions that you mentioned a few times on the call? Are these ones that sort of left the network and our back because of some additional capacity constraints or is it ESG driven? Is there any way you can kind of break it down into the different buckets, whether it's by type of customer, the type of contract, is ESG playing a factor because it does sound like this is the first time you've really emphasized that is actually happening as opposed to the potential for it to happen?.

Yes. I would say, the earlier portion of bid season is typically more consumer products-driven and some retailers. And I would say, both have been putting in -- both of those groups which makes up the vast majority of our overall revenues have been focused on a couple of things.

I would say, a piece of it is sustainability but with fuel prices as high as they are, with truckload capacity both in production of new trailers and tractors as well as attracting drivers being somewhat mitigated in the growth that that can be brought on.

We're seeing a lot of customers look to intermodal for capacity assurances for a hopefully improving rail service product and that's what I mentioned earlier is the momentum we have there right now and we think continued progress. And so, while sustainability is a factor, I don't know that it's the deciding factor.

Only other thing I would highlight is, as inventories do get somewhat more stable, a supply chain can tolerate a couple more days of transit to take advantage of those transportation savings that are there.

So, I think, a multitude of factors but there are a lot of customers, I think, looking to make sure they mitigate that risk in their supply chain..

And when you think about some of the reasons they're switching or maybe emphasizing intermodal more, do you feel like these are business wins and opportunities you can hang on to for a longer period of time? Or is there any way to kind of characterize what might be a little less sticky than not or any way you can make it stickier and keep that business going forward?.

I think, the main thing is, if we do a great job for our customers, they like to stick with us. We never want to give them a reason to switch, especially around our service performance. And I think, we've built a great reputation with the customers that we're growing with and we'll get -- continue to get opportunities.

As I mentioned earlier, I think the kind of one year contracted commitment has remained kind of the standard. We are very active in conversations with our customers around what we define as baseload business which helps us balance our network and locking those more into multiyear agreements.

And that is something we're continuing to pursue but once again, with the right clients. So we are focused on that..

And you had mentioned ESG several times. I'm sure you're aware of Scope 3 which right now is up for Cummins. If, in fact, that is -- does become a requirement with an SEC filing, I think that you'll see a lot of conversion to intermodal just based upon the fuel efficiency and reduction of carbon emissions..

One last just clarification, if I could. On the equipment side, you mentioned drayage and how that's improving.

Where are you at in terms of that 90%-or-so plus that you're looking to get in-house? And then, also on chassis, any bottlenecks or improvements that you're seeing there and how that's expected to play out the rest of the year?.

Yes. We're at 50% of our own drayage but seen progress into Q2 and we should see that number sequentially improved throughout the year. On the chassis side, we have not seen really any challenges to note. And I think, the main thing is turning the equipment more quickly and that creates more fluidity. So, I wouldn't say it's gotten worse in any way.

If anything, it's gotten better as new chassis have come online. And so, we feel -- so that's a part of the service product that's getting much better..

Yes. And as you know, Brian, UP is investing $600 million this year in chassis and terminals to support in the loan..

Next question comes from Brandon Oglenski from Barclays..

This is David Zazula on for Brandon. Phil, if I could just ask a quick question about brokerage, I guess, with the way contract rates have escalated, I guess, it's our assessment that the dollar margin per unit is relatively elevated compared to where it has been in the past.

I guess, if contract rates come down, I guess, is that an outsized risk to your forecast in brokerage relative to what it has been in prior cycles? And then, I guess, relatedly, is your guidance kind of your affirmation that you think contract rates are going to remain elevated for the bulk of the year?.

Yes. So we do believe contract rates are going to stay higher. Once again, our customers are looking to lock-in capacity, make commitments with providers that have supported them throughout the last couple of challenging years. So, in contract, most of our bids on that bid cadence of 38%, 40%, 20% is very similar for our brokerage as well.

So we don't see as much of a risk there. We're mostly about 50% of the way through that bid season and it performed well in our cross-selling targets with Choptank. And to the other point, I think, we made earlier, we've diversified our model to be in the refrigerated space, to be in LTL to have a strong drop trailer program.

All of that gives us multiple ways to win in a variety of market conditions. And I think it would be very fast to see contract rates really start to move. And we're once again in year-long agreements with customers and feel very confident in our ability to win in either markets..

And then, if I could just ask a cleanup.

Do you have handy either the absolute non-driver employee count or a change in employee count?.

Yes, the non-driver head was 2,280..

We have no further questions at this time. I will now turn it over to Dave Yeager..

Okay, great. Well, thank you for joining us for the conference call. As always, if there's further questions, please feel free to call Geoff, Phil or I or all three of us. Thank you very much for participating..

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