Hello and welcome to the Hub Group Second 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 this 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 that are forward-looking can be identified by the use of words such as believe, expect, anticipate and project and variations of these words. Please review the cautionary statements in the release.

In addition, you should refer to the disclosures in the company’s Form 10-K and other SEC filings regarding factors that could cause actual results to differ materially from those projected in these forward-looking statements. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to your host, Dave Yeager.

You may now begin..

Sorry for the inconvenience there, that temporary slowdown. This is Dave. And good afternoon and thank you for participating in Hub Group’s second 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 would like to, first of all, start by congratulating the Hub team for the hard work and focus on delivering excellent service to our customers, while achieving record quarterly revenue and earnings per share.

Our intermodal revenue continues to be strong with our non-asset based logistics businesses also showing revenue strength and earnings growth. Over the last 5 years, the Hub has been focused on the strategy of diversification. Today, nearly half of Hub’s revenue is now provided by our non-intermodal businesses.

In addition to the synergies created through the acquisition of non-asset-based logistics services, the diversification allows Hub to be more resilient during economic downturns and helps to mitigate the cyclical nature of the transportation market. Intermodal continues to be the core business of Hub Group.

This year, intermodal has experienced some service issues, but we are now seeing incremental improvements and have begun to lower our transit estimates to our clients. The intermodal has significant cost and environmental benefits versus truck. And as service improves, we anticipate significant conversion opportunities.

Lastly, we will continue to invest in our intermodal assets as well as in information technology for all of our businesses while maintaining solid internal cost controls. And with that, I will turn it over to Phil to review our performance..

Thank you, Dave. I wanted to also thank our entire team for their constant effort as well as their commitment to supporting our customers and each other. I will now discuss our service line performance.

ITS revenue increased 41%, driven by a 1% increase in intermodal volume and 44% increase in intermodal revenue per unit as well as the return to growth in dedicated trucking. Intermodal volumes increased 10% in the Local West, 2% in Transcon and declined 14% in the Local East.

We performed very well in bid season and continue to anticipate strong demand despite increased competition in shorter haul segment. Gross margin as a percentage of sales increased 710 basis points year-over-year driven by a 790 basis point improvement in intermodal along with growth in dedicated.

We have seen the labor market loosen and we have enhanced our driver hiring throughout the quarter, delivering a year-over-year improvement in our percentage of in-house drag, while enhancing our street dwell and service to our customers.

Despite these operational improvements, our container utilization deteriorated both year-over-year and sequentially driven by continued challenges in rail service and longer customer dwell. We are focused on delivering for our clients during the upcoming peak season and are collaborating with our rail partners and customers to enhance fluidity.

We will continue to invest in the business to deliver a superior service product that helps bring cost savings and sustainability to our customers, which in turn we believe will drive long-term growth.

Logistics revenue increased 18% in the quarter, with growth in all of our offerings as we continue to deepen our value to our customers through our integrated approach to supporting their supply chain needs.

Gross margin as a percentage of sales increased 380 basis points as we maintained our focus on operational discipline, yield management and continuous improvement.

We have a great pipeline of new onboarding and are continuing to see strong demand for our solutions to our focus on delivering supply chain savings, visibility and continuous improvement through our best-in-class team and technology platform.

Brokerage revenue increased 90% year-over-year, driven by the acquisition of Choptank, which, along with organic growth in our LTL and dry offerings, helped us deliver a 52% increase in volume and 25% increase in revenue per load.

Gross margin as a percentage of sales increased 30 basis points year-over-year as we improved our purchase transportation costs which was offset by a slowdown in higher margin spot market activity. Transactional moves represented 58% of our volumes, but declined as a percentage throughout the quarter.

While the spot market has slowed, we have executed on our cross-selling synergies and performed well in bid season. We are well positioned to continue our growth through our integrated approach to our customers, high service levels and expertise in our capacity types, including temperature controlled, LTL and drop trailer.

With that, I will hand it over to Geoff to discuss our financial performance..

Thank you, Phil. Once again, our quarterly results featured record levels of revenue and profitability. Revenue grew 43%, with strong growth across all lines of business. Our yield management, cost recovery efforts and focus on operating efficiency led to gross margin of 17.6% of revenue and operating income margin of 9.8%.

We continue to leverage our gross margin performance against our operating expenses, which were equal to 7.8% of revenue, down from 8.5% last year.

Operating expense dollars increased from last year due to the Choptank acquisition, higher legal and outside services spend and higher compensation expense, offset by gains from the sale of transportation equipment. Our diluted earnings per share for the quarter was $3.03 which is nearly 4x the prior year.

We generated $174 million of EBITDA in the quarter. We had cash of nearly $300 million at quarter end and no net debt, providing for substantial flexibility to invest in the business through capital expenditures and strategic acquisitions.

We also continue to evaluate options for returning capital to our shareholders, including through the use of the $75 million remaining on our share repurchase authorization. We are expecting a strong finish to 2022 with diluted EPS of between $10 and $10.50 per share.

We expect to grow revenue to over $5.6 billion, putting us well on our way to achieve our goal of $5.5 billion to $6.5 billion of revenue by 2025. We expect intermodal volumes will grow low single-digits in 2022, supported by our container deliveries and improving rail service.

We forecast gross margin as a percent of revenue of 15.8% to 16.0% for the year as rate increases, surcharges and assets oil revenues offset higher costs for rail transportation, third-party drayage and driver wages. For the year, we expect cost and expenses of $415 million to $430 million.

We performed well during bid season and it will have a tailwind of strong pricing, which will be offset in the second half by rising transportation costs and softer volumes as compared to the first half. I wanted to take a moment to address the future beyond 2022.

While we acknowledge the potential for a softening economy, we believe Hub Group is positioned for success in a variety of market conditions. We have taken several important steps to improve our resiliency in a down market. With our recent acquisitions and organic growth, our non-asset businesses represent a growing part of our overall results.

Within intermodal, our agreements with our rail partners allow for flexible market-based pricing arrangements. Through our asset efficiency initiatives, we have already begun to in-source a higher percentage of our drayage, which has a substantial cost advantage relative to third-party carriers.

Our profitability will benefit from the variable nature of our incentive compensation as well as our relentless focus on operating efficiency. Finally, our entire business is supported by our pristine balance sheet and strong free cash flow generation. In 2021, we introduced our long-term revenue and margin targets.

Our recent acquisitions and our purchases of intermodal equipment 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. With that, I will turn it back to the operator to open the line for questions..

[Operator Instructions] Your first question comes from the line of Todd Fowler from KeyBanc..

Hey, great. Thanks and good evening. So, maybe Geoff, just to follow-up on your comments on the sustainability of trends into 2023, if I look at the gross margin guidance for the year, it implies a deceleration in the back half, which I think you had anticipated based on the timing of rail rate increases.

But do you think that somewhere within the 15% type range for gross margins for ‘23, is that a level that can be considered achievable or normalized or are you still kind of above what normalized range would be as you exit ‘22?.

No, I think that’s a good benchmark to use for next year. We have not done our budget, obviously, for next year. We need to go through peak season and the strength of that part of the year will be a key determinant for next year. But I think that’s a good assumption at this point..

We have heard from our customers that are anticipating a strong peak season. And so we are preparing for that, which we also are through the majority of bid season at this point. We think we performed really well and those rates will be locked in for another year from this point.

So still feel very strongly that there is a lot of tailwinds in the business..

That’s helpful.

And Phil, maybe just to follow-up on that, so is there a way you can help us think about the 44% increase in revenue per load here in the second quarter? What can you share with us about kind of where core pricing is versus some things on top of that just to give us an idea of kind of where pricing is running on a kind of a same-store sales or comparable basis?.

Yes. So pricing is really strong and has continued to be. I think you’ve seen with us, our focus has been on longer length of haul and we think we achieved a more sustainable and higher margin per load day on that business. So we will continue to stay focused on that.

I think when we think about core pricing, full year, we are still at a high single, low double-digit kind of fully realized price. And although we are overlapping kind of the highest prices from last year, those were still positive. And so I think those are all important factors to take into account.

I don’t want to give you anything to specific around that, but I hope that can kind of set the framework for you..

Yes, understood. And maybe just my last one and I’ll turn it over. But with the cash balance at around $300 million, again, no debt and really with where the stock is at from a valuation perspective, I know how you prioritize reinvesting in the business and M&A opportunities.

But how do you think about kind of the credit that you are getting for the sustainability earnings versus kind of your financial position right now?.

Yes. I mean the short answer is we don’t think we are getting credit, frankly. Our priority is for investing our excess capital or to put it back, first and foremost, into the business through CapEx and through acquisitions. We do have a very good pipeline of M&A opportunities. We have had good success with the deals we have done.

Our third priority is to return capital to shareholders. And at these trading levels, it is a pretty compelling opportunity. We do have $75 million remaining on our share repurchase authorization and our intention is to put that to work..

Okay, great. Thanks for the time tonight..

Okay..

Your next question comes from the line of Scott Group from Wolfe Research. Your line is open..

Hey, thanks. Good afternoon, guys. So, some of the – some similar questions there.

When I look at the gross margin guidance, second half, how much of the sequential drop that you’re assuming is intermodal versus the rest of the business? And then what is the sort of assumption for that gross revenue per load in intermodal and volumes and rail service? And how do you get to the guidance you guys are talking about? Thank you..

Sure. Yes. From a forecast perspective, the primary driver would be intermodal, which is 60% plus of the business. So that is the key driver. We’re seeing good success with yield improvements in our other lines of business. And we’re encouraged by our performance in bid season in intermodal we now have throughout the year.

This is the time of the year where we start to take the rail cost. So that is the primary driver of the deceleration in the earnings in the second half. For the year, we are expecting low single-digit intermodal volume growth. We’re expecting a flat year-over-year growth in the second half..

And the rev per load outlook for the back half?.

It will come down. So as we have more and more of our increases now in place, the year-over-year improvement will flow, but we will be, as Phil mentioned, high single to low double realized for the year..

Okay. And so should I think about – when you talk about the way the rail contracts are structured, there is clearly still some degree of volatility in your gross margin and maybe it’s that your pricing leads and then the rail cost lag a little bit. So there could be periods where you’re benefiting.

And then maybe if we – if at some point, your pricing drops, maybe you’ll get squeezed for a period of time.

But is your ultimate point that wherever the margin should settle out at a higher place than what we’re used to seeing them from the years back?.

Yes. No, I think that’s right. You hit the nail on the head there. That’s pretty much the mechanics. We will see it move a little quicker going forward. So the period of a change in profitability would be much shorter than it would have been in the past. So I think that’s a positive.

I think – but we are starting at a much higher baseline, and we’ve been able to continue to improve our operations. And so yes, we would indicate that the margin profile through a full cycle will be much improved from what we’ve seen in the past..

And just to add on, Scott, Phil is addressing the most salient of the levers we have to address profitability. But we also have other levers. We have the ability to insource more dray than we’ve done in the past. We’ve already started to move on that. That does have a cost advantage as well.

And then in the other lags of the business, I would say, generally, if you’re looking where Hub was maybe 4 or 5 years ago, if you look at ‘18 to ‘19 as a benchmark, we do have more – a higher percent of our revenue comes from the non-asset businesses. And I think overall, we have a higher focus on operating efficiency than we have in the past.

You’ve seen that in the numbers in the last 2 or 3 years. And we would expect that trend would continue in a soft environment as well..

I’d just add, I think our free cash generation in a down cycle would still be significant to our ability to continue to return capital or follow through on accretive acquisitions and invest in the business.

We don’t feel it would be hindered during that timeframe as well, so feeling strongly that we are going to be in a good position and a higher improved margin profile as well..

Okay. And just so I understand, you’re saying that whenever the next up cycle in pricing is don’t expect the same huge jump up in gross margin.

But the starting point whenever that up cycle starts should be higher than where we started this cycle?.

I would say we would still expect strong improvement in another up cycle, but the floor would be much lower in a coming down cycle. Yes. So it’s just through a cycle a much improved profile.

I think we were able to garner a lot of the low-hanging fruit through this cycle, which has driven a lot of the improvements, but we still have ways to go on just our own internal improvements that we can drive as well. So I think we have the right disciplines in place.

And so – but generally, I think we feel we will have a lower – a much higher floor and a strong ceiling as well in the next up cycle, which would be higher than that..

Okay, very helpful. Thank you, guys..

Thank you..

Your next question comes from the line of Tom Wadewitz from UBS. Your line is open..

Yes. Good afternoon.

Wanted to get your thoughts on just freight activity and how you’re thinking about the cycle? And then I guess the – you could argue that, I mean, the Local East volumes were pretty weak for you in the quarter, but I guess you could argue that broader shippers may have interest, and maybe it’s more the long-haul lanes, in doing more intermodal versus truck with – I know fuel prices have come down but are still elevated and ESG considerations, other things.

So I guess how do you think about how cautious are you on freight as you look to second half? And how much is intermodal share gain versus truck consideration that could drive some upside in that volume outlook?.

Yes. So I’ll start with the Local East question, if that’s okay. I think what we saw there was a more aggressive spot truck market and some aggression in intermodal.

I think if you’ve seen our growth, where it’s been focused in the last several quarters and years, and that’s really driven by our network model, which focuses on maximizing our margin per load day.

And so that’s why you see us really focus on sustainable pricing in some of those longer length of haul, where you don’t see the conversion back and forth between truck and intermodal. We don’t feel as though it’s necessarily the right thing long-term given the contract nature of our business to chase the spot truck market.

So perhaps we’re just staying a little bit more disciplined there. But from a demand perspective, we did really well in bid season. The discussions we’re having with our customers are about peak and peak preparation. And so that’s the focus that we have right now. And we do think there will be a peak.

If we think more medium term, I think inventories have improved, but they are still at pretty historically low levels, and a lot of that product is the incorrect product. I think even if inventories do improve, intermodal could be a benefit as the supply chains can absorb a couple more days of transit.

And then we are still providing really strong cost savings, in particular, in those longer length of haul lanes.

And when you take into account higher fuel prices that’s even more exacerbated, you take in what Dave suggested in the front end that we’re tightening our transit and we’re seeing sequential improvement in rail service and all the investment that’s going on there as well as smaller carriers exiting the market, I think it’s a good backdrop in the medium term for demand for intermodal as well.

So I think all of that is a pretty good formula. And so that’s why we’re continuing to invest at containers and tractors..

Okay. Yes. Thank you for that for that perspective. I guess for a follow-up or a second question. What’s your position with respect to owner operators? And I’m assuming you’re kind of well prepared for whatever, AB5 not being rejected or taken up by the Supreme Court.

But just maybe can you kind of review what your position is for drayage in California and whether you have – bear any risk around potential kind of evolution of that market?.

Yes. So we had transitioned to a full company driver model several years ago. We’ve maintained that and have actually grown quite a bit as an organization there in our trucking operation.

So we have not and don’t anticipate really any challenges to continuing to grow in the market and provide the great levels of service and flexibility that we have in the past. So we feel really prepared and have been preparing for this eventuality for several years.

We are watching other markets to ensure that we’re putting the same preparations in place and mitigating any potential future risk that we may have, if, in fact, similar regulations are put in, in other states. So we feel really good.

We still do have independent contractors in our – in the fold with Hub that’s about – of our drayage drivers maybe less than third at this point. And we have really engaged and focused on growing our company driver fleet, but we also want to continue to support our independent contractors as well. So we feel really well prepared.

And honestly, it’s been since the announcement actually an increase in our pipeline in dedicated trucking as I think a lot of folks are looking to lock in capacity.

And we are very heavily weighted carrier in our dedicated model towards the California market, which represents about two-thirds of our drivers in dedicated, so probably more of a driver of business than potential to tractor..

Okay. Great. Thanks for the perspective. Appreciate it..

Your next question comes from the line of Brian Ossenbeck from JPMorgan. Your line is open..

Hi, afternoon. Thanks for taking the question. So I just wanted to ask more broadly with getting ready to welcome some other ones shifting previous already this year, but you’d be also investing.

Can you just give us a sense as to how that is playing out from your perspective? I believe that UP is making some OD pair switches here in the next month or so. I don’t know if that has any impact on you as well. So maybe an update on that and how that was progressing would be helpful..

Yes. This is Dave. We’ve obviously – from a competitive standpoint, the two new entrants on the UP, we competed with for years. So it’s really nothing new. I would suggest that the Union Pacific is right now investing about $600 million into the intermodal product.

Their service thus far has been under where – in fact, their on-time performance is under where we would want and where certainly where they would want. But they certainly are making a lot of investments in personnel, adding on locomotives.

And so we are hopeful that the transition will be smooth, and they certainly are working very diligently towards it. From our standpoint, we’re also trying to enhance our service levels and also our operations, having less time on the street for containers when they are empty that type of thing, which helps with the flow of chassis, etcetera.

So we’re the Union Pacific’s largest customer, and we have a great relationship with them, and they are a very good operating railroad. So we’re looking forward to continuing to grow on UP and Norfolk Southern..

And when it comes to expanding your dray driver capacity in-house, can you just talk about where that percentage is now maybe versus the last couple of quarters and what those markets look like given just the overall driver market? But again, others trying to rearrange the network.

I don’t know if that has any overlapping impact in some of the areas you’re looking to add people.

And is equipment a problem still?.

No, we haven’t had an issue with delivery of equipment. We have seen some delays in some of our containers coming over, but the commitments that our OEMs made to tractors have continued to be built. So we feel very good about that. From a driver hiring and percent of dray perspective, we have seen an increase in our ability to bring on new drivers.

Part of that is actions we’ve taken around wages, but also I think we are much better at marketing and recruiting to get new drivers as well. And our percentage increase of in-house dray, about 400 basis points sequentially quarter-to-quarter. So we feel really good about the progress we’re making there.

And actually, we’ve seen an increase thus far in the third quarter as well sequentially from that 400 basis point improvement. So all positive there..

And maybe just one clarification for Geoff, it looks like in the other line, I believe you have the gain on sale, which was up a bit sequentially. It looks like that also went up a pretty decent amount. I don’t know if you have an accrual or something in there, if you could just clarify that? Thank you..

Yes. We did have higher legal and outside services spend this quarter. The implied guide for the rest of the year has that coming down slightly, but that was – those were the drivers..

Okay. Appreciate the time..

Thank you..

Your next question comes from the line of Jon Chappell from Evercore. Your line is open..

Thank you. Good afternoon. Phil, I think you mentioned a couple of times customers looking to lock in capacity. Kind of two parts to that.

Is that having any impact on your average contract duration? Are you getting more extended contract periods as customers look for more security? And the part B to that would also be we’re obviously hearing a lot about economic slowing, etcetera, and I think you’ve already addressed that in a question earlier.

But are you seeing any recent scaling back in that kind of rush to secure capacity over a period of time?.

Sure. So, our contract terms generally are 1 year with our customers, I would say, generally, in intermodal. We have – with a few key clients where those contracts really have some tips [ph], we have elongated some of those commitments, especially in kind of core network lanes for us.

And we have gone as high as 5 years with some customers unlocking those in with market-driven price escalators or declines. And so that is, I think something we like to do, but we like to do it with the right customers and partners that will have mutual commitment to that over the long haul. As we think about scaling back, we haven’t seen that yet.

I still think they are – and we have done really well in bids. I still think there is a lot of feeling from our customers and the discussions that I have with them that we are going to have a strong peak and that it will be tight.

And while I think some folks have tried to take advantage of the spot market more aggressively, most are trying to live up to the contracts and ensure that they have capacity during this upcoming peak season and going into next year because it really hasn’t become all that clear.

I don’t think anybody – if we are heading into more of a down cycle or it’s about to tighten again. And I think we will certainly see that over the next couple of months as peak season really plays out..

Okay. Thanks for that. And then for my follow-up on truck brokerage, you have been in this period of really elevated top line growth. Obviously, some driven through acquisition. I think you still have a quarter maybe plus of acquisition comps that will keep that revenue up.

You turn positive there on the gross margin side, 30 basis points, but still the first positive, I think since the second quarter of 2020.

Are we starting to get to the point where truck brokerage ex acquisition where that volume growth starts to slow a little bit, but some of those levers that you spoke about, whether it’s cross-selling or whether it’s efficiencies within the business, you start to see continued positive gross margin momentum there?.

Yes. So, what I would tell you is when we acquired Choptank, we had a much lower gross margin profile than the rest of our truck brokerage. And with some of the changes that we have made in the pricing and yield management strategy, we have actually seen a massive improvement there and plan to continue that.

And so I think as you look out, you will see improvements in yields as this sort of acquisition – as it settles into the numbers. So, I think you will see year-over-year improvements there, and that’s what we are seeing in the core business, that was there before, if that makes sense..

Okay. Thank you, Phil..

Yes. Thank you..

Your next question comes from the line of Bascome Majors from Susquehanna Financial Group. Your line is open..

As a housekeeping question, can you share where you are coming out in your model, the new forecast on EBITDA and free cash flow?.

Sure. EBITDA would be just over $600 million. I will give you the components there, too. $600 million of EBITDA, cash taxes, probably around $110 million, $10 million or so of interest. And then our CapEx guide is $240 million to $250 million. Now, we do end up financing 90% or so of the CapEx going forward..

Thank you for that. And in that light, with the buyback discussion from earlier, I think the quote was at these levels, it’s a pretty compelling opportunity. We can run the numbers on the cash generation power of the business. You have got a net cash position slightly. The stock’s traded as low this year as 6x your recently updated EPS guidance.

So, rather than talk about what the plan is specifically going forward, I was hoping we could back it off and think high level about the philosophy behind how the buyback looks to you guys as a capital deployment opportunity.

And has this changed? Do you have enough where you can do both, still diversify the business and buyback a needle-moving amount of stock going forward given how successful the business is today? Thank you..

Yes, it’s a great question. It’s something we think about a lot. We talk about that with our Board. Our priority is to grow and diversify, invest in containers, do more drayage in-house, which requires some level of tractor investment. We have had really good success with our acquisitions in the last couple of years.

The cross-sell potential, which is core to our thesis around M&A, is real. We have proven that time and time again. We have proven we have been able to take out costs and drive up yields. And we want to continue to do that. We think that’s a really good financial return. It also has the benefit of diversifying the revenue over time as well.

You have seen that now with our non-intermodal revenue comprising close to half of our total revenue by the end of the year. But to your point, the return on – return of capital on share repurchases, it’s a double-digit free cash flow yield and it’s pretty compelling. So, it’s something we will continue to address with our Board.

We do have the authorization that we intend to execute on, and we are considering additional levers that we have in that regard..

And the path forward for that, is that a decision that you think would be made quickly or something that will take time throughout the year?.

I don’t have an answer for that yet. It’s something we will evaluate if there is a compelling case to be made and we have the support to do that. It’s not something we would wait on..

I would tell you, we have a strong alignment with the Board that, that will likely be an ongoing portion of our capital allocation strategy. And we – especially at deep level, it is, to Geoff’s point, a very compelling investment..

That’s great to hear and thank you for the responses..

Thank you..

Your next question comes from Justin Long from Stephens. Your line is open..

Thanks for taking my questions. I was wondering if you could share what the monthly intermodal volumes look like through the second quarter? Any update on July as well? And I think Geoff, you mentioned back half expectation is for intermodal volumes to be relatively flat on a year-over-year basis.

I was a bit surprised by that just given you will be taking delivery of additional containers, and it sounds like your expectation is rail service should get a little bit better.

So, curious if you could share what might be offsetting those tailwinds?.

Sure. For the quarter, April was down 1% year-over-year. May was up 5%. June was flat, which led us to up 1% for the year – I am sorry, for the quarter. July on a business day adjusted basis is down about 4%..

I would just highlight, I think, in the last two weeks of July, we saw sequential improvement, and that has played out through the first week of – or first few days of August here as well. So, we are anticipating sequential improvement to offset that July decline.

On the container side and the utilization, I think where we are coming from on the flat volume is we saw a deterioration quarter-to-quarter utilization of 4%. Year-over-year, we were down 8%. And so as we have in the past kind of bet on improving rail service and improving customers well, that hasn’t necessarily come to fruition.

And so maybe it’s conservatism, but at the same time, we haven’t seen enough sustained improvement in fluidity to really adjust up the volume guide, if that makes sense..

Understood.

And any update on the number of containers you are expecting to take delivery of in both the third quarter and fourth quarter?.

Sure. It’s around 6,000 for the year, which will give us a growth year-over-year of 13%. About 25% of those have come in to-date, and the rest will be here by the first weekend of November..

And I had referenced this earlier, but we pushed out the remainder of the order that we had talked about on our prior call. Mainly due to delivery date, we weren’t going to be able to get them prior to Thanksgiving and get them into the network really prior to that end of the year. So, that would be appropriate reason..

Got it. And last quick one on the guidance.

Geoff, on EPS in the back half of the year, are you expecting the cadence to be relatively similar looking at the third quarter versus the fourth quarter, or do you think one quarter looks better than the other? And then on the buyback, is that $75 million getting factored into the guidance?.

Sure. The $75 million is not in the guidance, so there would be accretion further to that. In terms of the cadence, we do have a big rail cost increased 9.1. So, Q4 will obviously have a full quarter worth of that. So, that would be the delta..

Okay. Very helpful. Thanks for the time..

You’re welcome..

Your next question comes from the line of Bruce Chan from Stifel. Your line is open..

Hey. This is Matt Milask on for Bruce. Congratulations on the extremely strong first half of the year. Thanks for taking the question..

Thank you..

Could you provide a little bit more color on Choptank and perhaps how the integration is progressing and how you think the business might perform moving into a potentially slowing economic environment? And lastly, if you could also offer any comment on what you are seeing across the M&A landscape at the moment.

And how do you think the opportunity set there will sort of evolve over the next, say, 6 months to 12 months? Thanks..

I will start with Choptank and I will let Geoff discuss the M&A pipeline. But I think we found a really great cultural fit there with Choptank. The integration has gone extremely well, both from a systems, cultural, operational, customer perspective. They have a great focus on refrigerator, but are very good general dry truckload broker as well.

And so – but I do think that refrigerated piece is the differentiation that we did not have before that we could bring to our customers that is a very tight capacity type. It is a high capital expenditure to get into that business. And so we have had a lot of success in cross-selling that to customers.

But also, they have a phenomenal inside sales team that is really helping us grow with our core Hub customers that we had not necessarily been successful in cross-selling brokerage during the past.

So, we continue to find each week new customers to bring on board, and I think we have seen the margin profile improved significantly since we purchased the business, which I think is sustainable in a downturn and will allow us to continue to generate significant free cash and continue to grow. So, we feel great about the acquisition.

I think it was a big win for both teams because they are getting a ton of access to the large shippers that we have that they not necessarily would have been able to get in with before. So, it’s all beneficial to both teams..

Yes. In terms of the market environment, we found success in the acquisitions we have done, have really been on one-off negotiations. We reach out to the owner. We create a relationship. Sometimes it takes six months or a couple of years to come to fruition. But cultural fit is important to us. So, investing that time upfront is important.

The reason I would say that is most of the commentary you are going to hear around the market really has more to do with sale processes, kind of broad-based auctions. We will look at those opportunities, but that’s really not core to what we do. I think those will probably slow just based upon a rising interest rate environment.

With our – in our industry, so much of the M&A activity is driven by private equity. Rising rate environment probably will put a chill on some of that activity. But that’s not really the part of the market we are playing in..

That was really helpful. Thanks guys..

Thank you..

[Operator Instructions] Your next question comes from the line of David Zazula from Barclays. Your line is open..

Hey. Thanks for taking my question.

So, maybe you did specify it earlier, but the top end guide of CapEx coming down for 2022, was that totally driven by moving containers into next year, or is there something else to that?.

No, it was primarily the containers that we push to next year..

Okay.

And then I guess would you and others bring containers on the market with the rails kind of bringing the capital to bear, hopefully? And with turnaround times hopefully improving, are you concerned broadly that we would go from a capacity short market to a market that’s more awash in capacity? And maybe give a little more color to the extent you believe that is a concern at all to your answer to Scott’s question about how your cost and pricing model would set you up for success if the environment changes?.

We don’t see that at this time. I think we are in a very good position to continue to grow with our customers. There is a lot of demand out there. And I do think that there is a ceiling on OEM manufacturing as well. So, trailer ads in the truckload market are going to be somewhat constrained as well as new tractors.

And so we think intermodal, as supply chains normalize, will be a good option and as our service improves as well. So, no, we don’t see that at this time and still feel very confident in our ability to continue to grow in the intermodal space..

Great. Thanks.

And then just a cleanup, did you give the employee count for the quarter?.

Sure. It’s 2,225..

Thanks very much..

There are no further questions at this time. Mr. Dave Yeager, I turn the call back over to you..

Okay, great. Well, again, thank you for joining us on our second quarter call. As always, if you have any further questions, Geoff, Phil and I are always available. So, again, thank you very much and have a good evening..

This concludes today’s conference call. You may now disconnect..