Ladies and gentlemen, welcome. And thank you for joining today's teleconference, the 2019 Q2 Earnings Call. Please note that all lines will be muted until the Q&A portion of the call. We will provide you with instructions on how you can ask the question at that time.With that, I'll turn the call over to David Mee, Chief Financial Officer.

David, please go ahead..

Thank you. Good afternoon, everyone and thank you for joining us.

I have with me this afternoon John Roberts, our CEO; Terry Matthews, President of Intermodal; Nick Hobbs, President of DCS; Shelley Simpson, the Chief Commercial Officer and President of Highway Services; John Kuhlow, our Chief Accounting Officer and the worst kept secret in Investor Relations community; Brad Delco, our Vice President of Investor Relations.As far as call goes, same ground rules as before.

Let me start with two to three minutes synapses of our view of the quarter, and then we'll open up the lines for questions.

If you don't mind, please limit yourself to one question and one follow-up so we can get through this with everybody getting an opportunity to ask a question if they'd like, appreciated.Overall, we felt like there was some positives and an otherwise weak freight environment. We saw our cost inflation becoming more normalized.

And the bid season pricing is performing largely as we expected. Though, the range of pricing from beginning to end is wider than what we had originally anticipated. We expect asset-based pricing in trucking and intermodal to be positive. Though, the year-over-year increases are ending the season in the low single-digits.

In private fleet outsourcing interest has not subsided, because dedicated pipeline remains very, very strong.Specifically in intermodal, we were disappointed with the loads counts for the quarter. But we saw visible signs that the seasonality of freight flows has not completely disappeared as our loads per workday improved throughout the quarter.

Our Eastern network loads were down 11%. But we knew we could start off in the whole 9% due to the linked closures alone.Customer award compliance remained around 7%, which is about 10 to 15 percentage points below historical levels.

However, our load count increased sequentially from Q1, and that additional throughput did allow us to see a modest improvement in our profitability.DCS had a strong quarter on the base business, which we defined as anything that non-Final Mile operated as expected, both from a revenue and profitability perspective.

The Final Mile business continues to improve its profitability, excluding the charge for the action and settlement. And it continues to need its EBITDA targets and did for the quarter.In ICS, while the trend for the quarter was disappointing, we were encouraged with the top line results.

We lost or eliminated some LTL business compared to a year ago, but we're able to offset some of the effect with growth in the drive-in sector. And we continue to see conversion to and adoption of the use of the marketplace for J.B. Hunt 360.The new technology, though, does not come without some hiccups.

There's a year-over-year $4.8 million increase in spending, and that's to further develop and harden the platform. And that puts pressure on operating margins, but we expected that. However, with the new technology, we found some bugs in the new applications and missed some internal processes to manage those new features.

And that put even further pressure on gross margins, late in the quarter specifically.We believe we've added or we've addressed these issues with both technology fixes and human interaction to be better prepared as we continue to increase the scope and functionality of the platform overtime.Lastly, in truck, the mix fleet of company trucks and independent contractors yielded the expected result in a sluggish rate environment.

While revenues down from prior year in-spite of higher customer rates per mile, the flexibility of the total fleet size and the planned efforts to control overhead allow truck to improve its margins, both sequentially and year-over-year.That pretty much concludes our prepared remarks. [Viju], you can go ahead and open up the lines.

And we'll start taking and answering questions to the best of our ability..

[Operator Instructions] First caller, your line is being un-muted..

It's Jason Seidl from Cowen. I wanted to talk a little bit about the pricing that you mentioned. You said asset based trucking.

Can you differentiate between your over the road fleet and your dedicated in terms of what you're getting on contract?.

Go ahead, Nick, that's the -- since you're the differentiation, go ahead..

I would just say that in our business and dedicated 68% to 70% of our revenue had some type of index, or built in rate increases in the contract and it just happens automatically. And so, we're not in the cause out dedicated business and so ours are separate. And so we're anywhere from 2% to 4% but its consistent year-in and year-out.

If you follow us historically, you'll understand how those indexes work. The other 30% is typically it's at the anniversary date, we're working on rates and it's just vary based on the demand and what driver pay and so forth is doing. But like I say, 70% of ours is already contractually scheduled in the contract..

In truckload business, started off the year much higher as we did discuss earlier that it was in the mid to out for single-digits been actually progressed through this season that didn't lower the, I would say, flat to us..

And I guess as a follow up.

Are you expecting updates going forward for the remainder of the year based on what you're seeing so far with demand?.

I would say [Technical Difficulty] and truckload assets parts of business were lapping on top of historically higher prices on published business. So, we don't expect rates to accelerate much from here we think visibly for the full year and second half of the year in the flat to up 2% to 3%..

And moving to our next question. Caller your line is un-muted..

It's Chris Weatherby from Citi. Thanks for taking the question. I guess I want to talk a little bit about the comment on seasonality and freight return.

And if you could talk maybe a bit about intermodal load growth progression through the quarter and maybe what you've been seeing so far in July that'd be helpful?.

Sure, Chris. Historically, what I've given everybody was just the change by month, and I'll start with that. And then tell you about workdays, because that's really where we dig into the details and where our comment came from. So monthly, in April, they were -- we were down 9%. In May, we were down 8%. And in June, we were down 5%.

Now, on a workday basis, so in April, we saw 7,300 ops, 7,300 loads per work days. In May, we saw 7,450 loads per workday. And in June, we saw 7,800 loads per workday..

And does that progression, does that type of progress carryover into 3Q, or early 3Q?.

Well, I mean, it was 4th of July week or -- I don't have enough data to make that assessment. I would say that customers have not run away, so that advantage hidden anywhere..

Okay, fair enough. I appreciate that. And then, just from a dedicated side some significant improvement in profitability, excluding the charge that you had there.

Can you talk a little bit about what the pipeline looks for the back half of the year in terms of potential fleet growth? And then, if you expect that type of productivity and an operating leverage to continue on and move forward through the year?.

We're coming out of a big truck-add the last year and so you're seeing, what we call the wave of they’re up and profitable and running and stable. And so you're starting to see the results of that. We had good truck adds in Q2, and we continue to think we'll have the same level of truck adds in Q3.

And so when we look at our top line all the way from beginning stages, we have six or seven different stages. It's just as robust as it has ever been.The only thing that is a little tepid, I would say, is just the last couple of months, same amount of deals that close the rate, its taking just a little bit longer.

Seems like everybody's trying to figure out what's going on with the economy. But we're still on our target plan for this year, feel very good about that and the demand is still very high for pure dedicated business..

And moving to our next caller. Caller your line is being unmuted..

Good afternoon. It's Tom Wadewitz from UBS. I wanted to see if you could give us a bit of perspective on the, I guess, just the intermodal margin outlook.

And how you would think about the second half, whether it's, I guess, similar level of year-over-year pressure, or if there's a reason why things might be ease? It seems like maybe volume gets a little bit favorable, but not clear where the pricing helps you or hurts you in second half. So any thoughts on second half intermodal margin? And thanks..

I think the intermodal margins for the second half, because we think our volumes will pick up going into the third and fourth quarter, should improve from where they are today. And of course, our long term outlook is between 11% and 13% margin. We're just north of that, I believe, for the quarter.

And I think if you take the five year history adding years up either say in that 13% to 11% margin, and it should get a little better here the second half..

So you're saying sequential improvement in the OR, or you're saying improved -- I mean, you're not saying year-on-year improvement, you're saying sequentially some improvement.

Is that the right way to understand it?.

Yes, correct..

The caller was unable to hear that response. He said that it's correct. Moving to our next caller, your line is being unmuted..

Hi, it's Jordan Alliger at Goldman Sachs. Just a question for you, you mentioned that you're looking for second half volumes to pick up on the intermodal front. I'm just curious what the basis for that is primarily rooted in.

Is it rail service getting better? Is it an expectation on inventories coming down and pent-up demand for shipping as we move into the third and fourth quarter? Any color would be great..

Well, as we went through the bid cycle and we look to sell and what the awards were in our bids for the last two or three months. We believe that our volumes will increase via those bids. And as we look at the third quarter, there's probably a month or two that should get us into the positive comp territory.

And then by the fourth quarter, the quarter should be positive as a whole with regards to quarter, fourth quarter last year versus fourth quarter this year..

And then just as a quick follow-up. I think last quarter you did mention that warehouses were pretty slow and we continue to hear anecdotally at least that that's the case.

I mean, are you starting to see or hear about work down of any of that? Or is the trade issue still impacting the port situation and warehouse situation?.

Yes, I'll answer that a little bit. And then I'll have Shelley follow-up on that. From what I've heard from our customers, it's a little mixed. Some customers say some of the inventory has bled off. Other customers say they still have a month or two where they're going to try to lead off inventory. So, it's a mixed message from my perspective..

And I would say from a demand perspective, our customers are optimistic. They did recognize the level of inventory that they brought in incremental to avoid really what was happening around tariffs. But they are studying to work through that inventory and feel better about the back half of the year..

And moving to our next caller, your line is being unmuted..

Thanks, Bascome Majors from Susquehanna here. In April, you said that the big compliance from your intermodal awards was tracking below normal.

Can you guys size up what's "normal compliance" based on, or maybe blended across the book there? And how that progressed during -- sequentially during 2Q from first quarter into July? Do you have more visibility now? Or are things tracking normally? Just anything you could share on that probably helpful? Thanks..

The normal bid compliance is usually 80% to 85% of the state of the award. We think we mentioned that we were around 68%, 70% in the first quarter and that did not change as we went through the second quarter. But I think we'll have a little bit of an uptick going into July, August and September with regards to our compliance..

I mean, does the trend stabilization even at a below normal -- I mean does that give you the ability to manage the cost side of the intermodal business and the capacity side tighter in the second half? Or you still need to keep that extra capacity in case the volume starts to pick up? Thanks..

Well, we anticipate the volumes to increase, because we're going to hit positive territory in the months ahead. So that will help better utilize the assets from a container standpoint, as well as a dray standpoint moving forward..

Moving to our next caller, caller your line is being unmuted..

Great, thanks, good evening. It's Todd Fowler with KeyBanc. I guess maybe you can help us out a little bit with ICS. It sounds like that there were quite a few puts and takes in the quarter. And I guess what I'm just trying to understand with the slight loss here.

The expectation that you can return to profitability in the third quarter and then maybe help us to understand how much of the cost was unusual related to J.B.

Hunt 360 versus the lost LTL business?.

So, Todd, we further accelerated our investment and marketplace in Q2, and we'll continue that acceleration moving into Q3.

We do have a good list of projects that we want to try to complete here this year, but we do anticipate continue our accelerated investment as we've been talking to our customers and what they are asking for and really long range to eliminate inefficient losses, and to get to a better way to move goods, that's really our focus, where we're at.

And when we're making a little more investments that we have inside our technology and our people, there's been room for any error inside that that space.So part of what happened inside Q2 happened mostly in the month of June, as traffic get tightened in the month of June but also our acceleration, we've had a very successful bid season.

Our acceleration of bids implementing through the quarter yielded lower margins in total as we were on-boarding new business that we were using from our data and the platform and really trying to time through our startup along with spot volumes really falling significantly in the month of June.Put that on top of some of the new systems that we put in place.

We had a few issues with and so we back those out as we ended the month of June. We do feel like those are repaired here in July. However, we are experiencing more growth from the publish side of the business.

So the bid season customers, you're continuing to on-board that business as we weighing into here in Q3, and we are operating at the smaller margins and really plan to operate that way.And then our LTL volume, we are very committed to making sure we can exceed our customers' expectations.

There were, as we are transitioning into off the mainframe and into the cloud based system and also on the marketplace, there were a few key pieces in the LTL space that no longer could be supported. And so, we intentionally exited that business, wanting to make promises to our customers that we can keep.

We worked with our customers closely make sure that really with good plan for our customers, and really finishing that out here by the end of the year with some of those gaps that were inside on the IP space..

Okay, so all that's helpful. But just to follow-up on the profitability piece of that. You've talked about intermodal improving in the back half of the year.

Can we expect improvement in profitability that an ICS will all those moving parts for the second half?.

Yes, we would expect from the second quarter, is that your question? I think it is. From the second quarter, we would expect the second half of the year to improve. Certainly, we want to operate in a profit base scenario and that's what we're marching towards..

But our expectations -- and I'll add onto this, Shelly. The expectation was that ICS would still be below its historical operating income margins, simply because of the tech spend that we knew we're going to have on this.

So while we did expect, we would expect a recovery in the back half of the year, we would not expect it to be in that normal 4% to 6% range, or get to 4% to 6%..

Moving to our next question, caller your line is unmuted..

Ben Hartford with Baird. Shelley, maybe interested in your perspective on supply capacity. You made a comment, I think in June, perhaps comment about tightening up.

Just curious about how supply trended through the quarter and what the outlook is for the back half of the year from an ICS perspective, or even from a JBT point of view as it relates to recruiting.

Where do you think we are in the industry supply correction cycle?.

So, I would say as the quarter progressed in Q2, we did see a tightening in June. Part of that was road check, which was to be expected but that came right on the hill really a religious holiday.

And the combination of those two things really put pressure, more pressure than expected on margins and tightens more quickly than we expected in this environment. As we move into July, we've seen a seasonal softening, just like has happened every other year.

And we would expect the second half of the year to be more balanced market, maybe even on the supply side more plentiful and supply than it was in the month of June.And then if I could just talk about the truckload side of it. I think you're talking about drivers, in general on the truckload side.

And I would say, drivers are slightly easier to come by on the truckload space, but significantly more expensive to on-board. So, we really increased the level of pay for our professional drivers. And we've seen that happen here two years in a row, so our cost per hire is up and our W-2 is up with drivers.

So although, we're seeing a little bit of anything inside that space, I guess our W-2 increases that I've heard inside JBT had good result, attract many people into our business..

And if I could just follow up on that comment, I think you said you expect supply to be a little -- more plentiful in the back half of the year than June, or what do you think the supply growth is coming from? There is obviously some discussion about small carriers that have failed and I think owner operator equipment has improved generally among the larger carriers? Where you think that net supply growth is going to come from? And how long is it going to take or what is it going to take for that to return to a more balanced or even tight market?.

Well, I mean, I would say second quarter is normally the tightest environment, which is in June inside the supply side. So we say we return to a more normalized second half -- 2018 was an anomaly.

If you look at really many of our trends that have happened, we've had a couple of new issue in the last six years that have been unusual on the supply side, but we would expect adopting and have seen an it's getting happen here in July..

And moving to our next caller, caller your line is unmuted..

Thanks, good afternoon. So I want to go back to your intermodal volume outlook comment. I know there has been quite a few questions on this. But if I'm hearing it right, it sounds like you had maybe a couple of significant contract wins are in the bid season.

So I guess, first, could you clarify whether you would expect loads to show better than normal seasonality in Q3? And then did you have to trade price for volume more than you originally anticipated in order to get some of these wins? I know that earlier here you had talked about leaning more towards volume versus weight.

But just curious, I'm curious to understand how that tracked relative to your expectations? And what that means for the pricing and revenue per loads on in the back half of the year? Thank you..

Allison, is that you?.

This is me. I’m sorry for asking seven questions in one..

Oh, smart. You just didn’t announce first. That's why I was just double checking that it was you..

Oh, I'm sorry, Allison Landry from Credit Suisse..

No problem..

Sorry about that..

The volume increases, we should see in the second half of the year, are from a group of customers, not foreign individual customer or two customers. It was not a price play and I think you will see that play out in the next few quarters when you start looking at the revenue per loads.

It's more of a service play in terms of the quality of service and the differentiation that we've been able to work with our customers on through difficult time last year.

I think we separate ourselves from that.And as I stated earlier, if you look at the third quarter, we believe there's a month or two in there that will hit positive comps versus the third quarter last year. And we should hit positive comps in the fourth quarter, in general..

Moving to our next caller, caller your line is being unmuted..

Yes, David Vernon with Bernstein. David, could you talk a little bit about how much OpEx was J.B. Hunt went through….

We're sorry, caller your connection seems very unstable. If you wouldn't mind please hang up and dial back in. Moving to our next caller….

Hi, it’s Ken Hoexter from Bank of America Merrill Lynch. Dave, maybe just to step back and bigger picture.

Is there anything that shifted recently during the conference season? It sounded like you were maybe a bit more pessimistic on the outlook? And here, it sounds like the outlook into third quarter, both intermodal even ICS maybe turning more positive.

Is there is there something underlying the shifting that we should be taking away from this from your point of view?.

Well, I think that it's just a matter of volume starting to appear to show up. Now, I'm still cautious and my point of view and obviously, I'm probably the biggest skeptic in the group, which is one of the reasons I don't likely talk to customers. But I was happy to see the trends throughout the quarter.

While they are below expectations are at least directionally correct, I think that yet we can get through July, because I think July is not a good month to gauge anything off. I mean, from our perspective every month worse than July is typically February. So I'd like to see a little bit more in August.

But based on sentiment, what I know are the awards and as the volumes are starting to come on, yes, I'm a little more optimistic than I was when we this good in May. Sure..

And just to clarify, I guess, on that particular intermodal thought. You thought, hey, intermodal margins are not likely to hit our target range. I think, Terry, maybe mentioned earlier that we expect to get right back on that.

Is that -- am I reading that commentary right in terms of your margin outlook for intermodal?.

Well, let's clarify. The question that I got asked, I believe at your conference. I interpreted that as for the year. And so my response is, no. We would have knocked it inside the 11% to 13% for the year of 2019. I stand by that statement today.

I think that the first quarter is just something that would be extremely difficult to overcome.Now, I understand and I've seen what Terry is looking at, and his field is projections. So yes, it's possible that we get back into 11% for a particular quarter.

But I stand by my statement that we would not show an 11% or -- 11% to 13% for the full year of 2019..

Moving to our next caller, your line is unmuted..

Thanks, Matt Brooklier at Buckingham Research. So I wanted to circle back to intermodal pricing questions for you.

If you could talk to of your contract volume, what to-date has been priced at the end of second quarter and maybe your expectations for what remains and where potentially contract rates could follow off for that portion of contract side of your business?.

So I think I've mentioned before that the first start of the bids, we're in higher single-digits, middle third was middle-single-digits and the last third were lower-single-digits. And we're basically through all of our major bids. For the most part, some we don't haven't implemented yet but we know what we're going to be basically looking at.

So, I think that'll end up somewhere in the middle-single-digits when it's all said and done for this bid cycle..

Okay, so it sounds like the contract pricing pretty much in line, I think, with your expectations a little bit of a fade into the second half of the year. But I think that's what you guys have been conveying through that.

And then, the more positive outlook at intermodal in terms of volume, I think, you guys mentioned that some of it had to do with your ability to execute the relative service levels that you're providing.

Is this partially driven by UMP's PSR efforts, or am I not reading this correctly?.

Well, the service levels we received, especially from the Eastern railroads, are up significantly from last year at this time, not to where their goals are or where our goals would be. But being assessed started off extremely well. Then we had a weather issue in February into March, starting to rebound.

And then we had flooding issues here in the last couple of weeks in June that they're starting to rebound here. And this we're starting to see an uptick on as a service, obviously, it was help there.

And some of the technology investments that we've made, we've been able to better set appointments that are analyzing rail schedules and predictability of what will happen. And has allowed us to be able to communicate to our customers a better level of service, even though it might be a couple hours slower here and there.

But we've been able to use those tools to what we think is differentiate our product from others..

Moving to our next question, caller your line is unmuted..

Hi, this is Justin Long with Stephens. Good afternoon. So, Dave, I think….

Finally, you've got [Technical Difficulty]….

I don't know about that. It only took me about a decade to get coverage of the stock, but the day is finally here. So, Dave, I think you gave a number earlier on the intermodal volume headwind from lane closures in the second quarter.

Could you clarify what that percentage wise? And then on the loads per workday that you saw monthly in the second quarter, you noted the pickup.

But I'm curious how that acceleration compares to the normal seasonality in that metric that you've seen historically in the second quarter?.

Yes, the 9% volume decline, if you will, due to the lane closures is simply the snapshot of the number of loads that we saw disappear that could no longer be serviced. And like I said, that was expected. We understood that going into the end of the quarter. But obviously, our goal was, we said this earlier, that we were going to try to overcome that.

And we just didn't see the demand to allow that to occur. As far as the trajectory of the loads per workday, I would say that -- Terry, you jump in on this -- that was pretty normal to me as far as the trajectory from month-to-month-to-month, even though it's at a lower base..

Right. The trajectory was good, obviously, from April through May and ended June and it should continue into the months and quarters ahead. The other comment I would make is that the floods in May and June costs us about 2,500 loads that we weren't able to handle that had to run truck, because of the various floods that we were not able to handle..

And then circling back on the 11% to 13% margin target in intermodal. Dave, you said it sounds like that won't happen in 2019.

But is this something you think of achievable next year if we continue to see low-single-digit pricing environment where we're exiting, like we're exiting this bid season? Or do we need to see an acceleration in the pricing environment from here to get to that target?.

That would be -- I guess, given guidance for one and I'm not ready to do that yet. And the second thing is I have to wait and see what their plan for next year looks like. And I haven't seen that yet either, Justin, so I don't know the answer to that..

And moving to our next question, caller your line is being unmuted..

Good afternoon. It's Brian Ossenbeck from JP Morgan. So want to ask another question on ICS in the marketplace.

Shelley, maybe if you can give us a sense what type of benefits you're seeing, excluding the extra spending on IT and maybe even on headcount, getting more of the transactions pushed through the marketplace, leaving up to that two-thirds which continue to climb.

But I'm a little surprised to see that the loads per employee are down significantly and headcounts up. And maybe that's a function of adding more IT folks.

But maybe you can give us a sense as to what benefits you're seeing, and when you think they'll start to flow through that second line item?.

So the mix is that LTL and truckload does change our volumes, going forward.

But we also did add employee as part of our further investment in marketplace, because we're trying to build the marketplace as new systems are coming on board, taking more time spending more time with those customers and carriers making sure that their experience is top notch.

So as we move into 2020 and start thinking about our automation, that's everything that we're really trying to invest in this year really reviewing [Technical Difficulty] it is not automated and the things that we need to do to move us inside automation.And then lastly, probably the thing that impacts us the very much is the level of data and the granularity that we get of the data through the platform.

So earlier I spoke of the supply side come back. We can see that immediately inside the platform all from a digital space what authors are doing, how many peers are on board, what percent are on board, what lanes are becoming softer or harder. All of those pieces are allowing us to get better at our pricing, better at serving our customers.

And we think that we'll see that really push up here towards the end of the year as we come -- and come to better comps against LTL was being fourth quarter moving into next year we'll have market share gains as a result..

Okay, thanks for all the details, Shelley. And, Dave, a quick follow-up for you. Can you just remind us of the buyback program? Looks like it was pretty active this last quarter, you still got some left on the optimization.

So maybe you can just give us a sense as to why you're so active this last quarter and what you expect to be doing it from a capital allocation standpoint throughout the rest of the year?.

Well, I mean, the one of the reasons we were active in the quarter. I mean, we definitely had cash, if you will. We typically use our revolver as cash, or our debt to EBITDA ratio as a cash indicator. So, we had availability. And frankly, we thought the price was attractive. So we've always said we would be an opportunistic buyer.

I think that we would continue that approach on a go forward basis. And so, if we see something happening in the future, where we either have additional room on our debt to EBITDA ratio or we end up seeing another attractive price and we have the ability, we'll probably participate again in the future..

Moving to our next question, caller your line is unmuted..

Thanks, everyone. Ravi Shankar from Morgan Stanley. Just couple of questions on DCS.

Can you just clarify what drove that big decline in DCS salaries and wages and was that related to the charge? And if you can give us any more details on that charge, was that an in-sourcing decision by customers?.

No, it was not an in-sourcing decision by customer. It was -- a lot of it was a workers' compensation and insurance policy accrual adjustment that came back in that frankly everybody participated to a certain level. But it showed up more materially inside of DCS, simply because they got more people just the way the policy works.

So, as they got a benefit, it went back to the business units and DCS was just a more material effect..

And just a follow-up. I know you probably wouldn't comment on the BNSF arbitration. But do your results include any charge or reserve for a potential verdict or result in the future? I mean, you had $44 million, I think, each last three quarters.

So are you taking like $11 million a quarter for that in the guided results?.

We haven't commented on that. People have asked that in the past, Ravi, should they do that inside their models. And frankly, my response has been since I don't have any other additional information to give to them. If they were to do that, there's nothing I could do to argue to say that was inappropriate conclusion..

Moving to our next caller, caller your line is unmuted..

Thanks, Amit Mehrotra here from Deutsche Bank. Thanks for taking the question. And Brad, congrats on the appointment.

Terry, on the commentary around intermodal volumes, any update on how PSR may impact the outlook for the second half? Union Pacific is taking significant action in Chicago this month, I believe and Berkshire has talked publicly about PSR quite openly over the last few months.

So maybe any updated thoughts on how you're thinking about PSR as being a headwind or not on the volumes in the second half? Thank you..

Well, we obviously don't use the Union Pacific. But I believe that the benefit of PSR is we should get better service, which should give us better turn times. It should give us the ability to be able to move more freight from the highway over. We've always talked about sometimes with PSR that they get into a fixture derailment.

Sometimes they're not quite as resilient. They don't have extra crews waiting around to play catch up. So that there is a watch out with regards to PSR.With regards to the BNSF, we see some of the things that they're doing. I don't think they're public is maybe what the EP is with regards to what they're doing.

But I don't see anything out of the ordinary that should come about in the second half of this year that be the pause in terms of what we're seeing and what we've been doing in the past, and how we should react going forward..

Okay, thank you for that. And just as a follow-up just sticking with intermodal, if I could and on the cadence for pricing.

You talked about earlier at the top of this call up low-single-digits pricing, and truck spot rates have obviously been pretty negative for a while and the expectations for contract rates have been coming down pretty consistently over the last year. Just in that context.

Terry, what are the risks that you might have positive volume in the back half of the year but the yields turn negative in the back half of the year? If you can talk about the comfort you have around positive yield in back half of the year, either based on the negotiations you've done to-date, or the volume outlook just in the context of the trucking environment getting a lot weaker, at least in the contract expectation side?.

Yes, I think I'd mentioned in the previous conference calls that we thought that intermodal pricing would stay higher than truck pricing throughout the year, and I think that's been unfold and be true. As I mentioned, the bid cycle is over with the results are in.

And we know what those results are, and we know what our path is moving forward for the next couple of quarters with regards to pricing. And I don't see that moving around going negative at all..

Moving to our final question for now, caller your line is unmuted..

Hi, hopefully, the lines a little bit better. David Vernon from Bernstein. Dave, could you talk a little bit about how much development OpEx for J.B.

Hunt 360 is going through the P&L today? And when, over the course of the next several years, you might be able to expect some fall-off in that investment into the software?.

What we said was we got an extra $4.8 million, or we got $4.8 million in the quarter OpEx spend were inside of ICS. I'm looking at Shelly..

Incremental….

It's incremental..

Correct..

Basis off of our $2 million base, so it's up to $6.8 million..

Roughly..

Roughly, yes, and so it was off of -- okay, so we're up $5 million off of $6 million prior. So we're spending $11 million a quarter in ICS, primarily for the development of marketplace 360.

Now, if there's other pieces inside that, because you also have to harden the systems to handle the capacity, expand the available capacity, they're also doing further development through the intelligence pieces and stuff.

So it's not all just for the marketplace 360 but it is part of the 360 platform.When do we realize the revenue side? I mean, we're starting to see a little bit trickle in now. Do we see capitalizing on our further development? I think that that probably plays out over the next two to three years.

How much more do I have to spend to get it to the point where we're seeing what we would expect to be maximum revenue generation out of this thing? I don't know the answer that yet, David..

Thanks for that color. One separate follow-up question on the DCS business. I was just wondering if you can give us some qualitative commentary on the impact of Final Mile from a margin perspective in that segment. The results were a lot stronger than we thought and obviously, that seasoning is some of the prior contracts.

So I'm just wondering are you also getting some margin gain on that Final Mile that you've acquired last year..

So I would just say, as Dave talked about early on. The DCS business minus Final Mile is hitting right in the middle of our target range of where we want to go. So that portion of DCS is doing well. Final Mile, if you take out the onetime adjustment, it's making incremental improvement. The acquisitions are coming along and hitting their EBITDA targets.

And we're continuing our sales pipeline, there is very strong. We're going to hit our expectations on sales there. So, it is going well. The integrations are all going very well. So, we're very pleased with how that's moving and progressing in the right way. But the margins on Final Mile are not at the level of the margins.

So it's actually diluted, David, because non-asset, lot of the mix stuff going on this non-asset..

And we did have a couple more questions come in as well. Caller, your line is unmuted..

Good afternoon. Dave Ross here from Stifel. I wanted to dig into the truck segment. Better than expected given soft 2Q in the overall truckload market, and it looks like you improved the margin due to some internal initiatives.

Could you expand on those comments as to what specifically helped the profitability in the quarter and the truck segment?.

Well, inside truckload, we are continuing our transition to move to more of an asset light model. In total, we did change the number of company owned trucks as we move some of those trucks into our dedicated contract services group and continued moving forward.

And we planned for the rest of this year to increase the percentage of independent contractors inside that space. That mix of business is more of a variable compensation model and so that did benefit us in total.And then I think we just talked about some of the cost cutting measures that we have inside that segment.

We did a better job in yield management. Just with the trust that we had and what the freight that we moved with our customers, the type of freight product that we move with their customers, we move those trucks into more committed relationships and that helped our quarter as well..

And then any change in the used truck markets, what are you seeing going on there right now?.

We actually had one of our OEMs in last week. Their view of used truck market was that it's -- I'm going to use the term stabilized, I can't remember the exact quote they said. They weren't seeing any increase in used truck prices nor would they see an additional deceleration.

They do expect, frankly, a change in the value depending on what does happened with the ultimate delivery of the inventory that they have at the dealers right now.

Obviously, it's well-known that the new order bids or new order placements are down considerably, but the backlog is still working its way through the system.I believe that their conversation with [Technical Difficulty] more course, they're worried about October, it's the next month, I'm looking at John Robert, he know, talking to them.

I think October was the next date that they were really trying to figure out then what do they do. So in order to stay at this level is at productivity or not. So, I think that they're still in search mode but the immediate used truck pricing, they have not seen any material change, one way or the other..

Moving to our final caller for now, your line is being unmuted..

It's Scott Group from Wolfe.

How are you?.

We're just wondering where you were. I was worried….

I think I was hitting the wrong numbers to get in the call..

I do that all the time myself that's not a problem..

The monthly loads per day that you gave.

Dave, do you have those from a year ago just so we can understand that this is a good or bad progression?.

A year ago?.

Yes..

Well, yes, you're talking about April 18..

Yes, so that 7,300 to 7,400….

I know that. I'm horrible with technology. So, I have to stack the paper here. I don't know, but that will...

I'll keep going maybe for -- I hear you there, if you want. Oh, you don't, okay..

No, I've got April, was 8,000. And May '18 was 8,100and June was 8,200..

Okay, perfect..

And as we've mentioned -- like I said, it's at a lower level..

Okay. When we think about that 11% to 13% margin and maybe not getting there in 2020.

What do you think are the bigger swing factors? Is it volume growth? Or is it the ability to keep pricing positive? Where is the bigger risk to 11%, 13% on volume or price?.

I'll let Terry answer that question..

Yes, I think the biggest benefits try to get to volume on pricing is pretty well locked into '19 and then the cost control..

I was thinking….

My apologies please go ahead..

Sorry, I was thinking about 2020 and the ability to get to the 11% to 13% next year..

Well, obviously, if price falls apart that that would have the biggest impact of any of the above. But at this point, we don't see that happening, haven't seen that happen yet..

And with that, there are no further questions on the line..

Well, then will be this as one last call. So if there's couple of minutes here and going once, going twice. Thank you all. Appreciate it. I'm sure we will catch up. And I'm sure you know where to find Brad..

We have one questioner come in from someone who's already asked a question.

Would you like to take that?.

Fine, go ahead. Let it through..

Caller, your line is unmuted..

Hey, Scott, again, sorry for this. My other question was on ICS.

Can you just talk about what's causing the big drop in the LTL volumes? And what's the impact on the gross margins from that?.

Yes, so I've mentioned this earlier, I'm not sure if you were able to hear it. As we're moving our system off the mainframe into cloud based system, some of the business that we had in LTL, we had not completed the development in the new system and we needed to work with our customers really to exit part of that business.

So we set the tone with our customers that was intentional on change, we do have on the roadmap this year to complete some of the work that is needed to really onboard those customers again and we've done it..

And, Shelley, does that explain some of the big drop in gross margin percentages, the big drop in LTL?.

Well, LTL has a greater percentage of gross margin or gross margin percent. Certainly, it's higher because there's a lower gross margin dollar per load. But the change overall was our mix that happened the new publish business that came on, and accelerated as the quarter progressed. I would say that was more of a material impact in LTL..

Okay with that, there are no more questions..

All right, Viju. Thank you very much. Appreciate it. Thanks everyone..

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