Hub Group Inc (HUBG) 2006 Q3 法說會逐字稿

Good afternoon, and welcome to the Hub Group third quarter conference call. We will begin a discussion of the financial results led by Tom White, Senior Vice President, Chief Financial Officer and Treasurer, followed by an overall business discussion to be conducted by David Yeager, our Vice Chairman and CEO.

The company will make its prepared presentation, followed by a question/answer session. At this time, all participants are in a listen-only mode.

We would like to start by noting that statements made in the course of this conference call that state the company's or management's projections, intentions, hopes, beliefs, expectations or predictions of the future, including projections regarding 2006 earnings, are forward-looking statements. It is important to note that the company's actual results could differ materially from those projected in such forward-looking statements.

Additional information concerning factors that could cause actual results to differ materially from those projected in such forward-looking statements is contained from time to time in the company's SEC filings, including but not limited to the company's reports on Form 10-K for the year ended December 31, 2005, and Forms 10-Q for the quarters ended March 31, 2006 and June 30, 2006.

Copies of these filings may be obtained by contacting the company, or the SEC.

Now I would like to introduce Tom White, the Chief Financial Officer of Hub Group. Please proceed, sir.

Thank you, and good afternoon. Before I begin, please note that all amounts discussed on the call relate to continuing operations only.

And now I will highlight a few important items for the third quarter.

First, diluted EPS increased 57% from 2005. Second, operating margin was 5.1%, compared with 3.5% in 2005. And finally, we completed our $45 million share buyback plan.

Now I'll discuss details on the quarter, beginning with revenue.

Intermodal revenue increased 12%. This change includes a 3% volume decrease, a 7% increase from the addition of Comtrak, and a combined 8% increase for pricing, fuel and mix. We remain focused on growth through proactive customer service, a larger drayage business, and yield expansion.

Truckload brokerage revenue increased 14% due to higher volume, pricing, fuel and mix. We are growing this business, especially the yields.

Logistics revenue is slightly above last year, and we have reversed the year over year revenue decline.

Consolidated gross margin dollars grew by $12.1 million, or 27%. This margin expansion is due to yield enhancement efforts, strong results in truck brokerage, and the performance of our company owned drayage business.

Total costs and expenses were $35.5 million, compared with $31.6 million in 2005. Much of the expense increase relates to the addition of Comtrak, which we acquired in February, 2006. For the foreseeable future, quarterly costs and expenses are expected to be in the range of $35 million to $37 million.

Total head count at September 30, excluding drivers, was 1,086, an increase of 27 people since June 30. The largest part of the people increase was in our truckload brokerage business.

The gross operating margin was 5.1%, compared with 3.5% last year. For the second straight quarter, this is the highest operating margin in Hub's history. We continue to focus on this important metric through the margin enhancement teams, growth in truck brokerage, increase in our company-owned drayage operations, and finally, cost containment.

The effective income tax rate for the quarter was 40%, and we estimate a 40% rate for the full year 2006.

Regarding our balance sheet and use of cash, during the third quarter, we completed our $45 million share buyback plan, by purchasing two million shares at an average price of $23.00 per share. During the quarter, we spent $3 million on capex, and we expect the full year amount to be about $9 million.

And finally, we ended the quarter with $33 million in cash, and no debt.

We continue to pursue acquisitions, concentrating on drayage and truck brokerage, consistent with our strategic plan. However, we are very careful in our evaluation, as each acquisition candidate must pass through three primary filters. It must be a good cultural fit, a healthy business, and accretive to Hub Group.

Now I will discuss 2006 full-year earnings guidance. Each quarter end, our standard practice is to compare our full-year EPS forecast to the existing, publicly available analyst range. For 2006, we expect earnings from continuing operations to be within the current analyst range of $1.10 to $1.15 per diluted share.

For 2006, the weighted average diluted shares are estimated at about 41 million. And now, you will hear from our CEO, Dave Yeager.

Great. Thank you, Tom. We're very proud to be announcing yet another record quarter for Hub Group. For the third quarter, our intermodal revenue grew by 12%. This is the fourth quarter in a row that our intermodal revenue growth has been in double digits.

Our gross margin initiatives continue to help drive our profitability. We continue to review profitability by customer, and have been very focused on margin generated by each transaction.

During the third quarter, we again worked to grow the number of positive margin shipments while minimizing the number of money-losing shipments. We succeeded on both counts in the third quarter.

Additionally, thanks to a targeted selling effort, our volume was up in designated target lanes during the third quarter. These targeted lanes represent destination pairs where Hub Group has significant density. Growth in these lanes facilitates rapid turnover of our fleet, thereby enhancing our margins.

As Tom had discussed, our overall intermodal volume declined approximately 3% for the quarter. This is a slight improvement over our 5% decline in the second quarter. As we look to the end of the year, we are forecasting volume will be down a few percent. Going forward, we intend to continue to intensely focus on margin improvements as we continue to see opportunities to enhance our profitability, and if given the choice between margin growth and volume growth, we're going to choose margin growth every time.

From an intermodal capacity perspective, on any given day, Hub has about 23,000 containers in our control. We own about 23% of these containers, and finance them under operating leases. We rent another 36% of the 23,000 containers from three railroads--Burlington Northern, Union Pacific, and Norfolk Southern. The remaining 41% of our fleet is comprised of neutral railroad equipment owned by third parties and utilized by Hub on a transactional basis.

The bottom line is that we are able to flex up or down our equipment fleet, depending upon demand, creating our asset light business model.

As expected, equipment became tight on the West Coast and in the gateway cities of Chicago, Memphis, St. Louis and Kansas City toward the end of the quarter, as peak shipping season began. We are well positioned for this peak season with our fleet of containers and the rail-provided containers.

We have also succeeded in building volume in certain key lanes, driving capacity into chronically deficit markets.

Service remains generally predictable and fluid, and in line with 2005. We are currently seeing some manageable delays at key port and gateway cities, but in all candor, that really is not unexpected at this time of the year.

Our fleet once again performed well, with utilization improving slightly compared to the third quarter of last year. We continue to make improvements in the management of our fleet, and as a result, repositioned 91% fewer empty containers during the quarter compared to last year.

We remain pleased with the Comtrak acquisition and its performance. Comtrak continues to grow its third party customer base, and is also handling additional business for Hub. Comtrak has provided excellent leadership for our drayage expansion efforts, and is a great cultural fit.

During the third quarter, we added 33 company drivers and 114 owner/operators to our drayage fleet. This additional capacity improves our ability to service our customers. We continue to work to grow this business, which is consistent with our strategic plan.

Truck brokerage had another solid quarter, with revenue growing 14%. We now have two years of consistent double-digit growth. This business has a great foundation with which to move forward, and positive momentum for growth.

Our brokerage product continues to be attractive to shippers. Shippers are recognizing that brokerage services are a viable alternative to asset-based carriers during all economic conditions, as we are able to supply large amounts of capacity at reasonable rates.

Our brokerage team continues to add new customers, and as important, continues to enhance and expand relationships with our existing client base. Our collaborative model allows us to act as a value-added partner for our customers, rather than just providing capacity at commodity prices.

The market remained good in the third quarter for purchasing truck services with capacity generally available throughout the country.

Our logistic group continues its impressive turnaround. After seeing revenue decline in the first and second quarters, revenue for logistics was up slightly in the third quarter. Our revenue turnaround was significantly helped by the full implementation of customers that we started doing business with earlier in the year. We have back-filled ahead of schedule, for the customers lost in '05, and continue to develop our sales pipeline to resume growth in this business.

Overall, we had a very solid quarter. All three business lines posted strong results. In addition, our drayage business continues to grow, providing us with excellent service and capacity. We believe that our mixed fleet of company leased, rented, and spot equipment gives Hub a competitive advantage during both peak and non-peak periods, and we look forward to a strong finish in '06.

At this time, we'd like to open up the phone lines to any questions that you may have.

Ladies and gentlemen, if you wish to ask a question, please key *1. If your question has been answered, or you wish to withdraw your question, please key *2. Questions will be taken in the order received.

Your first question comes from the line of Ed Wolfe from Bear, Stearns. Please proceed.

Afternoon, Tom. Hey, David.

Hey, Ed.

Hey, Ed.

Can you just take us through the quarter a little bit sequentially? C.H. Robinson just reported and kind of said that their net revenue decelerated throughout the quarter. Can you talk to the trends you saw, both in truck and intermodal, in terms of from July through September and now into October, what you're seeing in the trends out there?

Actually, we did not see that same type of a deceleration in margin during the period. It was relatively constant. I do think that right now we're seeing an excess of truck capacity in the market outside of a few key areas. As we've said in our prepared remarks, we are seeing some capacity constraints in the usual port cities--Los Angeles, and to a lesser degree, Oakland. Seattle, oddly enough, is actually quite fluid with equipment right now.

But--so we didn't see the same thing. I've seen Robinson's release, and we did not see the same type of compression at the end of the quarter.

How about in terms of volume? I mean, you're minus 3%, is what you reported for gross revenue for intermodal, I think. Was that consistent throughout the quarter, or was it stronger or worse year over year, at the beginning or end?

That was pretty consistent as well throughout the quarter. It was not--we didn't have any sudden decline as the quarter went on.

And is it the same in October? Similar kinds of trends at this point?

We really, Ed--I think as you know, don't comment on the current quarter.

Okay. Will you comment on the current economy? What are you seeing out there from the economy? Are parts of it slow in growing, not slow in growing?

Well, I know--I've seen a lot of what the publicly held truckload carriers have put out. And it certainly is a softer truck market. I do believe that with the amount of imports that come into this country at this point that intermodal does remain very strong, and not necessarily consistent with the truck market.

If you look at--as we look at this peak period, it started about the same time as it had in '05 and '04. We aren't seeing quite the same severity in rolling business, which is one of our primary indicators, when we don't have adequate capacity in a city and we have to tell the customer we'll pick it up the next day. We're not seeing it as severe as last year, and certainly not as severe as 2004, which was pretty horrific as far as--from a capacity perspective. But nonetheless, we are having to roll business, and so I would say that the intermodal business continues to be quite strong.

Okay. And on the truck brokerage side, I'm guessing you're seeing--with more truck capacity out there, a little bit less rate maybe? But a little bit more transportation yield?

We are--as truck capacity is out there, it's more than it was last year, there's no question. You know, you're always going to have a few key cities where you might have some tight capacity, but overall, the truck market seems to be pretty fluid and there's a fair amount of capacity available.

Okay. Can you talk a little bit about logistics? It's something we don't talk all that much about, but you had a big improvement in volume--you talked about the pipeline. Should we expect growth next quarter and next year? As we go out, should we expect to start to bake in a little bit of growth here? How should we look at that?

Ed, this is Tom. I think what we ought to expect for Q4 is not the drop off that we had last year, but probably a similar trend that we saw in the third quarter. We're still sharpening our pencils on 2007, and so we're not ready to comment on 2007 on this call, but we surely don't expect to see what we saw a year ago.

Okay. And then on the cash--the share repurchase--are you done with what was authorized at this point?

Yes, we are. We had 45 million authorized, and we started it and ended it principally by the end of August.

And should we assume that that's going to be reauthorized, or what's your view for cash and acquisitions versus share repurchase--

We've got a board meeting coming up in just a few days, and as always it is on the agenda; we talk about use of cash. The two primary items are share repurchase and/or acquisition, and our board's belief is, if we have an acquisition, they'd sure rather--that's the right acquisition, not the wrong acquisition--sure like us to do that.

So we really don't have--we can't forecast what will come about at the board meeting in a couple days. I would suspect that the board may say to us, though, why don't you let the year run out, see how the acquisition front looks, and we'll revisit it back early next year.

Okay, that's helpful. And--you know, Burlington Northern reported today, and in their IMC business, they said volumes were down 10%. And when I asked them specifically who's in that IMC business, they said of Pacer or Alliance, not J.B. Hunt or truckload guys. So it seems like you are doing better than the market, at least with Burlington Northern. Can you talk to--directionally, Dave, if maybe that's--you know, you did business with other railroads, or you did better than that total number that they've reported, or how should we think about that?

Well, we actually did increase our revenue and volume with Burlington Northern in the third quarter. With their equipment privatization strategy, you will see basically at some point that Hub will be the IMC industry on that railroad, because I don't foresee any of the other IMCs actually acquiring equipment, which --the BN is requiring. The NACS fleet now is down to just a couple thousand boxes that operate on their system, and so by the end of next year, you may see that it's just Hub.

So we did grow on that railroad. They are the highest service railroad right now. But we are also--we still, at the same point in time, while they are the single largest relationship from a revenue perspective, we are still very focused on being the largest IMC on each of the railroads. So that's a consistent strategy that has not changed.

Okay. I'll get back on line. Thanks a lot.

Your next question comes from the line of Alex Brand of Stephens Inc. Please proceed.

Hey, guys. How you doing?

Good.

Good, how are you?

All right. The truckload business, I know you don't like to talk about it in terms of volume versus price because it's more transactional, but it seems like your growth has been mostly sort of price-driven. Can you just talk at least, if not some specific thoughts on what that trend might look like, talk about what the efforts in terms of marketing are doing? Are you going beyond--you know, there's a lot of capacity out here, so let us help you--and are the customers actually starting to view you as a core carrier that they can come to on a consistent basis?

Alex, that's a really good question, and one that--yes. More and more of our clients--truck brokerage, over the last series of four or five years, has become a very legitimate sourcing of capacity for large customers. At one time, they strictly wanted to deal with the asset providers, but in all candor, the core carrier concept, they just found that they weren't necessarily getting the capacity they required. So we are, in fact, now viewed as a core carrier, and we've had also a lot more success in being able to transition some of our business which may have been lost to intermodal--to over the road, to our truck brokerage operation.

In addition, we now are, with 90% of the bids that we are in, we are given the opportunity to bid as a truck broker, which is a very substantial turnaround versus years gone by.

So it sounds like, Dave, so more of the 14% growth this quarter was maybe that you're actually increasing your transaction count, and it's not just that you're--it's not just sort of a price-driven element.

Yeah, Alex, this is Tom. We don't bust it out. And one of the difficulties, I think, is why others don't bust it out is, we are also trying to convert more of our transactions from a longer length of haul to a shorter length of haul, so while you may see transactionally a higher number, it may not be apples and apples. But yeah, you are correct.

Okay. Now, intermodal--I think, Dave, you've been very clear that the goal is profits, which makes perfect sense. But I think you've also acknowledged in the past that you don't shrink your way to profitability sort of permanently. What's the obstacle at this point to growth? Is it just that--you said you're growing your compensatory loads. So is it just that once we get into next year and you're comping against taking out your low margin business, then we'll see that you really are growing it? Or, is there some other hurdle that we should be looking for?

You know, Alex, again, a very good question. The way that we've been focused on this is, in all candor, when we were analyzing some of our data, and we began to see the number of shipments that we just lost money, just up front, just on the transactional costs, and investigated that fully. That's what created this last round of us being very aggressive in either increasing the rates and/or foregoing the business.

Have we done a good job on that? I'd say, yes. And I'd love to say that next year we're not going to find another gold nugget, that we've been able to ferret them out, and the focus will be on growth. But I just don't know that, in all candor. And again, just to our formal comments, if we're given the choice, if I find something that--or somebody in our organization finds something that is going to allow us to grow at the expense of losing some volume, grow in our profits--we're going to do it. It just makes a lot of sense.

We still have a very substantial network, a sizeable network. We are focused on growing, and we are growing, I think, in the right areas. It's just that the areas that we are culling business just has a tendency to be at a larger scale.

Okay. And just one last question. With excess truck capacity, the implication to me is that you'll have rate cutting, which we've probably already seen in the truckload market. So on the one hand, there's a lot of capacity for your brokerage business. On the other hand, there's got to be a compression of the margin between intermodal pricing and truck pricing. Is that something that you worry about, maybe at least as much as you get to next year and you probably can't have an expectation of much in the way of price increases?

Thus far, of course, we haven't seen the rails talking too much about price increases, which may be appropriate. What's generally happened, Alex, in years gone by is that we would--the trucks would become more aggressive, but they gradually become more aggressive on the shorter hauls. So we may begin to suddenly see more competition on the Chicago to Atlanta type distances--700 miles, 800 miles, which currently we could be shipping intermodal.

Most of our business is a 2,000 mile length of haul--between 1,500, 2,000, 3,000 miles, and even though, during the past several years the railroads have increased their rates very aggressively, there still is a pretty significant gap. So it would be very difficult, from a truck competitive perspective, for them to be able to get into what is our key markets.

Okay. Fair enough. Thanks a lot, guys.

Thanks, Alex.

Your next question comes from the line of Adam Thalhimer from BB & T Capital Markets. Please proceed.

Thanks. Good afternoon, guys.

Hey, Adam.

Hi, Adam.

I've just got a quick question here on--first of all, we'd heard that West Coast drayage was particularly weak. I know that that's an area that you were looking to beef up. Have you seen weakness out there?

Adam, weakness in terms of what? Just so we can understand your question.

Mostly in terms of pricing. I just--there's a lot of overcapacity, particularly in southern California ports. Have you guys seen that--overcapacity and weak drayage prices out there?

We actually have not, no. We have been focusing very much on the quality of our drayage services, and so I would say that we do not react as quickly on that because we're more focused on making sure that the shipment gets picked up and that it gets delivered in a timely fashion, versus just spot purchasing.

No, we opened up drayage operations in Stockton and L.A. over the past couple of years, and we have seen quite the opposite in terms of performance.

That was actually one of our biggest concerns, particularly in Southern California, just prior to peak--was being able to secure the proper amount of drayage, local drayage. Now, it could be different with the ports, I'm not sure about that, but certainly from my local drayage perspective that we do on the domestic front that we have not seen that type of softness.

Okay. And then, where are you on self-moved drayage, as a percent of your total drayage?

We do about 31% of our own drayage, and the other--the remaining 69% is outsourced. Purchased from third parties.

Okay. And then you added some people to truck brokerage. What do they--what are they doing?

Well, we added some people to truck brokerage--two things. One, we have a central group of people--this may not sound like a lot of people, but the central group of people went from six to ten, and those four people increase went into carrier procurement and one into recruiting owner/operators and people. So some of the increase went into kind of central development of capacity and people, and the rest were into field dispatchers, etc.

Okay. On rail service, you said that you had seen pretty much no change, year over year. Is that your expectation going forward? Or do you think there's reason to be more optimistic?

You know, the railroads are investing just enormous amounts of capital in their infrastructure and locomotives. For this year, we do not believe that we are going to see any enhancements in service. We do think that next year we will see some incremental gains. I think certainly, when the Union Pacific has double-tracked the sunset route, that we'll see some gains there. And of course, BN continues with their capital investment plan. So over time, yes, but it's incremental. It's huge amounts of capital that they have to invest in the infrastructure, and there's no silver bullet.

What we really need is consistency. If we could get to a point where maybe in 2007 the transit from Chicago from L.A. was four days--if we could get to a consistent five or six days, that would be just as good as anything for us. Because the consistency, that hurts our competitiveness more so than the speed.

Okay. And then, you talked about--obviously, the truckload capacity generally being available throughout the country, but intermodal's been a lot stronger. You've seen a peak season much more in line with the last year than the truckers have. Is this an anomaly, in your experience? Have you seen this before? What does this mean for the group as a whole?

Well, I don't know that it's an anomaly right now. There's obviously--I think that Robinson has been quoted as saying that they've seen a lot of smaller trucking companies expanding their fleet size. I think we have seen the same type of thing. I think right now the peak shipping period may just not be quite as strong as it was last year, domestically. And that as a direct result of that, you're seeing that--according to the figures we see, that there's just not as much demand. There's still solid demand, but it's not quite as strong as it had been last year, and then also in 2004.

I guess the last question would be, can intermodal demand continue to outpace truck demand? I mean, is that sustainable?

With so much of the manufacturing that's fled to China, the length of haul that goods travel in this country has expanded. And unless we have just a consumer meltdown, or if our cost structure for manufacturing gets down to China's level, I think you're going to continue to see rails expanding the amount of intermodal volume that they handle.

Okay. That's very helpful. Thanks for the time, guys.

Thanks.

Your next question comes from the line of Jon Langenfeld from Bear, Stearns. Please proceed.

Hi, Jon.

Hey.

Question for you on replacing the business you've walked away from. How do you ensure that business is good year-round business, versus the business that's here in the second half of the year when freight demand is a little bit stronger for intermodal?

Jon, we focus very strongly, and particularly off the west coast, on year-round customers. Because you're right--if you strictly rely on the spot heavy peak shipper, you're going to end up with a lot of equipment sitting idle. So we're very focused on that. We maintain just a few relationships with companies that have a tendency to be spiky during this fall period. And so it's something you have to be very cautious on, and you have to make sure you don't go to the table and become a glutton. Because during peak shipping period, you can upset a lot of your smaller, regular customers and not take care of them, just with the amount of demand that's out there with some of the larger retailers.

So it sounds like that's a big focus here. You're not just replacing it with the freight to get your hands on it, you're thinking through the next year or so as you try to service the relationship?

Just like there's a peak season this year, there will be a January.

And maybe along those lines, there was some price aggression from some of your IMC competitors, or maybe some of the asset-based competitors. How has that trended, and then how do you prepare for that? Because clearly, it's going to happen again in January when the season turns rough again. So what are your thoughts there, Dave?

You know, in our business, you always have somebody that's being an irrational competitor. The irrational competitor just so happens to live in your state at this point in time. So they've been consistent--they continue to be irrational, from what we've seen at this point, and we believe that they'll continue with that.

But again, it's something that we're used to. We're used to dealing with it, and it's nothing that unusual. So--again, it's the just the course of business.

Gotcha. Have you seen anything in terms of rates being passed--try to be passed along from the railroads, in terms of peak season surcharges and things like that?

We did see some rate increases during the peak shipping period. They were not consistent and across the board, and neither were our price increases to our clients. So you just had to be very focused on who you increased, and what OD pairs. As an example, we might increase our rates substantially more on a percentage basis from Chicago to New York, where we have little competition because of the lack of back hauls, versus Chicago to Los Angeles.

Okay. Yeah, that makes sense, a little bit more targeted--consistent with it not being a robust market. I guess that's what it sounds like?

Yes.

Okay. And then, can you talk about capex plans, I guess both for the remainder of '06 and '07?

Yeah, I can, Jon. This is Tom. In '06, we intend to have about $9 million in total, which would back into about $4 million for the fourth quarter. We're going to finish our tractor replacement plans, we've got some IT spend, we're doing a new phone system for Hub overall, and things like that.

In '07, while we don't have our numbers completely put together, I would anticipate a number directionally close to the $9 million that we're doing this year. It may be up or down a couple million bucks, but that's probably a good number.

And similar type of expenditures as well, in terms of where the money's going?

Yeah, we've got some--as you know, we're going to be integrating the drayage locations into the Comtrak platform, so we've got some onboard technology that we'll be putting in the company trucks and owner/operators. We'll be completing the phone system. We've got some yield enhancement tools that we're going to be developing and purchasing. But nothing individually material. We don't have a big refresh to do on the IT system or anything like that. These are all enhancement things.

Gotcha. And then, on the intermodal business, it sounds like organic growth was roughly 4%, and some came back from the Comtrak side of it. Did that come in ahead of your expectations? I guess it came in a bit ahead of ours.

Dave Yeager. Yes, it did.

Okay. And how much of that's a function of the Hub being attached to Comtrak, versus Comtrak's just doing what it's already done very well?

I don't know, I--I think when we did the Comtrak acquisition, we knew we were getting best in class operator in Mike Bruns and his team. And from everything we've seen, he's exceeded our expectations in what we think he can do. So, I don't know, Dave, if it's --

Yeah, I would attribute it to Mike and his team as well. Certainly with having our volume available, he's been able to focus on taking certain back hauls that have helped him, but--no, I'd attribute it to a very good, solid management team in the drayage area.

Okay, good. And then, lastly, can you just give me a base of headcount in the truckload brokerage business?

Hm. I'll give you approximately--it's about 170 in total.

Jon Langenfeld. Okay. And should we expect more headcount additions there as you kind of grow that out? And how much of that growth of headcount comes ahead of the revenue, versus coincidental to the revenue? Qualitatively.

It's a great question, because you do have to hire a bit ahead of the revenue, and we've got some very refined metrics from an operating income, and operating income per person that we look to. So we will be hiring ahead of the revenue, but if you just take a base of 170 and assume that we're going to add fewer heads than the revenue it increases, it's still not that big of a number.

Right. Right. Okay, good quarter. Thanks for the call.

Thanks, Jon.

Thanks, Jon.

Your next question comes from the line of Todd Fowler, from KeyBanc Capital Markets. Please proceed.

Good afternoon.

Hi, Todd.

Hi, Todd.

Hey, I was wondering if you guys could comment here--most of my questions have been answered at this point, but it looks like salaries and benefits, the line item in the P&L during the quarter--looks like on an absolute dollar basis it was a little bit below where it was in the second quarter. Was there anything there that happened here in the quarter, and then how should we think about that on a go-forward?

You know--Todd, this is Tom. We don't individually bust out guidance by line item, and so the best I can give you is that--look to that guidance that I gave you, you know, $35 million to $37 million for the quarter. And then you can kind of back into that. Depreciation is not going to appreciably increase. We did have a little bit of relocation expense in the prior quarter that we didn't have in this quarter, but it's not material.

Okay. So, nothing big in the quarter, primarily just something that was there last quarter but not this?

Yes.

Okay. And then--let's see. I guess, on the truck brokerage side, how are the recruiting efforts going as far as getting more carriers into the network, and where would you guys say your kind of carrier count is at, at this point?

What I can--there's--I can give you a number that would be a really big number, but they're not very active carriers. But what I can say is that we have looked at our coverage, and we've got about 950 carriers that cover 80% of our shipments. And so that's not a bad metric to use. We do have like 6,000 active carriers, but again, they could be doing one load or two loads, so--we're not necessarily--we are recruiting carriers, we are targeting them. But we also want to have good quality carriers. So if that 950 became 940 or 960, we wouldn't be overly concerned one way or the other, especially if they're the right carriers.

Okay. And then, have you seen any change in trends as far as what's going on in the general truckload market, as far as carriers--could be more actively seeking a truck brokerage network, or no real change there?

You know, we could give you some anecdotal what-ifs, but I think you've just got to--I don't know, Dave, do you have any--

It's really hard for us to evaluate that, Todd, just because--and again, being candid, we did not--several years ago, we were not that good at carrier development. It's something that we've refined, we continue to refine, we continue to grow and focus on that area. And so it would probably be unfair to make a conclusion about what the overall market's doing, because I really think it's kind of Hub-specific at this point.

Okay, fair enough. And then just lastly, you guys laid out a couple different criteria that you're looking for on the acquisition fronts. Are there any companies that you would say you're pretty far down with the criteria? I mean, maybe companies that have met two of the three, or--any progress, I guess, with some acquisitions, where you stand based on that criteria that you've laid out here?

That's a really good question. I think what we're trying to signal with this criteria is that there's a big pile--we take all the acquisition candidates and kind of sort them into two piles, and the only pile that we will look at satisfy those three criterias. Now, the question becomes, where are you in talking to companies? We've been talking to companies now for a year, year and a half, so it's really hard to--and where you are in any kind of process, it's almost impossible to handicap. So we are only talking to the companies that hit the three.

We're not necessarily looking at companies that are for sale--we'll look at them. But we're looking at companies that in fact meet the criteria, and of course, then you've got to have a willing seller.

That's the thing that you can't handicap.

Okay, very good. That's all I have right now. Thanks for the time.

Okay, thanks, Todd.

We have a follow-up question from Ed Wolfe of Bear, Stearns. Please proceed.

Just a couple things. The boxes and leases that you have coming in, are there any more that are due in? Any more off balance sheet leases we should think about that are committed for this year or next?

We had 2,000 that were coming in, we've received 1,500 to date and we will receive the remaining 500 shortly. And rough numbers, about $9,000 per container.

If you don't want those 500 because they're late, can you not accept them?

Oh, we want them.

No, we do want them. There's no question about that. And there's still going to be--I mean, would we like to have had them on August 15th, yes--but certainly they still will be of use. They're all coming into the port of Los Angeles, so that will definitely assist us.

And there are some incentives--or disincentives--to deliver them to us late, so we are not--

Yes. Your absolute D&A went up a little bit, quarter over quarter, which hasn't happened for a long time. Should we assume, based on your comments of some new IT and phones and tractors, that D&A's going to go up a little bit?

Yes. If you look at our historical, we've been cranking out about $4.5 million of capex for the last year--$3.5 million to $4.5 million, so if capex is kicking up to nine, you'll see that thing inch up.

Is nine going to be a run rate going forward?

Nine could be a good--reasonable proxy for next year.

Okay. And Dave, if the fluidity's better than everybody's saying at L.A. and Long Beach, that the pier pass is working and volumes are good but there's not a lot of mess there--I'm guessing that improves your turning boxes, is that fair to say? And how do you quantify something like that?

Certainly, our fleet is turning slightly better than it did last year, and that's one of the primary things that we look at. We also look at loads that are left on the ground by the rail carriers, at each ramp location on a daily basis. And that has been somewhat improved versus last year. I can't say it's an overwhelming improvement at this point.

So we primarily look at our own--our own fleet turns on that, and then loads on ground. Those are the two main issues that affect us, because they affect the transit to our customer.

And where do I see that come out? It comes out in lower salaries and benefits, because fewer people are needed to move the boxes, or--how do I think about it?

Boy, I wish that was the case.

Not on equipment ownership, really, because they're not that kind of--where would I see that benefit?

Probably, you know--you probably wouldn't see it, but it would add to any kind of yield expansion in the gross margin line.

Right, and ultimately, when we get to a point that we've got consistency, you could see it on the top line, because there's a fair amount of customers which over the last several years we have lost due to transit considerations that are susceptible to coming back to intermodal once we get stable.

And then the last thing is, CSX on their call mentioned that a year ago they were getting all sorts of extra assessorial charges when capacity was so tight. And then, you know, the intermodal volumes are still good, they might not be seeing all those extra assessorial one-offs. Are you experiencing the same thing, or were you the one who was giving it to them and now you're taking it back? How do we look at it from an IMC's perspective?

That's a good question. We have made an enormous focus on assessorials, because it is a significant amount of billings and/or potential loss of income, because the railroads are very persistent. I think because some of the assessorials have become so very punitive, inasmuch as they can accelerate to being $100 and $150 a day, that our customers are managing better the empty equipment, or the loads that may be sitting within their yards.

So if anything, I think they may be getting the desired behavior, which is for the customer to turn the box faster, because he doesn't want to get hit with that big stick.

Yup. Okay. Thank you.

Thanks, Ed.

Okay, Ed.

There are no further questions at this time. I'd like to thank everyone for their participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.

Thank you.