Hub Group Inc (HUBG) 2007 Q4 法說會逐字稿

Good afternoon, and welcome to the Hub Group fourth quarter conference call. We will begin with a discussion of the financial results, led by Terri Pizzuto, Executive Vice President, Chief Financial Officer and Treasurer, followed by a overall business discussion to be conducted by Dave Yeager, our Vice-Chairman and CEO. The Company will make its prepared presentation, followed by a question-and-answer session. Mark Yeager, President and Chief Operating Officer, will join us for the Q&A session. (OPERATOR INSTRUCTIONS.)

Comments made by Hub Group employees during this conference call may contain forward-looking statements. Actual results could differ materially from those projected in these forward-looking statements. Our SEC filings contain additional information about factors that could cause actual results to differ materially from those projected in these forward-looking statements. Copies of these SEC filings may be obtained by contacting the Company or the SEC.

And, now, I would like to introduce Terri Pizzuto, the Chief Financial Officer of Hub Group. Please proceed.

Thanks, Denise. Thanks for joining us. I want to begin by covering three things. First, we had a record quarter. Second, we had rock solid growth across all of our service lines. And, third, we had a onetime $0.04 a share tax benefit.

Here are the numbers. For the fourth quarter Hub's diluted EPS increased 38% from 2006 to $0.47. Hub's fourth quarter operating margin was 5.7%, that compared to 5.2% in 2006. For the full year, we generated $71 million in free cash flow after CapEx. That's equal to $1.82 a share of free cash flow. At yearend we had $38 million in cash and no debt.

Now, I'll discuss details for the quarter, starting with revenue. Intermodal revenue increased 2%. This change includes a 3% volume increase, offset by a 1% revenue decrease related mostly to mix. The volume increase comes mainly from an increase in local east market and an increase in business with transportation companies. We define "local east" as freight that runs on the eastern rail network. The impact from mix also relates to growth in our local east traffic. The average length of haul for local east business is about half of what it is on all of our business. We finished the year with Intermodal volume growth up 2.5% despite a difficult freight market.

Truck Brokerage revenue increased 15% due to higher volume, pricing, and mix. We're proud of these results, and we're staying focused on growing this business. We overcame our tough comp for Truck Brokerage in the quarter, and replaced business we lost with new business.

Logistics revenue was 1% higher than last year due to some new customers. As you know, because of the contract change for a large customer in the second quarter, we're now reporting net margin as revenue for that customer. Without this change, our Logistics revenue would be up about 20%. We continue to bring on new Logistics customers.

Gross margin dollars grew by over $2 million or about 4%. This margin expansion comes from, number one, strong results in Truck Brokerage, number two, Intermodal growth, and number three, Logistics landing new customers.

Total cost and expenses in the fourth quarter were $34.8 million, that's compared to $36.3 million in 2006. Most of that expense decrease relates to lower telephone expense, outside consultants, and temporary labor costs. We expect that our quarterly costs and expenses will be in the range of between $37 million to $39 million for 2008.

We have 1,081 employees, excluding drivers, at the end of December. That's down 8 people compared to the end of last year. It's an increase of 17 people compared to the end of September. Most of the people that we added are at Comtrak and in IT.

The gross operating margin was 5.7% compared to 5.2% last year. We continue to concentrate on improving this important metric through the margin enhancement team, growth across all our service lines, and cost containment.

The effective income tax rate for the quarter was 31%. We had a onetime $0.04 a share tax benefit this quarter. That's because we had a dispute with the IRS that was resolved.

Now, turning to our balance sheet and how we used our cash. During the fourth quarter of 2007 we bought a total of $38 million worth of stock and completed our $75 million share buyback plan. We purchased 1.5 million shares during the quarter at an average price of $25 a share. In November our Board authorized the purchase of up to another $75 million of common stock. That authorization expires June 30th, 2009. We haven't purchased any shares under this new authorization.

During the quarter we spent $1.8 million on CapEx. For the full year we spent $10 million. As I said earlier, we had $38 million in cash and no debt at the end of the quarter. We continue to look for drayage and other acquisitions that are consistent with our strategic plan.

Now, I'll discuss 2008 full year earnings guidance. Each quarter end we compare our full year EPS forecast to the publicly available analyst range. For 2008 we're comfortable that our diluted EPS will be within the current analyst range of between $1.50 and $1.62. Our weighted average diluted shares for 2008 are estimated at about 38 million.

To wrap it up, Hub had a healthy quarter in a very challenging freight market. Although it's tough out there we face 2008 with the strong determination to do well.

And, now, you'll hear from our CEO, Dave Yeager.

Great. Thank you, Terri.

We had an impressive finish to 2007. In the fourth quarter we grew our Intermodal volume. We returned to double-digit brokerage growth and we maintained our momentum in Logistics. Our growth combined with our continued emphasis on margin enhancement and cost controls generated another record quarter.

We're very pleased with our Intermodal volume growth of 3% in the fourth quarter. The second half of 2007 proved to be a very difficult freight market. In a slow economy, such as we experienced in the second half, demand softened, while capacity remained constant. This naturally creates an imbalance, putting downward pressure on rates.

As we've talked about in previous conference calls, part of the beauty of Hub's asset light business model is that we're able to have strong net income results whether the economy is striving, as it was in '04, or a soft economy, as we experienced in the second half of '07.

In a strong economy we've been able to increase margins and improve our business mix. In a slower economy, such as what we're experiencing now, we're able to purchase our transportation better, thereby creating the potential for margin expansion and improved returns.

I'm pleased to report that while peak got off to a slow start, it did end strong and lasted longer than we had anticipated. Many of our retail accounts bounced back in the fourth quarter from the rather significant declines that we had seen in the third.

Rail service remained quite good throughout peak. We continued to see improvements on all major rail lines when comparing the fourth quarter of '07 to the same period in '06. Not only are train speeds improving which, again, that helps us to improve the utilization of our fleet, but we're also seeing more consistency in service and it's this consistency that's the number one concern of our customers.

Our fleet continues to perform well. To keep our fleet perfectly up to date, we've been retiring many of the older containers. We plan to replace the remainder of our 48-foot containers that are currently in our fleet with new 53-foot containers. By the end of the third quarter of 2008 our total fleet will be about 10% larger than in 2007 and we'll be the only provider with the significant fleet presence on both western lines.

We believe that our fleets give us a competitive advantage over our traditional IMC competition, and having fleets on both western railroads allows Hub to use the best service and price options that are available for our customers. None of the asset based intermodal providers have this capability, and we believe the access to both rail networks gives Hub a competitive advantage versus these competitors.

Our drayage business remains an important component of our Intermodal strategy. In 2007 Comtrak focused on successfully converting the majority of Hub's in-house dray operation to its processes and technology. In 2008 that focus will shift to growing its driver base and its business base.

For '08 we've set some very aggressive driver recruitment goals for Comtrak. To date we've added 50 drivers which brings our total driver count to over 1,200. Comtrak will strive to grow in all of their markets, but they're going to be particularly focused on expansion in Atlanta, Chicago, and Dallas, where we already have a good base of business and have significant potential for profitable growth.

Comtrak also continues to grow its international dray business. During the past few months Comtrak has successfully levered Hub's existing customer relationships to win new business. We continue to see significant potential for growing this service offering by leveraging the relationships that Hub has with our existing account base.

Despite tough comparables in a soft truck market, our Truck Brokerage revenue increased by 15% in the fourth quarter. As we've previously discussed, we had some significant project work in the fourth quarter of '06 that did not repeat itself in '07. Our brokerage team did a fine job of overcoming this challenge by growing with new accounts and by gaining share of existing customers.

We've also been able to continue to grow our carrier capacity. As a result of our focus on carrier management, coupled with the soft freight economy, truck capacity remains strong and available. And with the former head of our Truck Brokerage, now our Chief Marketing Officer, we expect to see an additional emphasis on selling this line of business.

We do believe that the Brokerage business has significant growth potential, as we still had many large Intermodal accounts for whom we do not provide truck capacity. We will continue to leverage these relationships in our efforts to gain more truck business.

Our Logistics business also continues to do well. In a soft economy, such as we're currently experiencing, many of our customers are looking to take costs out of their supply chains. Our Unyson Logistics business offers customers the opportunity to take costs out through the application of technological solutions. All of our segments of the Logistics business are experiencing growth.

A few examples, we just have been awarded the business from two pharmaceutical companies to perform deliveries to their sales personnel. We also recently won the right to manage the LTL spend of a large consumer products company, and have been awarded the expedited business of a large retailer. Thanks to this new business coming onboard, as well as a robust sales pipeline, we expect Logistics to continue to grow throughout 2008.

In conclusion, 2007 was another year of significant accomplishments for Hub Group. To mention just a few, in 2007 we grew our Intermodal volume for the year by 2.5%, we refined our go-to-market strategy and realigned our sales and operations teams. We reduced our costs and expenses as a percentage of revenue, and improved our operating income as a percentage of revenue, while generating $71 million in free cash flow.

We completed the purchase of $75 million worth of stock, while finishing the year with $38 million in cash. And, most importantly, 2007 saw Hub increase its net income from continuing operations by 25% over 2006's record earnings. We take all this momentum into '08 and look forward to another great year.

At this time, we'll open the line up to any questions you may have.

(OPERATOR INSTRUCTIONS.)

And your first question comes from the line of Ed Wolfe from Bear Stearns. Please proceed, sir.

Thanks. Good afternoon.

Hi, Ed.

Hi, Ed.

Hi, David. Hi, Terri. A couple of different things. First, just you gave a number, Dave, about 50 drivers added YTD at Comtrak. What was the base of that? Was it 1,080?

It was --

[1,170], we had 1,176 drivers at the end of the year, and so we've added 50 since then.

How do you explain the pick-up in volume? When you look at, I think it was -2% quarter, going to a positive 3 in Intermodal volume, you talked about the east coast, what is it about the east coast? Is it exports, is it new customers, you know, how do you -- how do we think about that change?

It is an ongoing focus for us, the east at this point in time. We've been able to grow it successfully. A lot of it is new customers. There is also gaining some share from some existing clients. So that was the major drivers that we had within the east.

We also, our wholesale product, which we offer to other IMCs in the west, that has also been very good, very beneficial in the fourth quarter, in particular. And I think, you know, the third issue was that our retail business, the Home Depots, and the Sears, and the Targets of the world, they were down significantly in the third quarter, and while they didn't get back to '06 levels in the fourth, there was a pretty significant improvement.

And do you think that improvement was you taking market share within them? Because we certainly haven't seen improved retail numbers reported.

No, Ed, I don't think that's the case. And that's, I think one of the reasons that we thought the peak was going to be shorter than it actually -- what we experienced, and I think it's just that the retailers were taking in product at a slower pace to keep their inventories at a minimum.

Can you take us through the volume growth in Intermodal, if we look at October, November, December, and now January?

You know, we really don't go by month. We pretty much try to just lump it in with the quarter, but it was relatively consistent.

How is first quarter doing so far?

That's another one we don't talk about, Ed.

Hey, Mark. I didn't realize you were there, so I'll -- okay, is there any reason to think that the 15% Truck Brokerage revenue and the 3% Intermodal volume won't continue at this point? I mean in your guidance, in your expectations, is there any reason why that should either get better or stay flat, get worse?

You know, a lot of it's going to be -- we do feel really good about the realignment of the Company, its operations, as well as some of the changes we've made in the sales area. I think a part of it is a function of the overall economy, Ed. It -- right, so far, it doesn't feel a lot different than the fourth quarter of '07, but I think that's to a large extent what's going to be the biggest regulator to the growth of those two segments.

Do you have anything to add?

No, I think that's right. You know, we've said for a long time that we thought Highway would be a long-term double-digit grower. It will go through peaks and valleys and have to come over some tough comps here and there, but we think that that's a sustained model, that we're really just beginning to penetrate our existing customer base, and a lot of opportunities outside of our existing customer base, as well.

But, Mark, you --

On the Highway side, I --

-- (inaudible) to 15, that's a big swing, and the comps are fairly easy as we come around, so is it safer to say closer to the 15 than the zero would be in your expectation?

I think we'd say high single digits, Ed, is what we're hoping for in '08. I mean our volume was up in Highway, but it wasn't up as much our revenue, and our volume increased with retail paper and electronics companies. That growth Dave mentioned in his prepared comments, the growth that we had was about 50% from existing customers and 50% from new customers, so we're hoping we can continue to replace what we lost, but it is a tough market out there.

Okay. You talked about a larger fleet by the end of '08 of leased containers, by 10%. Where did you end the year in '07 as percentage that are long-term leased versus day-to-day with the railroads? And where does that go to by yearend '08 under this strategy?

Okay. Under this strategy it will end up to be almost about 50/50.

About 60/40.

60/40, 60% actually are the operating leases which are coterminous with our railroad contracts and the remainder is supplied by the rails.

And where did it end, '07?

About that same, I mean close, it will be close to the same percentages.

So you're expecting close to 10% volume growth? Should we assume that for '08?

Well, we -- don't forget that our fleets recognize only about 60% of our overall business. We still have another 40% there. We certainly are very much looking forward to '08 and, but I don't think I'd characterize it as 10% growth, Ed, (inaudible).

One last thing [with] the guidance, you know, if I take the $0.43 you reported in the quarter [net] of the $0.04 for the tax, and just look at what fourth quarter has represented of the following year earnings the last couple of years, it's been 18% to 22%. In the middle it implies over $2.00 of earnings, you're on a run rate of right now. You gave a share count of 38, Terri, which you should already be below with the full share buyback, since I'm guessing you didn't buy it all back the first day of the quarter.

You're right.

How do I think about slowing down my model wanting to go up? You know, why shouldn't this run rate keep playing out and why shouldn't the share count be significantly lower? I'm assuming you plan to start to use that $75 million in share repurchase?

Well, of course, we're -- our first preference is always for accretive acquisitions, and we obviously we haven't been able to get any done in the fourth quarter, although we continue to work on that.

You know, Ed, again, a lot of it is going to be determined by the overall health of the economy. I think that that's the single biggest driver here of where we're going to find ourselves at the end of 2008. I haven't read anybody that's -- any of the economists that are forecasting that the beginning of '08, anyway, is going to be that strong.

Is it fair to say $1.50 to $1.62 assumes no improvement in the economy?

Oh, yes, yes. As Terri said --

Yes.

-- we're comfortable with the analyst range.

Yes.

Okay. And, Terri, you said $35 million of total expenses in the quarter, going to $37 million to $39 million. Can you walk us through why that's going up like that?

Sure. We have raises to employees that are effective January 1. Some of our employee benefit costs increased. We have more people and more travel and entertainment.

How much did January 1st, the salaries go up?

It ranges, you know, we've -- between 3% and 5%.

Great. In terms of depreciation or SG&A should we expect those to go up or is most of the expense going to go up in salaries and benefits?

Most of it would go up in salaries and benefits, other than the travel and entertainment, which would be part of G&A. And D&A stays about the same.

You guys having a big party? What's all this travel and entertainment?

We'll invite you Ed!

With the sales realignment and our, you know, a lot of our sales guys going to be hunters now, they'll be traveling more and we've made our focus growing our large customers and getting in new accounts, and so it's just going to cost us a little more to do that.

Thanks a lot for the time. I appreciate everything.

Thanks, Ed.

Thanks, Ed.

And your next question comes from the line of Alex Brand from Stephens. Please proceed.

Hey, guys. This is George for Alex.

Hey, George.

Hi, George.

First question, you obviously had good volumes this quarter and your operating margin has been above 5% for six of the past seven quarters, so it's obviously been improving, too. Dave, can you maybe give your thoughts on where you see both of those going in '08, both the volume and the operating margin?

Well, from an operating margin, I mean while we have had improvement, there's no question about that, we continue to benchmark and focus on some of our competitors that, candidly, have been better. And while we've closed the gap, the gap still exists, a lot of these people are at 7%. So we're going to continue to strive to get to that point but -- and there is more room for expansion, but I honestly, George, can't give you a real good idea. There's nothing that all of a sudden, it's not like a light switch, it really is incremental changes, it's really focusing on the details and operating more efficiently, so but I can assure you that the bad news is that there's still room and the good news is that there's still room for improvement there.

But it -- I guess it sounds like it won't be cost driven, though, it's going to be getting better business, operating more efficiently?

Well, it is operating more efficiently, getting some better business, but it's also from a cost perspective. If you take into -- if you feel as though operating activities are a part of the cost, round tripping our trucks that are doing things such as that, all those incremental types of improvements, giving better access to our dispatchers, make better selections on equipment choices, all those types of things with some of the technology enhancements we've had will, in fact, be additive to our margins.

Okay. Is it too crazy to think 7% would be too lofty a goal by the end of the year?

Yes.

Okay.

Yes. I think our goal, George, is we did 5.5% for the entire year of '07, and our goal would be to [be even] with that.

Got you. Secondly, I don't know how good of an apples-to-apples comparison this is, but can you maybe talk about what rail pricing for you all was like in the last downturn, and if you could kind of what you expect it to be like this time around?

Well, I think that the rails show we're very rational in 2007. As you know, we had some very aggressive pricing moves in '04 through '06 when the economy was very strong, and I think that the rails early on recognized that there, the economy was in trouble and that trying to increase pricing would be a mistake.

And so while we did have the one area you can always increase in the fourth quarter is off of the west coast because demand so much out supplies, both outstrips supply, so that's really the only increase that we experienced in the second half of the year. For 2008 I think we'll find it to be comparable. I don't think you're going to see much pricing change unless you'd actually see some downward pricing pressure early in the first half.

Great. Thank you so much for your time.

Thanks, George.

Thanks, George.

(OPERATOR INSTRUCTIONS.)

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

Good afternoon, everybody.

Hey, Todd.

Hi, Todd.

Hi, guys. Dave, can you talk a little bit, I'm not sure if you've disclosed this in the past, but how much of your Truck Brokerage revenue does come from Intermodal customers, and with the new business on the Truck Brokerage side here in the fourth quarter, you know, where is that going to go or where could that go going forward?

Right now is at about 25% as far as customers that use -- either they're large Intermodal customers that, in fact, use our trucking capabilities, as well. That is a number I don't think we've ever quantified as far as how large it could be, but it should be significantly larger.

I think the important thing is we have existing relationships, these people trust us, we understand their business, and there's no reason that we cannot, in fact, become competitive in the truck market and service them in that mode of transportation, as well, and that's going to be our target.

Dave, if I ask it a little bit differently, if it was 25% in the quarter maybe where was it at the end of last year?

Not much different.

Okay.

And that's the disappointing part.

Right.

I'm sorry?

That's the disappointing part. But we really do. We think with David Marsh, who headed up Highway for us, now running our marketing organization, including sales, one of the first things he's doing is making sure that we're -- our salespeople are trained effectively for selling Truck Brokerage, because it is a different sell than selling Intermodal, when the vast majority of our salespeople have grown up within this industry.

And so I think that that's a -- that will be a big positive. We just had a national sales meeting, and a large part of it was going through with the salespeople and selling all of our products, and not just the Intermodal product which, of course, is vitally important and we want them to continue to sell, but there's other weapons that we can give them as they go out and search for business.

Okay. Great. And then I guess thinking a little bit about the current environments, especially on the retail side, how difficult does it become in 2008 to get some of the volume growth with your core customers, your core retail customers, obviously they're facing a softer environment? And maybe if you have anything that you've heard from a preliminary stage from what some of your main customers, obviously without giving any confidential information, but what they're thinking about from a holiday season or a peak season? My guess would be that they're a little bit cautious in the current environment, but maybe you've heard differently?

No, we have heard nothing different. Mark, do you have any commentary on that?

No, I'd agree with that completely. I think that most people are not anticipating a very robust economy in '08. I think our retailers, by and large, were more optimistic about the second half of '07, early in '07, than I would say they are about the second half of '08, early in '08.

So I think what we're banking on is that we're not going to get a lot of help from the economy, we're going to have to create our own opportunities and do that by expanding with some retailers we're not currently doing business with, and then also growing some share within some of our existing relationships, but we don't think that the pool of retail business is going to get a lot bigger in '08.

Okay. And then, Mark, how does the east coast then fit into that as far as you looking at opportunity share and those sorts of things? I mean how do you put that as far as, I don't want to say a priority, but the opportunity that's out there?

Well, you know, the east has done -- has been a real area of growth for us. It kind of fights against the logic of truck rates coming down and taking business away from the Intermodal product which is what you'd think would happen, but what we've been able to do is establish some very solid service levels and I think we're penetrating into some markets that maybe weren't traditional Intermodal lanes with our local east.

We've also done extremely well between the west coast and the southeast, particularly southeast to the west coast. It's been an area of nice growth for us and, you know, there's some new service offerings out there that are making very reliable numbers, and it's substantially faster, as much as a full day faster than they historically were. Once again, potentially opening up some -- what may have been truck freight moving into Intermodal, so we think that there's some opportunities for us out there in the local east, as well as in the long-haul southeast, California markets.

And I guess that's a decent segway. I mean, Dave, you mentioned I think a couple times about a larger presence on both western rails. Can you talk about what your box count is on the Union Pacific right now, and maybe a little bit more about what you think that that offers? And then at the same time is there any risk with the relationship with the Burlington Northern and the volumes that you move with the Burlington Northern by leveraging across both rails?

Well, we have a significant relationship and always have with all the railroads. We are the single largest intermodal marketing company on every railroad, that's a specific strategy. It's been part of our strategy for the last decade and a half, so that's very consistent.

We are going to be -- we're adding -- we're building right now a thousand boxes or just contracted that will go on the Burlington Northern. Those are our [red boxes], our [HGIUs], which will go on the Burlington and the Norfolk Southern, and then we are adding a couple thousand boxes on the Union Pacific, as well, primarily in response to a large extent the service improvements we're seeing. I mean if you look at their service from the southern California in conjunction with Norfolk Southern into the southeast, it is "the" best service available. None of the asset based carriers offer that, and we think that's a clear competitive advantage when we have a day to three days better transit than what the [SFA's] guys have.

Okay. That's helpful. And then just one last one here real quickly, you know, we are hearing consistently that the rails have obviously been, still moving up their prices, but the market is soft. As I look at where your gross margins came in in the fourth quarter, I know this is a seasonally softer quarter, but coming in at 13.6 on the gross margin line, is there anyway to think about how much of that is a function of the market and the rails being a little bit more aggressive on the price side and the softer pricing, versus how much of that is just the seasonality? And I'm really trying to think about going forward into 2008, will we see -- what will we see in the gross margin line on a YOY basis?

That's a very good question. If I'm not mistaken, the fourth quarter, and there's a few reasons for this, but it does have, our gross margin does tend to lag a little bit. For one thing it's because of the tightness of capacity. We're limited in always being able to optimize and select "the" lowest priced box, because out of southern California in the middle of October you'll take anything regardless of if it's $200 higher or not, so there's a lot of sub optimization that takes place during peak. Though, of course, also, volumes are extremely high, so in the aggregate it usually proves to be a pretty good quarter.

There will be -- we do believe there will be some pricing pressures, but we've always had that during downturns, and we really do believe that we'll be able to buy cheaper and thereby being able to continuing to expand our margins.

Okay, great. Thanks a lot, guys.

Thanks, Todd.

And from Robert W. Baird, your next question comes from the line of Jon Langenfeld. Please proceed.

Good afternoon.

Hi, Jon.

First, on the pricing side, can you just talk a little bit about how price was in the quarter, and I'm assuming there's probably a little pressure on price and fuel surcharge probably offset that, is that a good way to read it?

No, not really. I mean fuel surcharge, it might add to revenue, but if you think about it, 70% of all of our business, we are on a customer's fuel surcharge, and they're for the most part very interactive, and so you'll see that most of them are repriced on a monthly basis, based on the Department of Energy stats.

Okay.

So I think from a pricing environment perspective, we had a few irrational players, and there has been some pressure on prices. We're seeing that right now. One player, in particular, hit the panic button early, out of California, what we think is prematurely but nonetheless it happened. But, again, that's just part of the business. We're always going to have at least one irrational competitor there.

So when we think about your 2.5% Intermodal revenue growth, you said 3% volume and a little pressure, just given mix, but where would fuel surcharge come in there?

Well, actually, we said Intermodal revenue increased 2% in the quarter.

Right.

And so that was, you're right, 3% volume, and it was offset by 1% decrease related mostly to mix, so price was pretty flattish.

As Terri had said, the east business is about half the distance line haul wise.

Yes. No, I understand that. I guess I'm just wondering with fuel being up so much and fuel surcharge benefitting that line, on a YOY basis, just on a reported basis, so where does that come into the mix, that 2.5% or 2.4%, I guess is what it was?

That was -- we were [at] 2.5% for the whole year.

Jon, I don't know. We're going to have to get back to you on that.

Okay. That's --

(Inaudible) analyze that.

That's fine, that's fine. And then moving over to the truckload brokerage piece, how much of the swing positive was project work versus ongoing customer relationships? Now, you tend to make the differentiation between the two, I guess you have in the past.

Yes, I think the good side on that story is that the majority of this was ongoing work that produced the growth on the Highway side. We did not see aberrational project work that should create a more difficult hurdle, as we did see at certain periods in 2007. So we like seeing -- we love the project work, we're good at it, but it does create sometimes some lumpiness that can be a little bit difficult to overcome. Fourth quarter was not a story about lumpy business or special projects.

Great, great. And then was it mostly, or can you tell, I mean was it business, more business from existing customers versus new customers, or both?

50/50, 50% new and 50% existing.

Yes, we brought a lot of new relationships to bear, and we brought some customers that had been doing business with us on the Logistics side, as well.

And the pipeline into '08 for new customers, how does that look relative to where it's been over the last year or two?

Well, we think it's well positioned, you know. Our sales folks are very eager to sell it and it's a good product out there, so we feel that we have a whole lot of business, you know, a lot of relationships on the Intermodal side that we need to tap into better, but also we're exploring new relationships more, as well, so we feel that Highway can continue to post good numbers.

Okay. And then just I guess some numbers questions. What sort of tax rate should we look at for next year, for '08?

We think about 38.5% to 39%.

38.5% to 39%, and then the lower tax rate in the fourth quarter excluding the gain, I'm assuming that's just truing up the year?

You're exactly right.

Okay.

It's truing up the provision to the tax return.

And then what would -- what should we think about for CapEx for '08?

We're thinking around $10 million to $11 million.

Okay. And then, finally, on the bonuses in the fourth quarter, I'm assuming you're probably back to more normalized bonuses in the fourth quarter versus the third quarter, were there any catch-up provision for bonuses in the fourth quarter, given how strong the performance was?

Our bonus in the fourth quarter was about $400,000 less than our bonus in the fourth quarter of last year.

Oh, so it's still a tailwind. Okay. And I guess given how strong it was, you simply just didn't meet the goals set out at the beginning of the year from a full year perspective, to pay-out more bonus? I'm guess I'm a little bit surprised it's not greater than it was last year?

Well, Jon, in fact, you're now invited to our (inaudible).

I'm just trying to put a plug in for you guys.

We will use you as a plug! No, that's exactly right, we did not, in fact, achieve the targets necessary from the Board in order to garner more bonuses.

Okay. Good enough. Well, those are good, good targets to have, I guess.

We believe so.

Nice job.

Thanks, Jon.

Thanks.

(OPERATOR INSTRUCTIONS.)

Your next question comes as a follow-up question from the line of Ed Wolfe from Bear Stearns. Please go ahead.

Hey, just do you have any guidance for headcount, and how we should think about that in '08 over '07?

Well, Dave is still approving every single new hire that we have, so it's pretty strict, so I would -- we would guess it wouldn't go up too much.

We're trying to limit it. I think that there's a few areas with some of the increases we've had, with some of the Logistics projects you've got to wrap up a little bit early and all, but we're going to continue to stay very focused on keeping it down, and whenever one is brought up whether it's for new business or not, I constantly question them whether or not they, in fact, can use existing resources to -- particularly during the first half of the year when business is always softer, can't you get by without that, so.

And the other area we're beefing up a little bit is sales.

Right, yes, and we are, because we have been -- we cut back a little bit too far in the sales, and we've got some new hires in that area which we think will be beneficial.

Were some of those the 18 added quarter over quarter?

Not -- no.

Okay. What's the difference, when I look at Logistics' revenue that you reported in the quarter of $37.2, what would the net revenue look like? Is there much or any transportation spend or is the net and the gross pretty similar?

There is transportation spend in there because we're actually paying the carriers and managing that relationship, and responsible for it, so there are transportation costs in that.

It's really account specific.

Yes.

Some of them we pay the transportation, some of which we do not.

So on that assumption we should assume that the gross yield for that is higher than it is for the rest of the business?

It's a little higher, yes.

Okay. Thank you.

Uh-huh.

Thanks, Ed.

And your next question comes from Robert Dunn from Sidoti & Company. Please proceed.

Hi, how is it going?

Good.

Just -- I think I just missed it, was the operating expense guidance of $37 million to $39 million, was that just for the first quarter, or would that range hold true through each of the four quarters?

That's for each of the four quarters.

Okay. Great. Thanks very much.

You're welcome.

You're welcome.

We have no further questions in queue. I will now turn the call back over to Dave Yeager for closing remarks. Please proceed, sir.

Okay. Great. Well, thank you for joining us today. Certainly, if you have any additional questions, we're always available for discussion. So thank you again for joining us.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a great day.