Hub Group Inc (HUBG) 2008 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 an overall business discussion to be conducted by Dave Yeager, our Chairman and CEO.

The Company will make its prepared presentation, followed by a question-and-answer session. Mark Yeager, Vice Chairman, President, and Chief Operating Officer, will join us for the question-and-answer session.

(Operator Instructions).

Comments made by the 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.

Now I would like to introduce Terri Pizzuto, the Chief Financial Officer of Hub Group.

Thanks, Nikita, and thanks, everyone, for joining us.

I want to begin by covering three things. First, operating margin for the fourth quarter was 5.4%. That's the highest it's been all year. Second, Hub continues to be in a very stable financial position. Third, our flexible model allows us to adjust quickly to market conditions.

Here are the key numbers - Hub's fourth quarter diluted earnings per share was $0.38. If we take out the one-time, $0.04-a-share tax benefit in 2007, earnings per share is down 12%. Fourth quarter operating margin was 5.4%. That's compared to 5.7% last year. At the end of December we had $86 million in cash and no debt.

Now I'll discuss details for the quarter, starting with revenue. Intermodal revenue decreased 3%. This change includes a 2% volume decrease and a 1% price decrease. Our customers' business is down, and that's what's driving the volume declines. It's not a loss of market share. One of our former customers, Linens 'n Things, is liquidating. Linens 'n Things represents about half of our volume decline in the fourth quarter. We also saw declines in our wholesale and ISO businesses. If you exclude ISO and wholesale, our intermodal volume was flat.

Truck brokerage revenue was down 13%, due mostly to lower volume, pricing, and unfavorable mix. There are two main reasons why this revenue is down. Number one, certain customers' business levels are down. And, number two, we lost out on some business to asset-based carriers. Asset-based carriers had excess truck capacity, and in some cases they were willing to settle for prices lower than our costs.

Logistics revenue was 19% higher than last year. This increase in revenue came from several new strategic customers that signed up with Hub in 2008. Our logistics business focuses on delivering savings, which in this economy is a top priority. This service line continues to gain traction. We just landed a new logistics account that will start up in February. We're managing the truckload, [less-than] truckload, and intermodal carriers for this new customer.

Hub's gross margin, as a percent of sales, was 12.5% in the fourth quarter. That's up compared to the second and third quarter of 2008.

Hub's total costs and expenses in the fourth quarter were $30.7 million, compared to $34.8 million in 2007. The major driver of this cost decrease is, not surprisingly, lower bonuses. Like most companies, every year we set an EPS goal that's used to determine the EPS portion of our bonus. Many of our employees, including top management, receive a bonus based on how we do compared to that EPS goal. For most of the year we were on track to receive 100% of our EPS bonus. So that's what we accrued. Then the economic downturn in the fourth quarter really hurt our ability to reach our EPS goal. Because of this, accrued bonuses were reduced, and we ended up with a credit in bonus expense of $1.7 million in the fourth quarter. While we'd all love to receive 100% of our EPS bonus every year, the plan worked exactly like it should and we're only receiving 40% of our EPS bonus in 2008.

We had 1,099 employees, excluding drivers, at the end of December. That's a decrease of 13 people compared to the end of September. Most of that decrease came from truck brokerage. We eliminated 18 people in truck brokerage during the fourth quarter.

As part of our ongoing efforts to control our costs and adjust quickly to market conditions, in the middle of January we told about 100 people that their positions will be eliminated. This means we'll have about $800,000 of severance in the first quarter of 2009. We're consolidating and restructuring our network. We'll be replacing about 30 people in other locations. The changes that we're making will be good for our customers and for Hub. With the new structure, we'll have better communication with our customers, and we'll be more efficient. Dave will give you some more details on the reorganization.

Hub's fourth quarter gross operating margin was 5.4%. We're focused on improving our operating margin over the long term by being more efficient with our intermodal and drayage operations, managing equipment more effectively, providing our sales people with incentives to bring in freight that's beneficial for the network, and critically evaluating all of our costs. We estimate that our total cost and expenses, excluding severance, will be between $34 and $35 million a quarter in 2009, depending on the Company's earnings per share.

Now turning to our balance sheet and how we used our cash. We had $86 million in cash and no debt at the end of December. Our cash is invested in Treasury securities.

Free cash flow for the fourth quarter was $23 million. During the quarter, we spent $4 million on capital expenditures. Most of that was for replacement tractors at Comtrak. For the full year, capital expenditures were about $11 million. We think capital expenditures in 2009 will be around $7 million.

We didn't buy any stock this quarter. There is $73.6 million remaining under our current share buyback authorization. That authorization expires in June of 2009.

Now I'll discuss 2009 full-year earnings guidance. For 2009, based on what we see now, we're comfortable that our diluted earnings per share will be within the current analyst range of between $1.40 and $1.65. The weighted average diluted shares are estimated to be at about 37.7 million for 2009.

To wrap it up, Hub had solid performance in a very weak economy. We're proud that we held our own. We generated over $52 million in free cash flow for the year. And we ended the year with $86 million in cash. Our team believes that we'll be a stronger company in the future because we're continuing to make improvements which will lower our transportation cost and increase the productivity of our people. We're going to do everything we can to maximize our profits in 2009.

And with that, I'll turn it over to Dave.

Great. Thank you, Terri. Despite one of the worst freight economies in my 34 years in transportation, Hub Group earned $0.38 per share during the fourth quarter and generated $23 million of free cash flow. We believe these solid results in a difficult environment validate the strength of our asset-light model.

Our intermodal business held up well despite a sharp decline in the economy. Our intermodal volume declined 2% in the fourth quarter, which is within the range that we have provided in our December guidance. Unfortunately, there was basically no peak in 2008. The normal surge in demand that takes place in the fourth quarter just never materialized. Even Los Angeles had ample capacity. Historically, Los Angeles has a severe shortage of available intermodal equipment during the fourth quarter. Normally, Hub would roll hundreds of loads of per day during this period. Peak simply did not occur in 2008, as imports were down and so was our transcontinental volume. Despite the decline in our volume for the quarter, for the year our intermodal loads were up 2%.

We continue to believe that we are gaining share. Overall, rail intermodal volumes were down 7% in the fourth quarter, according to IANA. This decline is the worst quarter for intermodal volumes since 1990.

Not surprisingly, many of our customer segments were down in the quarter, including chemicals, durable goods, paper products, and retail. We did, however, manage to increase our volume in the consumer products and transportation segments.

Intermodal service remained good during the fourth quarter. Our metrics showed service improvements on each of our rail partners. The bright side of this freight market is that the railroads are continuing to make strides in improving the on-time performance of their trains.

Due to depressed rail volumes, we are seeing some aggressive vendor pricing in the marketplace. We are taking advantage of this pricing and using our asset where it makes sense and the assets of others where that makes sense. As a result to some of the favorable spot pricing, we have about 1,500 of our containers in short-term storage. We will put them back into service when it makes economic sense.

As you know, fuel prices have dropped dramatically recently. While higher fuel prices do favor intermodal due to its fuel efficiency, even with lower fuel prices, intermodal still has a compelling price advantage over trucks in many markets. For example, our local east volume actually increased during the quarter despite fuel's decline. Intermodal has historically been and remains today the most cost-effective method of moving goods over distances of 600 miles or more.

As you would expect, our customers are interested in driving out costs of their supply chain. And we continue to find opportunities where we can convert truck moves to intermodal and save our customers money.

Our drayage business continues to perform well for us and remains an important part of our strategic plan. We added over 50 drivers in the fourth quarter, most of them owner/operators. As of December 31, we had 1,235 drivers.

Comtrak is currently converting the last QS terminal in Los Angeles and will have this process completed this quarter. Although it's taken some time, we're pleased to have all of our drayage operations under Comtrak's leadership and technology. Comtrak continues to be an industry leader, providing excellent service to many long-term customers. Despite a highly competitive marketplace, Comtrak's customer loyalty remains very strong.

As we anticipated in our December announcement, the revenue for our brokerage business declined in the quarter by about 13%. As Terri discussed, we saw significant change in the mix of this business, which resulted in lower average revenue per load. There was plenty of truck capacity available, and demand remained weak during the quarter. This excess capacity continues to result in downward pressure on prices. We expect the brokerage business to continue to face strong headwinds if the economy continues to slide. But rest assured that we will size this business unit to its volume levels.

Our Unyson Logistics business had an impressive quarter, with revenue up 19%. We continue to see strong interest in our logistics offering, as this group has been able to demonstrate real savings for its customers. Through order consolidation and load planning, Unyson is able to use technology to consistently reduce costs. As a result, Unyson continues to have a good pipeline of new accounts.

Anticipating the challenging environment in 2009, we accelerated strategic decisions to consolidate our network operations and realign our organizational structure. Making these changes now allows us to continue to aggressively compete in any economy. We've consolidated our operating network to increase our efficiency and to take advantage of our economies of scale. By operating from fewer locations we will be able to better standardize our operating procedures and eliminate redundancies.

We've created a combined intermodal customer service and operations function across all locations. By combining customer service and operations, we will operate more efficiently as a business by eliminating redundant work processes.

Finally, we have eliminated a number of positions across the business, including at corporate, as we continue to focus on controlling our costs in this difficult environment. Our asset light business model allows us to adapt quickly to changing market conditions. And that's exactly what we're doing. We're confident that these swift actions now position Hub to thrive when the economy does rebound.

In conclusion, 2008 was another successful year for Hub Group. To mention just a few accomplishments in '08, we grew our intermodal volume by 2%. We reduced our costs and expenses as a percentage of revenue by 100 basis points, while generating $52 million in free cash flow and we finished the year with $86 million in cash. And, most importantly, Hub's 2008 earnings per share increased by 3% over 2007's record earnings in an extremely challenging economic environment.

Looking forward, none of us expects that 2009 is going to be an easy year to grow earnings. However, we are well positioned to weather this current economic storm, as we have no debt and positive earnings. We also have excellent vendor and customer relationships. And our asset light model can quickly adjust to changing market conditions.

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

Thank you. We would appreciate it if you limit your questions to no more than two questions each. Please press star, one to begin. If you wish to remove yourself from the queue, simply press star, two. Please stand by for your first question.

And our first question comes from the line of Alex Brand with Stephens Incorporated. You may proceed.

Thanks. Good evening, everybody.

Hey, Alex.

I didn't want to say guys, Terri. Dave, I hear a lot of confidence about the model, but I didn't hear any kind of outlook about volume probably getting weaker. I guess you would agree with that. Tell me if you don't. And how much flexibility is there to adjust to volumes that maybe get weaker from here relative to--? It looks like you did a great job taking costs out already. How much more can you do?

I think to a large extent it is a variable cost model, Alex. And, so, therefore, we can still continue to take out costs. As far as the volume outlook, we really weren't going to comment on what we're forecasting -- what we see in '09 because it is still pretty murky. I think we'd all agree with that. For the first 28 days, intermodal volume was down about 2.8%, which is kind of in line with what we saw in November and December. It is going-- There's no question that it's going to be a tough environment. But we do think-- We've already taken out, net, 70 people. So within intermodal we feel as though we've got some efficiencies. We're also working very hard on our operating decision process, equipment selection, dray efficiencies. And, so, we think that there's still a lot of areas, other than just headcount, where, in fact, we can expand margin.

Okay. Can you help or maybe give some examples of-- If you've parked your boxes, that obviously means you can buy those boxes or rent them a lot cheaper out in the marketplace. How much opportunity is there to flex your cost? I'm trying to get at how confident you are and maybe why you're so confident that $1.40 would be sort of your worst-case scenario for the year. So I'm looking for a little bit more help understanding how you plan to manage the model so that as pricing maybe weakens from your customer, you're able to take advantage of the market and maybe more than offset that, I guess you're hoping.

That's what we're focusing on doing. And, again, I think that is the beauty of our model. It's not just asset light; we are willing to park our boxes and use other suppliers if it in fact makes economic sense. And at this point that's why we have 1,500 that are currently parked. It's just we can buy it better and pay for the boxes and still show an economic benefit for ourselves and also our customers. So we can flex it up very quickly. We did not really start to store boxes until the last part of December. And, so, we've been able to put 1,500 in storage. If we have to go higher, we'll go higher.

Okay. Was the limit on questions two?

You can have one more, Alex.

Okay. I guess I wanted to just get a little commentary on how much growth did you get in east coast. And then maybe Terri could run through the different verticals - how much growth was in each of those verticals in the quarter.

Yes. Our local east growth was 5% in the quarter, Alex. And then as far as the different segments go, retail was down 10%. That was influenced a lot by Linens 'n Things obviously. Durables were down 14%. That had some housing goods in there. That's why that's down. And chemicals, our smallest segment, was down 12.5%. And paper was down 10%. Consumer products, on the other hand, was up 9%. And transportation was up 3%.

Okay. Thanks. I'll get back in queue.

Thanks, Alex.

Our next question comes from the line of Ed Wolfe with Wolfe Research. You may proceed.

Thanks. Hey, good afternoon, guys.

Hey, Ed.

The 100 people that you talked about in the reorganization, how many are eliminated and how many are being moved? And can you give a sense of what types of jobs and the value - the cost - that you're going to save for severance and benefits?

Sure. Actually, you're right. We eliminated 100 positions. We're adding 30 people. So it's a net reduction of 70 people. The savings associated with those 70 net people is about $5 million annually. And some of the nature of the individuals that we no longer have or are transitioning out would be at locations where we've decided to consolidate. So it would be operational customer service people, as well as some people at corporate and sales people. It's really across the board.

So are you getting rid of some branches?

Some what?

Some branches or terminals?

What we did-- As an example, we closed down our logistics functions that was in Boston. And now everything is centrally managed for logistics out of St. Louis, Missouri. We also, within intermodal for operations and customer service shut down our San Francisco office. These functions are going to be done in Los Angeles, both intermodal operations and customer service.

Tennessee customer service and then our New York/New Jersey customer service closed too. Customer service came out of both of these offices.

And the office closes, are they included in the $5 million or is that in addition to the people?

Those people are included in the $5 million.

The offices we still have leases on. And we still have highway operations that exist in each of those locations. So while it may need a smaller office-- When the leases are up, we'll do that. But there is nothing reflecting that.

And that $5 million is an annual number just to clarify that because some of them are transitioning out now so we won't have that savings, obviously, for the whole year. Also, Ed, I think you asked about severance. That's going to be about $800,000 in the first quarter.

That's all in the first quarter?

Yes.

Okay. And then the share count at $37.7 million fully diluted that you gave for the year-- That seems to assume no share repurchases. Are you planning because of the economy and the credit world not to buy back stock? Or do you plan to buy back all $73.6 million before June or somewhere in between? What's the thought process?

Ed, at this point in time, we really-- I know we've talked a lot about-- We think that's the best use of our funds is for acquisitions. Particularly in this environment we believe it is. We have just hired a former Hub executive on the west coast who had left the Company for a short time and has come back. And his sole responsibility is to search out acquisition candidates. We're having a lot of success in as much as-- people that a year ago may have more or less give us the Heisman towards a potential acquisition are now much more receptive. And, so, we very strongly believe that that will be the best use of our funds. And, so, the stock repurchase, while we will talk to our board about it at our upcoming February board meeting-- I believe that that will take a back burner.

And you are correct. We do not have any of that in our $37.7 million. It assumes we do not buy any shares.

Thanks, Terri. Thanks, David, for the script of Heisman-- I'll get back online. Thank you.

Thanks, Ed.

(Operator Instructions). Our next question comes from the line of Todd Fowler with KeyBanc Capital Markets. You may proceed.

Hey good afternoon, everybody.

Hi, Todd.

Dave or Terri, I guess maybe you can help me. Thinking about the operating expense guidance on a quarterly basis of $34 million to $35 million, it sounds like, obviously, you're going to be taking out a lot of costs. But I guess if I were to annualize that cost, it would be either flat or maybe even up a little bit, excluding the bonus reversal here in the quarter. What other costs would be coming in outside of--? what other costs you'll be thinking about on a quarterly basis that's in that guidance?

The other costs that we would think about are-- We did give some salary increases to our non-executive personnel. So our cost and expenses go up for that. We could potentially have higher bonuses, depending on how we perform relative to our EPS goal this year. We also will be adding some new people for new business - for example, for logistics. And we did recently just add a new person in our enterprise sales group. So we're adding where it makes sense to strengthen our position.

Any sort of ideas of magnitude of what the difference in the bonus would be year over year - how much incremental bonus you're planning on right now in that $34 million to $35 million on a quarterly basis?

We wouldn't, probably, want to get that granular I don't think. But we're assuming they're up from where they were in 2008.

Okay. And then I guess-- On the intermodal side, thinking about-- It sounds like spot pricing is pretty loose. What are you seeing-- Dave or maybe Mark, if you're hanging out in the background, what are you seeing as far as the rate environment overall? I would think that it's pretty competitive at this point. Is it getting more aggressive right now? Are things pretty stable? How would you think about the rate environment right now?

Todd, this is Mark. I think we saw, in the fourth quarter, a 1% further deterioration in the pricing environment. It's a little too early for us to tell just exactly how 2009 is going to turn out from a pricing perspective. We've certainly seen some aggressive numbers out there in the marketplace. It's fairly early in the bid season. And I think we'll have a lot more color on that probably at the end of this quarter. But I think we're certainly anticipating that things are going to be highly competitive out there. There is abundant capacity and some parties that appear to be very aggressive in their pricing philosophy. So we're anticipating that it's going to be challenging.

The 1% here in the quarter-- Is that base pricing that's down 1%? Or is that all in, so that includes fuel and mix and everything else?

That would be base pricing. And that's adjusted for mix. So, in other words, that would not take into account fuel. That, we think, is a clean view of what the market did.

Which is consistent, really, with where we were in second quarter and third quarter.

Yeah. That's right.

Pricing was down between 1% and 2% in the 3rd quarter.

So we didn't see a significant deterioration in pricing in the fourth quarter. But, like I said, things will get somewhat reset as we go through this upcoming bid season.

And with the softer spot pricing right now, do you think you're able to keep your margins? Or do your margins actually expand a little bit? Is spot pricing dropping faster than what the down 1% is? Do margins go up or go down in this environment?

We certainly work very hard to play the market. But I think trying to actually expand margins in this type of an environment would be a difficult task.

Okay. That's helpful. I'll jump back in the queue.

Next we have a follow-up from the line of Ed Wolfe. You may proceed.

Thanks. When I look at the intermodal and I think about minus 2% volume and minus 1% pricing, that minus 1% pricing has some fuel impact to it, right? Where are you on pricing net of fuel?

The 1% is pricing net of fuel.

If you look at intermodal revenues in the fourth quarter, we were down about half a percentage point related to fuel.

Can you take us through the progression of [tonnage] in the quarter - what that minus 2% looked like by month?

Well, I think as you may recall-- When we had our conference call in October, things were moving along quite well. And then they kind of fell off of the table, in all candor. And it's difficult because December had two more days, November had two fewer business days. But adjusted for that, they probably were about the same as far as orders of magnitude. When we had our conference call, things were actually looking very good and very favorable.

Yes. October was actually up. So it really didn't start going down until November and December.

Right.

So is it fair to say December is down about 5%?

It's a little difficult to tell because of the fact that there's two more business days in December.

And we had the holidays.

And you have to look at how the holidays fall and things like that. It wouldn't be far off. I think we commented on the first four weeks of January. It looks closer to 3% decline.

Okay. So, on a same-day basis though, January is feeling a little better than December - a little less worse if that's a word?

Yes. I think that's a fair comment.

The SG&A up 170 basis points year over year-- Is there anything you can do with that with volumes this weak?

The SG&A? Well, we did eliminate the 100 positions.

But that's under salaries and benefits.

That's what I thought you were talking about. Are you talking about gross profit margin in total?

Selling, general, and administrative. I'm sorry. The second expense line item that you break out other than salaries and--

The general and administrative you're looking at for the quarter, Ed?

Yes. For the quarter it's 18.3% of revenue, up from 16.6% a year ago.

Yes. Our general and administrative expenses for the three months ended December 31, '07 were $10 million and for the three months ended December 31, '08 were $9.8 million - so pretty close. So there's not a whole lot to do there in terms of reducing them.

I'm just saying in terms of variableness of how you've been able to bring down the salaries so quickly as a percentage of revenue with revenue that's going to be declining for a while in this environment. Is there any way to take absolute cost down or should it stay at about $10 million a quarter on an absolute basis and [rise] as a percentage of revenue if revenue shrinks?

The most variable costs we have are the salaries and benefits. The G&A would include things like rent which are more fixed unless we would completely shut down a location.

Are you getting to those thoughts of those 20 or whatever they are hubs - of reducing some of those?

Well, certainly that's what we did do with this latest reduction in force because it does bring forth some economies. And by consolidating the customer service and operations groups and eliminating a lot of redundant functions, that's how we were able to reduce that. We still do feel as though, in particular with our highway brokerage, that having multiple locations in geographies is very important to be close to the customer. An awful lot of the time, particularly in truck brokerage, you have a lot of smaller customers. And the relationships are quite important. So we're very cognizant of that. While we do want to focus on costs and cost reductions and we'll take the measures when they're appropriate, we do think at the same point in time, that making sure that we service our customers well is the most important thing we do.

Okay. One last thing-- The 1,500 containers that you said you put in the closet, what's the economics looks like to store a container? Are you still paying a lease on them? How do we think about those costs?

We are still paying the lease on those. And then we pay a little bit of storage costs.

It's very little, like $0.30 a day or something. It's very low.

Minimal.

Yes. It's very minimal. But we do the analysis-- A lot of this is spot pricing that we're seeing in the market. We don't think it's going to be around longer term. But at the same point in time, the economics are just very compelling to be able to store our boxes and use these. It just makes a lot of sense for us right now.

And the main economic benefit there obviously is you eliminate the chassis cost because when they're stored, obviously, they're not on wheels. They're parked.

You don't own the chassis anyway, right?

Right. But we pay per day for them.

That's right. If they're out in circulation, they're on wheels. And, so, you're paying a per-day chassis charge. And when you store them, obviously you take them off the wheels and return he chassis back to the rail.

I got you. Thanks that's helpful. I appreciate it.

(Operator Instructions). We have a follow-up from the line of John Barnes. You may proceed.

Hey, guys. I'm not sure it's a follow-up. I don't think I ever got there the first time.

This is not a follow-up.

Hey, real quick-- Rail service-- As the rail have reported earnings, they've all talked about reducing the number of train starts. Can you talk about any implications for you in your intermodal service versus how competitive the truck market is right now? We've clearly seen truckers bidding for intermodal loads. Could you just talk about how those are kind of balancing out and the competitive environment against truck?

Well, actually, in the fourth quarter from an on-time performance perspective, every railroad increased their on-time performance, most of them by double digits. So the on-time performance has improved dramatically. And the way that we do measure it is from the time we in gate it to the time it goes out. So if in fact they did not run a train, that would be reflected within our numbers. So, if anything, we're seeing better service now than we've seen in probably a decade. From a pricing perspective-- Mark, I don't know if you want to comment on that a little bit further.

In terms of--?

We have been watching closely to see if in fact we've seen any conversion from intermodal to highway. And, actually, it's still the reverse. We're still seeing customers switch from our truck brokerage or from over the road into intermodal because, again, the economics are more compelling.

Right. And that's why our local east traffic is up. And our length of haul, actually, in intermodal went down as well. It used to be around 1,750 miles. And now it's equal to 1,700 miles. And that's influenced by more conversion freight.

There is a couple lanes where I think we'll see a little more truck competition. Chicago/Atlanta always seems to heat up when you run into a freight recession. But like Terri had said, within local east that looks very strong. The economics are still very compelling. So we have not seen conversion from intermodal to truck at this point.

Okay. How quickly can-- I guess I'm trying to understand-- You've got these boxes that you're using from other parties, I guess, out of a pool. Do you have some kind of commitment to them? And if so, how long is the commitment? If you decided to bring your equipment back in, how quickly can you transition the pool boxes out and your boxes back in?

Yeah, John, this is Mark. Those are leased on a trip basis. So we would use those in a single direction. And the commitment is really to use it just for that particular load. So at destination, in general, we then have the option to reload the equipment or to terminate it back at the railhead. So there really is not a long-term commitment with the various rail pools.

Okay. And how long would it take you to put your boxes back in?

That's a fairly easy operation. It would require us to go to the rail terminal, secure a chassis, and get to the storage facility. It's a matter of hours. To do it on a wide scale basis - to get all 1,500 back into circulation - would probably take certainly less than two weeks and probably around a week.

Very good. All right, guys. Nice quarter. Thanks for your time.

Thank you, John.

Next we have a follow-up from the line of Todd Fowler. You may proceed.

This really is a follow-up I guess. Dave, on the truck brokerage side, I guess, can you talk a little bit about-- Obviously, there's some headwinds from the macro environment. If I understand correctly, there's also some headwinds-- There's also some-- I'm not sure what the right term to say is-- but maybe some structural issues with how you source your capacity versus what the asset-based carriers are doing on the pricing side. How do you think about some of those trade offs as far as growing that business, going after freight, and addressing some of those issues? --I guess some of the things that you have internally with that business considering the environment right now.

Yes. Todd, I'll take that one. That's certainly a good question. It's a challenging environment. I think one thing that we've always relied on strongly as we set our pricing is historical trends. And in this type of pricing environment history isn't nearly as relevant as it is in a more stable pricing environment. So I think we've seen some instances with our highway product where we did not take into account just how dynamic the pricing environment was. And we were not competitive. I think we're adapting quickly to that model. But it certainly is a challenging environment for a broker to be in. Asset carriers have shown a willingness to accept types of freight and levels of freight that they would not normally be interested in. So it's a learning process for us, no question about it. But we have improved how we're purchasing. And we've also improved our ability to anticipate market trends, I think, over the course of the last quarter. So we think we'll compete well. But it's not an ideal marketplace for a highway broker.

And, I guess, Mark, just a follow-up for that and along those lines-- How critical is some of that freight to the overall Hub Group network and the intermodal-- the utilization of the containers and some of those things. Is it that you're just not going to go after and compete if a trucker really wants that freight and they're going to price aggressively - you can just go ahead and let it go? Or is it something that you really need some of that volume to help support kind of some of the other business lines.

The highway freight is somewhat different in that it doesn't tend to be nearly as interdependent as the intermodal freight. We aren't seeing or losing a lot of intermodal freight to highway competitors who are coming in, even asset-based competitors who are coming in and taking business. That would certainly be something we'd be very aware of. The highway business tends to be one-directional freight. We are building load/load scenarios in the direction we're trying to head from an intermodal perspective. So it's a different type of environment. And the ripple effects of losing business within highway aren't as negative for the network as it might be in an intermodal scenario.

Okay. Thanks for that. One other one here-- In the prepared remarks-- I don't know if it was Terri or David-- you spoke about some different incentives for salespeople going forward. Can you talk a little bit about what those incentives are? Is that more of a profitability based incentive? Is it a volume-based incentive? Is it anything that's that material even or thinking about things differently? Or is it just different incentives?

There are different incentives for the salespeople within the sales group. Enterprise has a little different incentive program than the other salespeople. But what I said in my prepared remarks is we were going to provide incentives to our salespeople for freight that is beneficial to the network. And what we're doing there is kind of what you talked about earlier for truck brokerage. We have freight that we know is beneficial for the network and freight that's really not. And so what we're doing is we're tweaking the commission program a little to reward the salespeople for bringing in freight that's valuable to the network.

So it sounds like still the main focus really is on profitability over just having the volume and the loads and the revenue?

Yes. Rather than the traditional concept of profitability, though, it looks more at network contribution - so the value of the load to the entire network as opposed to the value of the single load from profit and loss perspective.

Okay. That's all I got for tonight. Thanks a lot.

Our next question comes from the line of Alex Brand with Stephens Incorporated. You may proceed.

Hey. A couple things-- I just want to make sure I understand where-- If you're getting such an incredible discount on boxes in the market, are we talking about the class ones having boxes that you can rent on a short-term basis? Is that primarily where you're sourcing that capacity?

No. We're talking about those that may have legacy agreements with some of the class ones.

And then it looked like the accounts receivable collections-- that the turns was really up. And that was very positive for cash flow. I know there's some seasonality to that. But is there any internal, Terri-driven effort that's making that better and maybe it's going to stay a little bit better?

It's a team effort really. And it did get a little better, you're right. But we were keeping a close eye on it, especially with the credit markets the way they are.

But it has continued very strong. You guys have done a great job on it.

We're hoping to keep it where it's at, especially with where the economy is. That's our goal.

Okay. It sounds like you feel pretty comfortable with it. All right. I appreciate the extra time.

Thanks, Alex.

It appears there are no additional questions at this time. I will now turn the call over for closing remarks.

Well, great. Well, thank you again for joining us for our fourth quarter conference call. As always, if there are any follow-up questions, et cetera, please do contact Terri, Mark, or I. Thank you again for joining us.

Thank you for your participation in today's presentation. You may now disconnect. Good day.