Hub Group Inc (HUBG) 2010 Q1 法說會逐字稿

Good afternoon and welcome to the Hub Group first-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.

At this time, all participants are in listen-only mode.

Comments made by Dave, Mark or Terri 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 Shameaka, and thank you all for joining us this afternoon. I want to begin by covering three things.

First, we are delighted we had volume growth of 16% in Intermodal and 23% in Truck Brokerage. Second, as the quarter progressed, our financial results got stronger. And third, we generated $17.5 million of free cash flow during the quarter that we will use to buy containers.

Here are the key numbers. For the first quarter, Hub's diluted earnings per share increased 35% to $0.23 from $0.17 in the first quarter of 2009. Hub's first-quarter operating margin was 3.4%. That is compared to 3% last year. Hub's operating income was up $3.6 million or 33%. At the end of March, we had $142 million in cash and no debt.

Now I will discuss details for the quarter, starting with revenue. Intermodal revenue increased 17%. This change includes a 16% volume increase, a 6% increase for fuel, a 3% price decrease, and a 2% decrease for mix. We are excited about the significant growth and think we are on track to capitalize on the improving economy.

Customer direct 53-foot business, which is the biggest piece of our Intermodal business, is up 20%. Contributing to that growth was a 49% increase in loads with retail customers and a 26% increase in loads with durable goods customers. Volume growth improved each month of the quarter.

Intermodal pricing is down 3% for the quarter. Rail cost increases will be hitting the market in the second quarter and we plan to pass those costs on to our customers. Pricing is a huge lever on our earnings per share.

Truck brokerage revenue increased 23% due to a 23% increase in loads and a 7% increase for fuel, offset by a 7% decrease for price and mix. Mix changed because our length of haul went down by 30 miles or 4%. Much of that load growth came from retail customers.

Truck brokerage gross margin as a percentage of sales was up 90 basis points compared to last quarter, but down 350 basis points compared to last year's unusually high margins. Gross margin is getting squeezed since capacity is tightening. We are working on increasing customer prices and enhancing yield.

Logistics continued to perform well. Revenue was 23% higher than last year, due to new customers we added in 2009, and an increase in business with existing accounts. This group is off to a great start in 2010 and we are optimistic about the future. We were recently awarded $20 million of business from a specialty retailer. Unyson's strong reputation for excellent network management and producing savings has been a key factor in attracting new customers.

Gross margin as a percentage of sales was 11.7%, which is higher than the 11.4% that we saw in the fourth quarter of 2009 but lower than the 12.8% last year. Our goal is to get to the low 12% range in the second half of this year. How do we do that? In two ways. First, by increasing prices and, second, by continuing to reduce our costs. We have a comprehensive plan for increasing prices. We are also laser-focused on reducing drayage, equipment and accessorial costs. Improving the profitability of our low-margin customer accounts is a project we chip away at routinely.

Total gross margin increased by $3.6 million. This is the first time we have seen a year-over-year increase in gross margin dollars since the third quarter of 2008. This margin increase came from Intermodal and Logistics. Growing with existing customers, bringing on new accounts, consolidating our fleet operations in the West, doing more of our own drayage, and concentrating on matching up inbound and outbound loads all contributed to our success.

Total costs and expenses were $34.6 million in the first quarter of 2010. That is compared to $34.5 million in the first quarter of 2009. We had higher bonuses, which were offset by lower severance and depreciation. Severance last year was $900,000. Bonus expense is $1.3 million higher than the first quarter of 2009.

We had 1,037 employees, excluding drivers, at the end of March. That is up nine people from year end. Even though we had 16% Intermodal growth and 23% truck brokerage growth, we only increased headcount by nine people. That is because we are more efficient and, at the same time, we are executing better. For example, we received outstanding performance awards from several prominent customers this quarter. If the volume growth continues, we will add some new positions to make sure we provide the great service that our customers expect.

We think that our quarterly costs and expenses will be in the range of between $34.5 million and $35.5 million for the rest of 2010. These costs include about $5 million in annual bonus that relates to achieving our earnings per share target.

The effective income tax rate for the quarter was 39.2%. The rate for the rest of the year will be about the same.

Now I will discuss 2010 full-year earnings guidance. For 2010, we are comfortable that our diluted earnings per share will be within the current analyst range of between $1.03 and $1.13. Weighted average diluted shares for 2010 are estimated to be $37.8 million. This estimate does not include any share repurchases.

Turning now to the balance sheet and how we used our cash. As I said earlier, we ended the quarter with $142 million in cash and no debt. During the quarter, we spent about $650,000 on capital expenditures.

We just announced that we will be buying 2,000 containers for $19.2 million that will be delivered starting in May. We decided to pay cash for the containers rather than leasing them. This is a good use of our cash and it makes us more competitive.

Another use of our cash could be buying property to support our drayage and equipment operations. But we will always stay asset-light.

Back in February, the Board authorized the purchase of up to $30 million of stock. At that time, we put a plan in place to buy stock. During the quarter, we spent about $1.5 million to buy 53,800 shares. We intend to more aggressively purchase stock over the next few months.

We also hope to use our cash for an acquisition. We are continuing to look for an acquisition that is consistent with our strategic plan.

To wrap it up for the financial section, we believe we can continue to grow our volume and operating income while we focus on enhancing margins. And now you will hear from our CEO, Dave Yeager.

Great. Thank you, Terri.

Our Intermodal volume grew nicely in the first quarter with 16% growth. This is the fastest growth that we have seen in many years. We saw Intermodal volumes begin their upward surge during the fourth quarter of 2009 and built on that during the first quarter, with demand increasing sequentially each month. One of the reasons for this growth is that we are doing a better job of selling to the advantages of our network.

For example, we have a competitive advantage from the southeast to California and we grew this lane by 92% in the first quarter. In addition, because of a concentrated effort to help convert business from truck to Intermodal, Local East business was up 19% year over year. We can also attribute some of the growth to new business wins. And, of course, a major factor is the improving economy.

The intermodal market remains highly competitive and as a result we continue to see pressure on our margins. To help offset these margin pressures, we plan to further concentrate our fleet on the Union Pacific over the next six months, as we believe we will be able to drive more efficiencies by operating one fleet in the West. We have seen better drayage efficiencies since we've moved the bulk of our business onto the Union Pacific. We expect continued efficiency improvement as we transition to one Western network.

While we plan to grow our volumes this year, we are also very cognizant of margin. We will continue to strike a careful balance between the two. Striking this balance can be more of art than science but we do think we did a good job in the first quarter as we grew our volume by double digits and increased our gross margin by $3.6 million.

As we all know, the economic recession hit hard and fast in the fall of 2008. After a very tough 2009, it appears the economy may finally be coming back as demand was surprisingly strong in the first quarter, especially in March.

Demand is strong enough that the Union Pacific and Norfolk Southern have announced price increases, scheduled to take effect in May and June. We fully support these proposed increases as prices dropped significantly last year.

We are finalizing our plans to pass through these cost increases to our customers. We believe the market will support these increases and do not expect any margin erosion as a result of the increases.

Our prices dropped around 3% the first nine months of last year and 5% in the fourth quarter. While we do not expect to get all of this lost pricing back in 2010, we will work diligently to recoup a large portion of this as current prices are not acceptable over the long term.

We are in the midst of bid season and, once again, a large amount of the business is on the auction block. While we are seeing fewer bids than last year, the total amount of business contained in these bids is actually greater than the volume available last year. Pricing for bids conducted late last year and the early part of this year was once again quite aggressive. However, now that demand is firming up, we are seeing less aggressive pricing by our competitors. We will once again look to protect our share and target business growth that is a benefit to our network.

Although there were a few service issues caused by the winter storms, in general, intermodal service was very good during the quarter. The railroads appear ready to handle the additional volume that we anticipate this year.

Our fleet utilization in the first quarter was excellent. We averaged 13.6 days per load, which is the best utilization that we have had in the 12 years that we have operated a fleet.

With the increase in demand, capacity did tighten in much of the first quarter. With the shortage of equipment and capacity in mind, we recently finalized our fleet plans. Due to our projected 2010 volume growth, we have placed an order for 2,500 containers to be added to our fleet. We expect to be receiving these boxes in late May and will have received all of the 2,500 by late August.

Comtrak also had a solid first quarter. Comtrak added 45 drivers and performed 38% of Hub's drayage in the first quarter, which is up from 32% in the first quarter of last year.

Now safety is always job one with the trucking company. But we are also very focused on growth as well as operational efficiencies, including the reduction of empty driver miles.

Mike Bruns, the founder of Comtrak, retired just last week. He was a great leader and he is going to be missed by all of us at Hub Group. I am pleased to announce that Jim Ronchetto has been selected as the new President of Comtrak.

Jim has been with our organization since 1995 and founded our original drayage subsidiary, Quality Services. Jim has worked under Mike for the last four years and has a great understanding of both Comtrak and Hub. And we look for Comtrak to continue to grow and prosper under his leadership.

Our brokerage business also grew significantly in the first quarter with volume up 23%. We are now seeing a return to more normal demand and tighter truck capacity. Our efforts to improve efficiency continue to pay dividends, as productivity was up 24% in the first quarter.

The volume growth was added by the success of cross-selling efforts. More than 70% of our top 50 customers now use Hub for both Intermodal and highway. While this is an improvement, there is obviously still a lot of room for us to gain additional share with both our large and our small customers.

Unyson Logistics had a strong quarter, with revenue up 23% due to new logistics engagements. Unyson has been consistently saving its customers money through this downturn, and we expect to see continued growth from Unyson for the rest of 2010. Unyson continues to see a strong sales pipeline that should facilitate the growth through the end of this year.

In conclusion, thanks to some new business wins and reviving economy, we started 2010 with a solid first quarter. All three business lines showed good growth. We believe that our shift to one Western rail network will allow us to garner additional efficiencies and foster further growth. We look forward to taking this positive momentum into the quarters ahead.

And at this time, we would like to open up the line to any questions you may have.

(Operator Instructions). Ed Wolfe of Wolfe Research.

Good afternoon or evening, I guess. Can you talk a little more about the timing of the rail increases that you noted at U-P and Norfolk? When do they start coming to you? And do they ramp up throughout the year, next year or how many years is this as a contract? How do we think of the escalator?

The increases that we are talking about are the N-S increase, which is effective May 1 and the Union Pacific increase, which is effective June 1. There is also the possibility that we will see a surcharge. That has not yet been determined and will be dependent, based on what the peak season looks like at that time.

Any sense of the magnitude of what those are going to look like, those increases?

You mean the --? Oh, well the Norfolk Southern increase is a 5% increase and we think the Union Pacific increase, it's directional so it varies by lane. And it's somewhere between $30 and $100 per load.

On a base of what?

That's on a -- that's on each load that is impacted by the increase itself.

Right, but what's the base load number for you right now when we think of $30 or $100?

We don't disclose intermodal volume and certainly wouldn't want to do so by rail.

Okay but, directionally, is the rate similar to what you are going to be paying at Norfolk or is it a little different?

In the aggregate it is like a 4%, is it not? If you just put it all together. Or is that off?

On the freight that's affected, yes. That's right. On the freight that is affected, it is about a 4%.

Okay. I wasn't sure. I don't recall if it was Terri or Dave, but one of you mentioned that there is great pricing leverage as rates go up. Is the assumption that rates go up at least what you are paying the railroads in that case to get that leverage? What do you think the timing is, till you can recover the 4 or 5% from the rails as you go out?

I think what we said on the first quarter was we didn't anticipate getting any traction until the second half of the year. But we are confident that we are going to be able to offset the price increases by going out to the marketplace. That has been our experience historically. If you look at 2004 and 2005, we were very successful in offsetting increases by going out to the marketplace and recouping that from our customer base. And we are confident that we are going to be able to do that in this case as well.

Mark, in '04 and '05, was it one or two quarters? Was it four or five? What is the recollection there?

It was an elongated series of increases that we dealt with. I think there were 176 rate actions or something along those lines. (multiple speakers) so this is actually a much more simplified world. Albeit customers certainly didn't anticipate that rates were going up, but we do believe that the supply demand conditions make an increase at this point in time appropriate.

Okay. And switching gears, why buy containers as you move more to Union Pacific and away from Burlington, where you don't need the containers? What's the thought process on that?

I don't think that it's -- necessarily has anything to do with the transition from Burlington to Union Pacific. It is more so as we look at the -- we do need more containers in the fleet to for -- because of the demand that we have from our customers right now. And it is just a simple net present value calculation of leasing them under operating leases as we have done in the past, or using some of the cash to acquire them.

Yes. It was financially more compelling to buy them with our cash since we've got so much cash. And then we figure we still have plenty to do an acquisition or to buy back shares.

Going forward, should we expect that you are going to continue to make that decision so as long as interest rates are low, you are going to buy more and more containers? Or how do we think about that going forward?

I think that we will look to buy more containers, depending upon where the economy stands and where we see our business going from a growth perspective. But then, every time that we actually make an acquisition of containers, I think we will look to see what, in fact, at the time whether it makes economic sense for us to pay cash for them or to, in fact, go into operating leases.

Is there some number or percentage in your mind where you say we don't want to have more assets than this percent or we want to keep it at some level, as you think about this?

The amount of assets we have now is so light I don't think that we are quite at that point. But certainly we will continue to monitor that as we go on.

Yes. We have about $27 million of fixed assets right now and so this does bring that number up with adding $19.2 million. But it's just so much better economically, we figured it was the right decision.

Thank you for the time. I will let others have at it.

Alex Brand of Stephens.

Good afternoon. I want to zero in a little bit on Ed's timing question. I want to focus more on -- you said you plan to raise prices and it doesn't sound like you are that worried about any squeeze, any time where you are going to take a rate without getting a rate too.

But have you already put this into effect? In other words, can you point to well, we already signed a contract or, two, where rates are up and that's part of the reason we are confident that going forward we will be able to get some rate?

We actually don't have that. We are still in the process -- the plan is about finalized as far as presenting this to our clients. We will begin rolling that out over the next few weeks, but so we don't have that, we don't have a signed agreement of higher rate levels, but it, candidly, Alex, yes, with the -- to Mark's earlier point, with the current supply demand conditions, we feel as though it is appropriate.

I mean, we -- our prices did drop significantly last year and to unsustainable levels. And so, this is -- we very much intend to support and back the Union Pacific and Norfolk Southern rate increases as a result. And we believe our customers understand that the rates that did come down to a level that is not sustainable longer-term.

And certainly as we are doing the bids right now that are in process that Dave talked about. We are building those prices to cover the cost increases.

And I guess in what I would think of as kind of a reversion to your prior up cycle behavior, are you back to a point where you don't want to be as aggressive? And if you can't get that price, you are willing to start walking away from business again?

It's so nice to grow, we think we kind of enjoy that, certainly. It's as I said in my prepared text, it is a lot of art. Probably more art than science and, well, we are going to walk that fine line but we do believe that even walking that fine line and continuing to grow that we can, in fact, get prices up.

As this is not just a Hub phenomenon, this is going to be an intermodal market phenomena. Every -- nobody can sustain the prices that we have for the past year.

All right and just one more pricing question. You said your competitors are being less aggressive. And I'm wondering if that goes for small and your largest competitors?

And really what I'm trying to get out of there as since we have seen the end of the U-P wholesale agreement, are you starting to see the bottom end of that market come up in price? And is that part of the reason you would think you could get price and market share going forward?

There's a lot of competitors in this market place. So it's certainly that's a factor, but I think all of the competitors right now see their equipment and their fleets at capacity. And we aren't going to be adding business if, in fact, we can't get a better price and a reasonable margin.

And I think our other competitors have probably come to the same conclusion. And so I think that that is why you are going to see a continued pressure for rates to go up in intermodal this year.

On -- you said you're going to try to get price and reduce your own costs on dray and equipment and accessorials. What, I mean, Comtrak's 38% of your drayage. Can you grow that and get it to some number? I don't know if you know what percentage you think is the right number. And I would assume that has a direct positive benefit to your gross margin, that you could pass along some of that to your customers.

Sure, Alex. Absolutely. No, you are right on all points there. Right now we are at 38%. I think what we have said is we want to see that number up to a 50% run rate by year end. We have a driver addition plan in place and through the first quarter. We were right on target. We added -- what's the exact number, Terri?

45 drivers in the quarter.

45 drivers in the quarter. So we were successful in that regard and we are going to continue to do that throughout the course of the year.

By the end of 2011 we would like to be up to 60%. And the optimal number is probably somewhere in the 75 to 80% range, depending on how good we are at improving our business mix. So we still have a long way to go, but it certainly carries with it some significant efficiency benefits as we continue to grow that percentage.

And I would suggest to you, Alex, that we -- at the same point in time, our model is a bit different in as much as about half of Comtrak's business is outside of Hub. And that is business that we intend to continue to grow as well.

So we have got kind of dual fronts that we do need to grow the driver based very aggressively so that we continue to manage and supply capacity to our direct customers, as well as other IMCs, in addition to handling more Hub business.

Great. I appreciate the time.

Jon Langenfeld of Robert W. Baird.

Good afternoon. Can you talk about the CapEx and where that falls out here for the year? And is that primarily second and third quarter, I would assume, based on your comments?

Yes. We think it will be around $37 million for the whole year since it was only $650,000 for the first quarter. It comes in in midyear because our -- all of the $19.2 million worth of containers should be here by the end of August. And that's the biggest chunk in the second and third quarters.

So if I kind of net that out, we are talking an extra -- leaving out the containers -- there's an extra $6 million or $7 million in there versus your previous CapEx. Is that the land you were referring to?

No. The land is not in that number. It's tractors and computer additions, [of] the other $7 million.

How much of that tractor is versus IT spending?

About $6.5 million.

So, all Comtrak related?

Yes.

Then what should we think about -- forget about the containers for a minute, you've kind of given the color on those -- but if we leave that out, what should your CapEx run annually?

Without the containers?

Correct. Moving forward.

Probably between $10 million and $12 million.

12, 10. All right, very good there. And then the truck gross profit looked like it was -- I know you don't disclose it, but probably flattish based on the numbers you provided.

So what does it take care to get back to a normalized gross profit? Would you consider gross profit being a couple hundred basis points higher? And then, how long do you think something like that would take to occur?

Are you talking just for truck brokerage, Jon?

Correct. Yes.

Yes. Truck brokerage gross profit as a percent of sales was up 90 basis points compared to fourth quarter, but down 350 basis points compared to the first quarter of 2009. And it is a little bit in April, got a little worse than first quarter. But we think that we can get it back to first quarter level -- first quarter of 2010 levels for the rest of the year.

But do you think over time, because your gross profit dollars were essentially flat year over year in the first quarter on truck brokerage, but I mean how much --? Are we at a new normalized level, kind of in -- at the current rates you're at here in the first four months of the year?

Or do you think as freight rates normalize out there that you will be able to get a couple hundred basis points back over time? And I'm not talking about 2010, I'm thinking about over the next couple of years.

Yes, we think probably the first part of last year was a little bit [aberrationally] high as the market was -- and pricing was collapsing. And we think right now, as we are in this transition period, we are probably aberrationally low.

So I think you are exactly right. As we get to a more normalized market condition, which we anticipate 2011 to be, we will return to more normalized margin levels which are probably somewhere right in the middle between where we are at now and where we were at during all of the chaos that was the first half of last year.

Okay. Good. Good. And then on the gross margin side, on the aggregate level, how would you split that? Just roughly -- the pressure you had in the quarter, like 100 basis points -- how much of that's mix, how much of that is fuel and how much of that is price pressure? Would it be evenly split?

For truck brokerage, are you talking about?

No. Overall (multiple speakers).

Overall. Well, fuel, you know, we use the customers scheduled to charge for fuel so that we recover what our costs are generally. So shrink would be mostly in pricing and mix. Probably more with -- a little more with pricing but pretty equal.

And then, last thing. Just on the logistics side, when you think about the growth there, are there specific types of customers' size or engagement types that you are having more success winning? Or are they more general across the board in terms of the types of transition management and logistics opportunities?

We have had sort of a lot of success in where we have been targeting. It is that kind of midsized engagement. So say [$5 million to $35 million]. We have a couple that are smaller and a couple that are on the larger side, but that's our sweet spot. We have seen a lot of success in the retail space.

We've really seen a lot of traction in that area particularly on managing inbound because most retailers do a pretty good job on managing their outbound, but they are just getting their inbound management under control right now. So it's been very attractive to shippers who, you know, want to be able to save money, take cost out of their supply chain, but maybe don't have the resources that a very large shipper would have to commit to that type of activity.

Okay. Good. Good color. Thank you.

John Barnes of RBC Capital Markets.

Good afternoon, guys. Terri, you just said, I think, that all of the containers are due to be in by August of this year, the new containers. Could you just give us a little bit more specifics as to the delivery timetable? And will they all be in service in time for the peak season?

I actually had that in my prepared text and Terri did comment on it. We will begin to receive them in the last part of May. And we are hopeful that we will receive the final bunch by the end of August.

A lot of that, it can be a little bit variable as these are being manufactured in China. And so vessel capacity and that type of thing can change that, and probably some of that will fall back over to later on during peak. But, honestly, that is not all bad as -- if a box is arriving in the middle of October in Los Angeles from China, we can certainly use the box with all of the huge import flows we handle at that point.

Yes, John, if you want a little more specifics, 300 units by May 31, an additional 300 by June 30, 900 by July 31 and an additional 500 by August 31.

Very good. That's what I was looking for. Thank you. In terms of these containers, is it --? And I'm sorry if I missed it, is it entirely growth? I mean, is there any replacement here or is it entirely growth?

This is a net add. There is actually we are retiring some containers, we are adding additional containers that are being supplied by Union Pacific and Norfolk Southern but this is a net add to the fleet.

So yes there are additions from each of our other two primary rail partners. And we are retiring the 1,400 containers that we have currently with Burlington Northern.

All right and how quickly do you anticipate having everything converted over to the U-P?

Well, we have some contractual obligations with the containers on the Burlington Northern and we intend to live up to those. I believe that the last is in October 31, the last tranche. There's three tranches of containers. So if they want us to live up to complete it, we will do that. It is up to them or if they want the boxes back now, we will do that as well.

Very good and then going back to Ed's question for just a second and, you know, and listening to what U-P and CSX have said about combining their fleet, Union Pacific, [being it's] the only one that is kind of demanding somebody bring a container to the party or something like that. I'm just trying to understand why the need for the additional containers?

Is there some benefit to you from the standpoint --is there a price break if you bring your own container to the UP? What's the advantage versus if they are willing to supply it either through the MP fleet or something like that, what's the difference? (multiple speakers).

Sure. That's a good question. The fleet does have certain economic advantages provided that we are able to achieve utilization targets. Based on the utilization that we have been able to demonstrate over the course of the last couple of quarters, there is an advantage to taking responsibility and the risks associated with the fleet as opposed to utilizing exclusively rail boxes.

We do like the blended option though and we have encouraged the rails to stay in the equipment game. It does give us a number of options to be able to offer to our customers.

So while we want to grow usage and the size of our fleet, we also want to grow our usage of the rail control box at the same time.

Lastly, just on that question, or on that subject, once you have completely moved over to the Union Pacific, what percentage of loads that you will handle on an annual basis will be done in a Hub box versus a rail control box?

When we are completed with the -- right now it is about 65% move in fleet boxes and as we look to add the 2,000, a lot of it depends on how much we grow. But we suspect that will tick up to around 68% Hub boxes as opposed to rail control.

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

Todd Fowler of KeyBanc Capital Markets.

Good evening, everybody. Dave, thinking about the volume growth here, I guess, as we go forward for the year, it sounds like things accelerated during the first quarter. You obviously have some more containers coming in the second and third quarter.

I mean, is it safe to say that volumes -- and you've got easier comparisons, I guess. I mean, is it safe to say that volumes should continue to increase from what we saw here in 1Q?

We are certainly to date seeing continued very strong volumes thus far in April. So we do anticipate it out from what we understand from our clients that, certainly, we do anticipate that we are going to have increased demand through the year.

Of course, to your point also though, we do have a very low benchmark here if quarter over quarter, at least until the fourth quarter when, finally, we would begin to see some uptick in demand.

Sure, no. That makes sense. And then I guess just so we have the numbers, can you give us what the container fleet is right now and broken out between what you own, what you have access to, what's on the Burlington Northern? And then also where that should be, once you bring in all of the new containers?

Why don't we do that off-line later? I mean we can go through that now if you like. I don't know if it's of interest to everybody, but did you want to go through it, Terri?

I will go through it at a high level. Currently, we have about 14,950 containers. 1,375 runs on BN, NS. 6,225 are under the long-term operating lease arrangement with the bank. They run on the UP NS. And then 7,350 we have on the UP/NS under exclusive leases from the rail.

Okay, and then, the containers that are coming in will be in addition to this? Or it sounds like there is some net -- there's going to be a few containers that roll off as well?

Yes. I mean in the end we will have 18,310 and of course the Hub. Those will be Hub-owned boxes that ride on the U-P.

Okay. That's what I was looking for. And then, Terri, with the expense guidance here, I guess thinking about keeping operating expenses till that $34.5 million and $35.5 million range for the year. What does that incorporate or does it incorporate anything for additional personnel and maybe some additional incentive comp going forward? Or would those all be things that the volumes show up in the businesses there that would be incremental or would add expense in the back Of the year?

That's a good question. We have about between 15 and 25 people that we will be adding, we think, and those are in there. And then the -- we assume, right now, we are going to hit our target for the EPS bonus. So we are accruing ratably the $5 million of annual EPS-related bonus.

And then what about anything for incremental depreciation on the new containers? And maybe just on kind of the same vein, what would be the depreciable life that you are using for the boxes that you are bringing on?

It's about 10 years and we estimate that the depreciation will be $1.5 million annually and that will be included in our transportation costs.

Then just the last one, the commentary on the pace and the cadence of the share repurchases. I think, if I remember correctly, the $35 million expires. It was a one year that expires in March I believe, and so the expectation would be that you would complete that or that the goal is to complete that entire authorization by the time it expires.

We would love to do that.

And what would be the reason why you wouldn't be able to, I guess?

There really wouldn't be coming unless the share -- I mean, there shouldn't be a reason.

Kevin Sterling of BB&T Capital Markets.

Good evening. Talked a lot about your volume. Can you walk us through your sequential improvement in volumes by month throughout the quarter?

That's not something we really do. It did improve sequentially, but we don't actually disclose by month what our volumes are. We -- so --. But it did improve sequentially and it continues, April continues at the strength of March at this point.

Okay, so March --. It sounds like March is the best month for the quarter and April is just as good as March, if not a little bit better?

It continues to be very strong, yes.

And Dave, are you guys fully utilized with capacity right now?

It is very tight, yes. I would say that the entire intermodal marketplace is just about at capacity right now. And, again, this is part of the rationale as well for why we need pricing increases as we are going out to deploy additional capital in order to meet the increased demand.

And with all this pickup in demand and you guys are adding more boxes, I know JB Hunt is adding some more boxes. How is rail service?

You know, it's -- as I said in my prepared text, it is actually very good. It continues -- Union Pacific service has really not had any issues. I mean, we did have those winter storms, but we have had no issues. In fact, they continue to make improvements in certain areas that -- to be more and more competitive.

So everything thus far, they have handled the additional volume, the tightness in capacity, extraordinarily well. But [honestly] not beyond our expectations as they had invested billions of dollars. Even during last year, the CapEx budgets of the rails were significant.

And so with those expenditures, I think that they just prepared themselves for the additional volumes. And if anything, last year with the very light volumes, they were far underutilized as far as what they could handle.

Thank you. And with truckload pricing on the rise, are you seeing conversion to intermodal, particularly in some of the shorter lengths of hauls?

We are. That is, in fact, where a lot of our volume increase in local east which was up 19% in the first quarter year over year. And we continue to see that conversion.

Again, many customers, I think, are looking at it with an understanding that, over the road, we will be increasing their pricing. I do think we also have particularly many of our large retailers that we deal with are very environmentally focused. And if they can see an intermodal price that can give them the service that they require at the same level as over the road, because of the carbon emission savings, they will convert for that rationale as well.

So, intermodal has got a lot going for it, I think. Particularly with an improved economy.

Right. And fuel prices going up, too, helps you as well, I would assume.

It sure doesn't hurt.

Thank you so much for your time today.

(Operator Instructions). Matt Brooklier with Piper Jaffray.

Hello. Good afternoon. I think I heard David earlier quote a number and I think it was 2,500 in terms of new intermodal container additions. Did I mishear you or is that the total net numbers? Is it 2,000 with the purchase of the brand-new containers and then 500 somewhere else? Or how should I look at intermodal container additions going forward?

Again this is a more expansive conversation as we will have during peak about 18,300 versus just under 15,000 units right now. We will be retiring some additional boxes in January and, again, we will look at our fleet plan and make decisions whether to build additional boxes at that point in 2011 or not. But net net, you can figure that it is about a 2,500 container add.

Okay. So it's -- the original announcement for the 2,000 new containers that stands as is. And then there's some tweaking of your other capacity to get to the 2,500 in terms of what you'll be running incrementally at peak?

The 2,000 containers is in fact our standard box that we use that's about 99 inches wide. The other 500 which we have not finalized the agreement, although we have got the capacity, the construction capacity put aside, is a wider box that we are going to test. That is it's approved by the AAR, etc., but we have not used those in our fleet before and they will primarily be used for customers that are able to pinwheel their palettes and light customers, who have light commodities if you will, that can get an extra palette or two into a container as a result of the added width.

And those 500, that's sort of a lease or you guys are purchasing those from someone else or --?

We are purchasing them from the same supplier. It is just that the final contractual agreements had not been made on those. That's why it wasn't part of the announcement.

Yes, depending on the lease rates we would guess we might pay cash for those as well. (multiple speakers).

But nothing finalized at this point.

Right. But those are in the CapEx number of $37 million.

But, I mean, do you have a clause in your current contract or is it a rolling contract with who is supplying the 2,000 or potentially 2,500 containers? If we move forward say a month or two from now, is it --? Is the thought process there that potentially you go back and say, "Hey, you know what? We need another 500, 1,000 containers."

Did you think 2,500 the net addition will be enough to provide the capacity and service levels to your customers through peak?

Matt, honestly, I don't think the 2,500 is going to be enough during peak. We could do that by a multiple of 10 and still not have enough capacity. But then, again, you can't necessarily -- we feel as though that that size of a fleet constructively over the period of numerous years (multiple speakers) is very functional.

Okay. And who else, we heard Hunt's adding some equipment to the market. Who else is adding Intermodal boxes ahead of peak?

I do know that Union Pacific is adding to their fleet. In fact, in quite a significant way and I'm not sure if that is EMP or UMAX at this point, but it will be a split.

(multiple speakers) just not determined as of yet.

Okay. So yes, we do have a rail partner increasing the size of their fleets as well.

Okay. And turning to logistics, you guys mentioned a new customer that was on board at -- and I think the magnitude of gross revenue add was $20 million. That's an annual number?

It is an annual number.

Okay and when did that contract start?

It actually hasn't gone in the numbers yet, so it is starting in the second quarter.

Okay. And maybe talk -- it sounds like it is a new type of customer potentially for your logistics division. Maybe talk a little bit about or provide a little bit more color in terms of the type of customer and if you guys are able to, I guess, provide the service and handle the contract. Are there -- do other doors open for similar customers?

This is a specialty retailer and as Mark talked about earlier, that's one of our niches -- is retailers. And so it's really similar services to what we performed in the past with freight management, consolidation, optimization.

Okay. Thank you for the time.

Anthony Gallo of Wells Fargo.

Good evening. Within truck brokerage, could you tell me what percent of your business has fixed contract pricing with a customer?

60. Six, zero.

Okay. And how much of your business for truck brokerage you buy capacity on a spot basis? Is it 100% spot?

No, it certainly wouldn't be 100% spot. Much of the contractual business that we did is already preallocated. So we don't have the kind of spot model that Robinson would traditionally have where every day they are taking new carriers. We try to provide the same carriers with that consistent business at a fair price.

That is good for the carrier. We also think that the customers that are using our product like that because there's familiarity with that carrier base. So we don't have nearly as much kind of churn within our business model has maybe a traditional broker would.

So you are not perfectly matched, but you're not completely short capacity either?

Right.

Okay and just how does that business reprice throughout 2010? The first half, second half, does it blend through the year?

Certainly we are very active on the buy-side out in the marketplace on a regular basis with our committed and noncommitted business. And we are in the process of going through a very similar process of what we are doing on the intermodal side, which is renegotiating where it is required in order to support the underlying cost basis out there. So that is an ongoing dialogue right now.

They also have a segment of their business that is traditional big business and would be allocated typically for second-half activity. So it's a process throughout the course of the year. There probably is more repricing done right around this time period than at any other time period during the year for the highway product.

And then a question on Intermodal pricing. Is there a -- or what is the mechanism to reprice business, let's say, in the peak of this year? You mentioned large dollar amounts that get rebid. Let's say that you don't win all of that business and we find ourselves in the fall and things are tight and our capacity is short.

What is the mechanism to reprice within Intermodal? I know it is less fluid than truck. But could you put some color around that?

Typically most of our arrangements for Intermodal are also contractual in nature. They contemplate that there may very well be peak surcharges which will be passed through to the customer base. There are customers that like to contract to a fixed price for a period of time, at which case we will typically go and look to secure similar pricing from the underlying rail system. And for freight that is going uncovered during peak, then the customer is out in the marketplace, shopping with a variety of providers.

So we would much prefer to be doing our negotiation now and I think that is in the customers' best interest rather than waiting throughout the course of the year. So most Intermodal business is being repriced right now through the bid process or through contractual negotiations, looking towards a more stable pricing environment for the second half of the year.

Thank you. I will turn it over to someone else. Thank you.

There are no further questions at this time. I would like to turn the call back over to Mr. Dave Yeager. Please proceed.

Great. Well, again, thank you for taking the time to listen to our conference call. If you do have any further questions or any way that we can be of help, please feel free to contact Terri, Mark or I at any time.

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