Hub Group Inc (HUBG) 2010 Q2 法說會逐字稿

Good afternoon. Welcome to the Hub Group second 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 David 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, Shamica. Thank you all for joining us. I want to begin by covering two main themes. First, we had strong growth in all three of our service lines including record Intermodal volume growth. Second, gross yields were compressed in the quarter but the trends are encouraging.

Here are the key numbers for the second quarter, Hub's diluted earnings per share increased 18% to $0.26. Hub's second quarter operating margin was 3.4%. That's compared to 3.7% in 2009. At the end of June we had $128 million in cash, and no debt.

Now I will discuss details for the quarter starting with revenue. Our business generated revenues of $458 million, which is a 26% increase over last year. Taking a closer look at our business line, Intermodal revenue increased 26%. This change includes a 25% volume increase an 8% increase for fuel, a 2% price decrease and a 5% decrease for mix. Customer Direct 53-foot business, which is the biggest piece of our Intermodal business was up 28%. Driving that growth was a 50% increase in loads with retail customers and a 38% increase in loads with durable goods customers.

While Intermodal prices were down 2% this quarter, the good news is that pricing got better as the quarter progressed. That's because we successfully passed on price increases to customers during the quarter.

A big part of the reason mix is down 5% is because our average length of haul was down 3%, or 50 miles. That's due to our Local East business being up 34%. Almost half of our total volume growth was in the Local East market.

Truck Brokerage revenue increased 21% due to 17% increase in load and a 7% increase for fuel partially offset by a 3% decrease for price and mix. Mix changed because our length of haul went down by 37 miles or 5%. We continue to see the most significant growth with retail customers.

Logistics revenue was 38% higher than last year due primarily to new customers that we landed in 2009. Next quarter we will be lapping most of this new business which was added in the second half of 2009. We are proud that Unyson once again was named a Top Ten 3PL by Inbound Logistics.

Gross margin as a percentage of sales was 11%. That's down compared to last year's 12.6%, and last quarter's 11.7%. Intermodal pricing being down 2% and the Truck Brokerage yields getting squeezed, explain this deterioration. Truck Brokerage gross margin as a percentage of sales hit rock bottom in May but in June it improved. Purchase transportation costs were higher because of tight capacity. We have been working on increasing customer prices, expanding our carrier base, pursuing more spot business, and shedding business where we lose money. We are beginning to see the results of these initiatives but it won't happen overnight.

Total gross margin increased by $4.8 million. The largest chunk of this increase was from Intermodal. Logistics margin was also up. However these increases were partially offset by about a $1.7 million decline in Truck Brokerage gross margin. We are still attacking our lower margin customer accounts on all fronts, and strive to be the best that we can be by operating more efficiently.

Between our opportunities for Intermodal margin expansion, the price increase, and the progress we are making in Truck Brokerage we are confident yields will improve in the last half of the year. This has been our story for the past couple of quarters and it hasn't changed.

Turning to head count. We had a 1080 employees excluding drivers at the end of June. That's an increase of 43 people compared to the end of March. We added people to support growth in Intermodal and logistics so that we can continue to exceed customer expectations.

Total costs and expenses were $34.9 million, in the second quarter of 2010 compared to $32.3 million in the second quarter of 2009. The main reason for the increase in cost and expenses are higher salaries, bonuses and commission. We think that our quarterly cost and expenses will be in the range of between $36 million and $38 million for the rest of 2010. This wide range of costs is due to the EPS based portion of our bonus.

Now I will discuss 2010 full year earnings guidance. For 2010 we are comfortable that our diluted earnings per share will be within with the current analysts range of between $1.09, and $1.20 assuming that current economic trends that we've experienced continue. Our weighted average diluted shares for 2010 are estimated at about 37.6 million.

Turning now to our balance sheet and how we used our cash. During the quarter we spent $1.4 million on capital expenditures, mostly for containers. We will probably spend another $28 million on capital expenditures during the last half of the year. $24 million of the $28 million will be for our beautiful green containers. These capital expenditures estimates don't include any purchases of property to support our equipment and Drayage operation. We spent $10 million during the quarter to purchase 326,350 shares of stock at a average price of $30.76. $18.5 million remains on our current share buyback authorization, that expires in March of next year. Of course we will always continue to explore acquisition opportunities.

To wrap it up for the financial section we have a very healthy balance sheet and are in good shape to grow our operating income. Now you'll hear from our CEO, Dave Yeager.

Great, thank you, Terri. During the quarter, we made substantial progress on two fronts. Volume and pricing. We had 25% volume growth in Intermodal and 17% growth in Highway loads. We also put price increases into place in Intermodal and Highway setting the stage for the second half of the year. As we anticipated our yields will be better in the second half of the year as most of the price increases were not in place until June. Our growth was obviously helped by overall market conditions. But it was also in large part due to our efforts to acquire new customers, as well as increasing share with existing clients. As I mentioned on our last call, we've done a much better job of helping our customers capitalize on the advantages of our network. For example, our business moving from the southeast to California where we have a one day transit advantage versus the bimodals was up 69% during the quarter.

As you know capacity became an important issue during this quarter. Unlike last year when there was plenty of capacity, this year the pendulum moved to the opposite end of the spectrum. We experienced periodic shortages in Los Angeles and certain mid-western cities particularly at quarter end. That's part of the reason why we ordered 2500 new containers. The delivery of these containers is on schedule and we will have the majority of them by the beginning of peak. Our fleet is important to our success but it's especially critical at times of high demand as it provides a guaranteed source of equipment for our customers. During the second quarter our fleet utilization was once again excellent. We averaged 12.8 days per load for the quarter, which is the best utilization we have seen to date.

I would like to also provide some comments on the recent developments in rail service. Despite the sharp increase in volume, the railroads have been able to maintain outstanding service levels. Apart from some isolated issues surrounding flooding in Memphis service actually improved compared to last year. The substantial investments our rail partners have made in their networks over the last few years continues to pay off as double digit volume growth continues to result in superior service. Union Pacific has improved transit time and reliability in a number of high density corridors. In the second quarter, we saw an 8% improvement in on time performance versus the prior year on the UP. Despite significant volume increases, the Norfolk Southern service also remains very solid.

On the Drayage side of the business, Comtrak also had a good quarter handling 40% of Hub's Drayage, which is up from 34% in the second quarter of last year. While a 6% increase may not seem significant, if you put it in a different context, Comtrak handled 48% more contains for Hub in the second quarter of this year versus last year. We are continuing to make good progress growing the amount of business Comtrak handles for Hub and we're committed to expanding our driver base.

Our brokerage business grew significantly in the second quarter with volume up 17%. We saw a pronounced increase in demand in the second quarter, which in turn led to a capacity shortage in many key markets. Truckers quickly moved to take advantage of this increase in demand and raised rates or simply failed to cover committed business. Quite frankly we did not do as good a job as we should have securing new capacity or passing on the increases to our customer. As a result our brokerage margins suffered serious compression of 500 basis points year-over-year. We taken action to address this compression and expect margin improvement in the third quarter. This spiking demand also brings tremendous opportunity to help shippers cover freight that their core carriers cannot or will not cover. We've done a better job finding and taking advantage of these spot opportunities. The brokerage business is a core competency of Hub and we are working diligently to get the margins back to more acceptable levels.

Our Unyson Logistics business had an impressive quarter with revenue up 38% due primarily to business from new customers that were added in the second half of last year. The shifting marketplace is also impacting Unyson. On the one hand increasing freight rates will make it tougher for Unyson to produce dramatic savings for its customers. On the other hand shippers who are facing rising prices and want to reduce their costs will look to Unyson to optimize their spend, improving mode selection and increasing load consolidations.

In conclusion, we are pleased with our overall results. We grew earnings per share by 18%, have $128 million in cash in the bank, and remain debt free. With 25% volume growth our Intermodal business is clearly gaining share and the additional density is helping improving our Drayage efficiency. We have positive momentum and we're looking forward to a great second half of the year. At this time we will open the line to any questions.

Thank you. (Operator Instructions) Your first question comes from the line of Ed Wolfe of Wolfe Trahan. Please proceed.

Good afternoon. Just trying to get hands around a couple of different things you said. Dave at the end, one of things I thought I heard you say was that brokerage gross margin improvement in third quarter or in second quarter was down 500, were you talking about gross yields or operating margins for brokerage?

It was gross margin as a percentage of sales. For Truck Brokerage when you compare the second quarter of 2010 to the second quarter of 2009 it was down about 500 basis points.

Okay. And Dave said he thought that that would show improvement in third quarter, is that year-over-year improvement or improvement from second quarters number.

It will be versus second quarter numbers.

The year-over-year still down?

I would assume so it's going to take time to dig out of that hole.

Oh yes.

How do you think about operating margins relative to those gross yield margins? Are those down similar or are they down less than that in the brokerage side.

They are down similarly, but we have cut personnel costs. Our productivity is up 11% compared to last year. Gross margin has the biggest impact so it certainly does impact the operating margin.

Terri, you said in your comments that you were down the equivalent of $1.7 million, for truckload gross margin.

Correct.

What's that number similar in first quarter, year-over-year what were you down?

It was not down as much. Q2 versus Q1, it was down $1.7 million. In Q2 versus Q2, of 2009 it was down $1.7 million. So similar number. I don't have the first quarter, handy other than comparison to Q2.

Okay. You talked about the EPS based bonuses being the reason for the higher or the range for the cost, can you give a little bit of a sense assuming you hit the middle of the range that you -- would that assume the middle of the $36 million to $38 million of cost that you gave.

Let me try and walk you through that. We expect salaries and benefits to go up by about $1 million a quarter in the second half of the year versus Q2 due to head count additions. So that's one piece of the cost guidance of the $36 million to $38 million. And then to your point on the bonus, the rest of the increase in cost and expense guidance is due to the EPS related portion of the bonus. So we've accrued bonus right now based on our results so far. If we come in at the midpoint to the higher end of the guidance range, we'll have a catch up adjustment to our EPS related bonus in Q3 or for Q4.

Okay. I just want to make sure I heard you right, Terri. So there's $1 million both in third and fourth from higher head count? It's an incremental $1 million in each quarter?

Right. Correct.

So $2 million in four quarter relative to second?

No I mean, versus Q2. So if you take Q2, add a $1 million for salaries and benefits that should be what Q3 is. Take Q2 add the $1 million to salaries and benefits. That should be the number for Q4.

So no major change from Q3 to Q4 on the head count side?

Right.

That's correct.

We have slated to add about 30 people in the last half of the year. 15 to 30.

I don't know if I can remember if there has been a quarter in recent memory where you guys have outgrown JB Hunt in volume but you clearly did it this quarter. How do we think about that going forward. Is the goal to grow the volumes more aggressively going forward and to do less on pricing and less on the cost side, is the mix of how you are looking longer term of how you look at your business going to change going forward.

Well Ed, I don't think so. This is Mark. We are going to stay bottom line focused. I don't think you are seeing a fundamental philosophical shift here at all. It's much more important to us to recapture some of the ground that we gave up from a price perspective last year. That's job one this year. We are pleased with the volume growth that we have seen. I also cannot remember a quarter in which we passed JB Hunt from a volume growth perspective but it does not reflect an underlying shift in our philosophy. We're committed to improving our yield in both Intermodal and Highway. That's job one at this point in time.

The reason, Mark I asked the question is, it feels like Local East has been growing faster for several years now. And it seems like it was a mix for Intermodal, it was a bigger issue now than we've seen, so I thought maybe there was more of an aggressive play in the east or something like that? Am I reading too much in to that?

Yes, I don't think we are getting terribly aggressive. I think we're going to see pricing improvement in the second half of the year as we mentioned. We did have to get our way through the numbers that everyone committed to in the middle of the chaos that was 2009. So certainly with Local East being a bigger and bigger proportion of our business, that can create some margin challenges but we think that there is still a lot of room to grow in Local East but we can realize business at compensatory levels.

Okay, I'll let someone else have at it, thanks so much for the time everybody.

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

Thanks, good afternoon. Let me start with the head count additions that you mentioned Terri. I assume you are not talking about adding drivers, right? You are talking about other areas. Where are you adding those heads?

We added about 26 people in Intermodal and 10 in Logistics, a few in Mexico and a few in sales.

So I guess Truck Brokerage hasn't earned the right to have anymore people at this point in time.

I think they are pretty much full up at this point.

Okay. And so I don't want to beat this question that Ed asked but the $1.7 million was how much Truck Brokerage gross margin was down year-over-year and you think the hit that it gave to gross margin in the first quarter was about the same?

Yes I'm going to have to look that up Alex. I don't have that number handy. I have Q1 compared to Q2 for Truck Brokerage. It was down about $1.7 million. Oddly enough it was down a similar amount when you compare Q2 2009 to Q2 2010. It just so happens that that's the number.

Yes, I guess the reason that I would -- that I'm focused on that is that according to my math that was a bigger impact to your shedding your margin and getting it to 11% than pricing was on Intermodal so that's obviously a concern. It sounds like you guys feel pretty good about it but maybe patience is going to be required. Is that a fair assessment?

Yes, you hit the nail on the head. If you look at the 11.7% yield that we had in the first quarter compared to the 11% in the second quarter it was really -- the whole decline was due to Truck Brokerage.

Alex, you know us pretty well and you know how patient we are. We actually throughout the quarter been quite aggressive in getting price increases or shedding business or finding alternative ways to move the business. So while it did definitely negatively impact us, I think that as we are watching it it's declining less let's put that way.

I should say from April to May, it went up 50 basis points.

Right.

Okay. Then May to June it went up again, right.

I'm sorry. May to June it went up the 50 basis points.

Okay. I've got you.

April to May it had gone down and that's when we took all the action.

So I guess the key thing that I want to understand is that you haven't seen any benefits from Intermodal pricing yet and obviously you are a little disappointed with gross margins too and you need to get that operating leverage. Can you give us the frame work, I think all you've said on the call so far is pricing goes up in the second half. What are you willing to say, can you say about what you think pricing is going to specifically look like in the second half.

We think that -- first of all pricing improved each month during the quarter. So pricing was only down 1%, in June compared to last year. We had about 90% of our planned increases in by the end of June but they filtered in during the month so we haven't seen the full impact of them yet. So we do expect pricing to be up slightly in Q3 and Q4.

Anecdotally the impact on our second quarter, we did also Norfolk Southern their increase was actually effective on May 1st. We didn't actually begin to put our increases until June 1st . I would say that probably only 50% were in at that point. We have been working those increases up through the month of June and partially in

I think based on the experience, the feedback we've gotten from the shipper base at this point, we remain as confident at this point in time that we are going to be able to regain some of that ground as we were last quarter and the quarter before that. So we feel like everything is moving along as we had anticipated.

All right. I just want to try to get a little clarification if I can, I thought you had said at a conference not too long ago, two to four in the back half. Now, I think Terri's answer was up modestly.

You're talking about 200 to 400 basis points increase --

Price increase in the back half. Not in the gross margin, just in price.

In the pricing, No I don't think that -- again, I think that we fall within that. The price increase we just took was in that range. June 1st was the target date and a lot of those did not actually get implemented until a little bit later on in the month.

Okay. I'll turn it over.

That's still a fair statement there, Alex. In addition we are looking at right now, the Union Pacific has just announced a peak season surcharge which we'll be supporting which will be going in to effect on business out of Mexico and out of California.

Okay. I will turn it over, thanks, guys.

Your next question comes from the line of Jon Langenfeld of Robert W Baird. Please proceed.

Good afternoon. On the peak season surcharges, one of which you mentioned and others which may come how do you view that as it would relate to your gross margin and then how it would relate to your bottom line assuming those went through.

We would expect again this is a charge which Union Pacific is putting in during peak. As some of their costs increase they are trying to cover those costs for repositioning equipment, et cetera, so that they have ample capacity on the west coast and in Mexico. It should be neutral to a little bit up for us but it should -- we kind of target for neutral.

Okay. Good. The Truck Brokerage side, the spot market -- trying to get more spot market business in this segment has been a quest here for the last couple of years. Did that just take time or are there new things you're trying? Can you give us clarity on what can give us confidence if we go 12 months out, that we're in a better place than we have been.

We are certainly trying to improve our capabilities on that spot market business. We have resources that are specifically committed to working the various load boards that are out there that a number of our customers are hosting. We are finding a lot of opportunity there. There is currently a fair amount of disruption in the marketplace although that has moderated somewhat the last week and a half to two weeks probably more associated with the time of year than anything else. We are committing some of Highways resources to be able to capitalize on those opportunities and we are seeing some success in doing that. We are still though about 60% of our business is contractual. That remains the core of our model.

Okay. All right. Good. Let see, what else? On the gross margin comment for the second half of the year you guys have talked about it improving are you talking about that sequentially year-over-year, where do we stand on that.

Improving from the first half of the year. So we expect it to improve to the low 12% in the second half however it does depend on market conditions, for example, the UP surcharge that Dave was talking about earlier.

Theoretically, independent -- leaving that off to the side you could actually have up gross margins by the time you get to the end of the year if you got the 12%. Yes. Okay. All right, good enough, thank you.

Your next question comes from the line of John Barnes of RBC Capital Markets. Please proceed.

Hi, guys can you just talk a little bit about your delivery schedule on the containers through the balance of the year. And either what -- have you started thinking about container orders and deliveries for 2011?

We've got about 800 of our new ones in. We expect to have 2000 of them in by peak like Dave said. And then the wide ones come in, in October and November. There is a total 500 of the wide.

What about next year?

I think we're still in discussion at this point in time. We haven't made a definite decision but we should have something -- a decision rendered by the next conference call I would say as far as what we need and what we are going to have produced in China.

Okay. Very good. In terms of the head count question again. So you are talking 15 to 20, I want to get clarification the numbers that you rattled off were already added. Are there 15 to 30 potential more in the second half over and above the 26 in Intermodal, the 10 in the Logistics, the few Mexico and the few in sales.

We added 43 during this quarter. 26 Intermodal and ten --

Okay. All right.

Then we are going to add, you're right, another 15 to 30 in the last half of the year.

Okay. Very good. Then just a little clarification on your comment about did not do a good enough job securing capacity. Was that -- can you talk a little bit to that I mean was there, was there a disproportionate number of carriers you were dealing with in your Truck Brokerage business that either failed or did they abandon the Brokerage business because all of a sudden their core freight business got a lot better so they were able to give up on what you guys were offering and go back to doing what they were doing a year ago, two years ago, just a little explanation as to why the shortfall on capacity.

John, I would say that we probably reflect what occurred to most Truck Brokers and most customers where by we had negotiated some rates which were what is in this market below market. They were low. And once the market picked up and truckers began to be offered higher rated freight, they left. They did what they do so effectively and so quickly. And since obviously as a Truck Broker an awful lot of what you deal with is not necessarily the top ten truckload carriers. You deal with a smattering of small and medium sized carriers. They have a tendency, I think to go to where the freight is priced best in a very quick -- they're very market oriented and so what my criticism of ourselves is that we should have been right on top of that instead of just watching ourselves lose money on loads and reacted a lot quicker than we did.

Okay. Very good. Thanks for your time, guys, appreciate it.

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

Good afternoon everybody. Dave, to follow up on Alex's question was the answer to the pricing question that on a year-over-year basis in the third and fourth quarter price should be up 2% to 4%.

Yes that is correct.

Okay. Then what does mix look like in the third quarter and the fourth quarter? Are we starting to comp against some of the share gains in the Local East so the mix starts to improve or the mix isn't as much of a headwind? Should we still expect to see this down mid single digit type mix impact through the back half of the year.

Depends how much our Local East grows. In the second quarter of 2009 we were down in Local East 2%. In the third quarter we were down 5%. Then in the fourth quarter, we grew at 12%.

I've got it. Okay. Then on the volume side is it implied that volume growth -- I mean the comp in the third quarter's pretty comparable to what it was here in the second quarter, you've got more containers coming in. Should you see -- does that imply that there should be some acceleration in Intermodal volumes from where you were here in the second quarter?

We did see some pick up in the third quarter from a volume perspective. In the third quarter of last year, correct Terri?

Actually -- in the fourth quarter.

Sequentially, the third quarter was fairly soft.

So we do think that we are going to continue to see tremendous amount of demand in the market. Right now and normally we wouldn't be cheering that some of our containers are arriving in July. But right now with the demand for capacity it's a very good thing and allowing us to better service our clients. So the first few weeks in July, no, we have seen just as strong as where June finished off which again is rather extraordinary. That's not a if you look at normal cycles that's not normal for July.

To that point Dave, can you talk about the visibility that you have. We did see some very strong import data coming in from the ports during the second quarter. What is your sense? Maybe some of this is more anecdotal than anything. What does that look like, or what does that seem like it's going to look like as the rest of the year progress? Was there some pull forward or is the expectation that could and should continue in to the normal peak.

Well, the imports certainly out of the far east continue to look very strong. And I think that coupled with the ocean carriers looking for their containers to be trans-loaded at the port creating there by more domestic activity or more demand for domestic boxes is driving part of that, you have electronics out of Mexico. You have US based consumer products, which are up dramatically. I'm honestly not quite sure if it's just a case of consumers ran out of their last box of cereal or what is occurring but we are certainly seeing the increases very much across the board and it's not really isolated to just one or two industries.

Okay. Then the last one, this is kind of a higher level conceptual question but I guess at this point it's been a year since you transitioned the fleet. You had some network systems in place. It seems like that the network is running pretty efficiently. Can you talk about your feeling on how the network is? Is there still opportunity to improve how the network is operating and get some better turns or are you to the point where you've really capitalize on some of the initiatives that you put in place over the last maybe at this point 18 months or so?

I think that as far as the transition over to the Union Pacific it's gone well beyond any expectations we had. They've been extraordinarily helpful and cooperative on anything that we've needed. Very helpful and the service that they have delivered is just tremendous and it continues to improve through the Q2. So from that perspective we could not be happier with the transition. I think from a efficiency perspective there is no question that we are -- this has enabled us to get better as far as our Drayage reloads. Reducing empty miles, that is an on going effort. While we have improved, there is a tremendous amount of room yet for further improvement. And so we are very excited about this transition over to the Union Pacific and look forward to continued growth on this. Mark, I don't know, did you have anything to add?

No, I think that the utilization numbers that we are seeing are indicative that we are making progress. But as Dave talked about, there are other places for us to be improving efficiency and driver utilization, empty miles, and developing more load-load scenarios is where we are really focusing our street operations right now. And we are changing our operational structure to better enable us to capitalize on that opportunity. A lot of progress to date but still a lot of room left.

Does most of that end up showing up in just improved net revenue margins over time is that really where we will see that most pronounced.

Yes I think that's exactly where it will manifest itself.

Okay, thanks a lot for the time.

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

Thank you, good afternoon. You talked about Intermodal pricing improving throughout the quarter. Can you talk how improved throughout the quarter through April, May and June. Could you give us some numbers?

Sure, it was down 3% in April. Down 2% in May. And down 1% in June. That's all versus last year obviously.

Okay. Thank you. And your Intermodal volume growth I know you touched on that very impressive. Is that primarily a function of you guys taking share from Truck or maybe taking share from your competitors, what would you attribute to -- it seems, I know a lot of it's coming out of your Local East business.

I'd say the answer to that is probably yes. There is no question, that a lot of the Local East business in particular, I think has been coming off of a Highway. We've had some other pockets also that we have been able to secure business from off the Highway whether that's cross border or other markets such as that. I think we have been gaining share with some more competitors as well. I think we've been very focused our network again is working much more efficiently and affectively and I think we also understand our costs and where the beneficial lanes are and are able to capitalize on that.

Okay. Thanks, Dave. I know you talked about, it looks like July strength carried in to July. Should we think about a similar type of run rate for your volume for Q3?

We were down 9% Intermodal volume in Q3 of 2009. In Q2 2009 we were down 10%.

Certainly as the current run rate we could think in those terms.

But in the fourth quarter, as Dave mentioned earlier, we were up 6% up in 2009. So that's a tougher comp.

Right. Okay. One last question, I know in the past you talked about the Unyson Logistics pipeline, and how that's looked. Does that still look robust, Dave?

It's not quite as robust I wouldn't call it robust at this point. I would say that there is potential customers in the pipeline but we did on board a lot of what was in the 90% range of clients that we thought in fact we were going to be able to secure. So it's not quite as robust but we still continue to look for that business to grow at double digit rates.

Okay. That's all I have, thank you so much for your time this evening.

(Operator Instructions) Your next question comes from the line of Mat Brooklier of Piper Jaffray. Please proceed.

Thanks. Good afternoon, guys. I just wanted to circle back to the gross yield. I think you guys indicated that given your putting price increases through the potential to get back to kind of low 12 percentage type gross yields in the second half of 2010. Would you guys expect to get back to that potential 12% type number? I know it's impossible to tell but is there potential for your gross yields to get back to the low 12's next quarter or is it going mean a more gradual process that you take a step up from the 11% in second quarter and then maybe put up a bigger gross yield number in fourth quarter and the average is a low 12% for the second half.

I guess to answer your question we could get there in Q3. It might be very, very low 12's. But you are right it would probably ramp up just a touch in Q4.

Okay. In terms of rate increases and pushing those through to your customers, it sounds like you guys took rate action in the beginning of June but didn't -- weren't able to push through that price increase until it sounds like July. What percentage of your contracts where you looked to take price up have you thus far been successful in pushing through rate. I heard a 90% number, earlier, is that correct?

Yes, that's about right. We had 90% of them in by the end of June but they didn't necessarily go in June 1. They went in throughout the month. So some could have gone in last week of June.

Okay, but at this point in time beginning of third quarter thus far you have taken rate action in some degree shape or form on 90% of your contracts.

90% of what we were looking to increase, I guess is what --

I guess what percentage of contracts were you looking to take rate action.

We really didn't look at it that way. We had a dollar figure that we were targeting and based on the feedback we'd gotten from our customers we think we are at that dollar figure. So we didn't look at it as a percentage of contractual business.

Okay. You guys are in the process of taking on those incremental 2500 boxes and looking out into the second half of this year could you guys use more boxes if they were available?

Right now we could use every box we could get our hands on. So the answer to that would be yes. But this is obviously very extraordinary with the loading patterns for July. It certainly appears and feels as though it's going to continue through the what would be considered the normal peak shipping period. So yes we could use more than the 2500 but I think that's a reasonable number for us to be able to control going in to peak shipping.

I've got you. Okay, thank you.

You have a question from the line of Anthony Gallo of Wells Fargo. Please proceed.

Thank you, good evening. Just a couple quick questions. You mentioned that in the Truck Brokerage business that the transactional piece is about 40% and contractual is about 60% is that correct?

That's right.

Okay. When you buy your truck capacity what's the mix there, how much of that do you think you buy more contractual oriented versus just in the spot market.

Most of our purchasing would be done in a more contractual manner. In previous periods about 400 carriers handle 80% of our truck business. That would compare to more of a transactional broker being in the thousands. During the second quarter we went from 400 to 650 carriers, were required to cover 80% of our business. So we did have a more transactional base in the second quarter than has been our historic norm.

Okay. Is that because I think David mentioned earlier those guys just walked away from some commitments.

A lot of guys stopped covering loads.

Okay. The nature of trucking I guess.

Yes.

Just a little more color on the industry landscape, and maybe if you can tie to this shortage of boxes. What is happening with the smaller IMC with this box shortage right now and how do you see that playing out.

I think a lot of smaller IMCs are really struggling to meet their commitments based on feedback we are getting from our customer base I think it's very challenging for them. They really need to have developed in advance some balance flows and that's not something that traditional IMC model was particularly geared towards doing so I think the smaller IMC's have a real challenge here. They are using the UMAX product. They are using the EMP product but there certainly isn't an over abundance of that capacity out in the marketplace. So, I think it's tough for them to control their own fate in this type of a marketplace.

Okay, thanks. Just one housekeeping item. I wasn't sure, did you say that the Intermodal gross margin contracted year-over-year and if so how much?

No, I didn't say it. No.

Will you?

I was talking about Truck Brokerage contracting 500 basis points year-over-year.

How about Intermodal. I don't remember you mentioning that in the past, but I'll try.

It didn't change dramatically it went down a little bit, but not dramatically.

Just a bit. Okay great. Thank you very much.

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

Well great. Again thank you for taking the time to listen in to our second quarter conference call. And as always if you have any questions, et cetera, please don't hesitate to give Terri, Mark or me a call. Thank you very much.

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