Hello, and welcome to the Hub Group Third Quarter 2021 Earnings Conference call. Dave Yeager, Hub's CEO, Phillip Yeager, Hub's President and Chief Operating Officer, and Geoff DeMartino, Hub's CFO, are joining me on the call. At this time, all participants are in a listen-only mode. A brief question-answer session will follow the formal presentation. In order for everyone to have an opportunity to participate, please limit your inquiries to one primary and one follow-up question. Any forward-looking statements made during the course of the call or contained in the release represent the company's best good faith judgment as to what may happen in the future. Statements that are forward-looking can be identified by the use of words such as believe, expect, anticipate and project and variations of these words. Please review the cautionary statements in the release. In addition, you should refer to the disclosures in the company's Form 10-K and other SEC filings regarding factors that could cause actual results to differ materially from those projections in these forward-looking statements. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to your host, Dave Yeager. You may now begin. Good afternoon, and thank you for participating in Hub Group's third quarter earnings call. Joining me today is Phil Yeager, Hub's President and Chief Operating Officer, and Geoff DeMartino, Hub's Chief Financial Officer. We had a solid third quarter as pricing continues to outpace rapidly accelerating costs, thereby creating record quarterly revenue and gross margin. To kick off the fourth quarter, we've just closed on Choptank, a large truck brokerage operation specializing in refrigerated product. This is an acquisition that Phil had worked on for several years with Choptank's owner, Geoff Turner. We share a common vision and culture, and we welcome the Choptank team to the Hub family and look forward to growing our collective business. Strong demand continues as inventory to sales ratios are at near all-time lows while intense restocking of shelves persists. On the second quarter call, we related that we believe that this strong demand and tight capacity market may extend through the second quarter of 2022. Nothing has really changed since that last report, and we believe that this imbalance will continue through most of the first half of 2022 and very likely throughout most of the year. Today, there are many issues negatively impacting customer supply chains. Among the issues are labor shortages and port congestion, resulting in network imbalances. Hub's focus continues to be on supplying reliable capacity to our clients in order for them to deliver their products efficiently. With that, I'll turn the call over to Phil to discuss the performance of our business lines. Thank you, Dave. We are very pleased with these results and the efforts of our team to support our customers during this dynamic environment. We delivered strong results in intermodal with a 17% increase in revenue and 530 basis point improvement in gross margin percentage year-over-year, which was offset by an 8% decline in volume after an 11% increase in the third quarter last year. For the quarter, Transcon volumes declined 1%, Local East was down 7%, and Local West was down 10%. Although the intermodal network is more congested and we are seeing slower rail transit, extended customer unloading times and more limited available drayage capacity, our team has done a great job offsetting those challenges with improved on-time performance to our customers, stronger pricing, a better balanced network and improved cost recovery efforts. Demand continues to be in all of our new build containers this year, which will help us capitalize on that opportunity. We anticipate another strong bid season and improving network fluidity into 2022, given the strong demand backdrop and the need for shippers to lock in capacity. Logistics performed well with 17% revenue growth and a 100 basis point improvement in gross margin percentage year- over- year. We continue to have strong revenue growth from our consolidation of Final Mile service lines, which was offset by lower revenue, but improved yields in our outsourced transportation management offering. We've had many strong new wins across all of our solutions, including exceeding our cross-selling synergy targets in Final Mile. We see continued opportunities for growth ahead as we provide our clients creative solutions to reduce costs and enhance service. Brokerage posted strong results again with 28% revenue growth on 3% lower volumes and a flat gross margin percentage year-over-year. We continue to see strength in the spot market and are bringing on new clients through our growing sales force while maintaining strong efficiency. We also are very excited about the addition of Choptank to our brokerage. We have shared values and believe that along with their aggressive sales culture, they will bring an improved technology platform, a new specialized service offering, and a large cross-selling opportunity. This acquisition will push us to over $1 billion in brokerage revenue, and we believe enable long-term sustainable growth. Dedicated revenue declined 7% with a 450 basis point decline in gross margin percentage year-over-year. This decline was driven by increased insurance costs, M&R expense, and outside capacity costs. We are executing on customer renewals, onboarding new, more profitable wins, and continuing to enhance our systems and processes to help offset these challenges. Looking ahead, we believe we will see a strong demand environment and that Hub Group is in a great position to provide solutions to our clients and drive profitable growth. With that, I will hand it over to Geoff to discuss our financial performance. Thank you, Phil. Q3 featured all-time record revenue and profitability levels with total revenue growth of 16%. Gross margin was $158 million, or 14.7% of revenue, which is an improvement of 300 basis points as compared to last year and 240 basis points higher than Q2. Gross margin performance and our focus on operating efficiency led to operating income of $60 million or 5.6% of revenue. Salaries and benefits increased primarily due to higher incentive compensation and commission expense as compared to last year. General and administrative expenses increased compared to last year due to legal settlements and expenses related to the acquisition of Choptank, partially offset by higher gains on the sale of transportation equipment. Our diluted earnings per share for the quarter was $1.28, which is 73% higher than the prior year. We generated $92 million of EBITDA in the quarter and had over $230 million of cash on hand at quarter end. In October, we invested approximately $130 million cash to purchase Choptank. We continue to have a conservative capital structure with an additional strategic acquisitions. We are raising our 2021 EPS expectation to $3.90-$4 per share, up from $3.50-$3.70 that we announced in July. For 2021, we expect revenue will grow in the high teens% range, with intermodal volumes approximately flat. We forecast gross margin. As a percent of revenue of 13.3%-13.7% for the year, growing as a result of rate increases, partially offset by higher costs for rail transportation, third-party dredge, and driver wages. We continue to see strong consumer demand and low retail inventory levels, which is driving the need for our customers to restock. For the year, we expect costs and expenses of $365 million-$375 million, which reflects incremental operating costs for Choptank. We expect our tax rate to be approximately 24% compared to our prior guidance, as 150 of the tractors that we ordered this year will be delivered in early 2022. We expect to receive our full order of 3,000 containers this year. Last quarter, we introduced our long-term revenue and margin targets. The acquisition of Choptank is a great step towards achieving these targets and is indicative of the type of strategic investment we will make in the business, adding scale while also introducing a new service offering with significant cross-sell potential. Dave, back to you for closing remarks. Great. Thank you, Geoff. Demand continues to be strong in all of our business lines as our customers continue to need cost-efficient solutions that offer consistent levels of service. The fourth quarter is off to a solid start, and we believe that the momentum will carry through much of 2022. With that, we'll open up the call to any questions. Thank you. We'll now begin the question-and-answer session. If you have a question, please press star then one on your touchtone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you're using a speakerphone, you may need to pick up the handset first before pressing the numbers. Once again, if you have a question, please press star then one on your touchtone phone. Our first question comes from Justin Long from Stephens. Your line is open. Thanks. Good afternoon, and congrats on the quarter. Thank you. Thank you. Jeff, I wanted to start on the costs and expenses in the third quarter. There was a pretty substantial step-up on a sequential basis. It sounds like there were some moving pieces with legal costs and acquisition expenses. Anything that you would consider one time that won't be ongoing? Then maybe could you help us think through the contribution from Choptank you're assuming in the fourth quarter from both the revenue and OpEx perspective as we think about your guidance? Sure. Yes. In Q3, we did have some kind of one-time cost, legal settlements, not really recurring, as well as obviously the acquisition expense. Those two pretty much awash with our gain on sale for the quarter. The real big, you know, those kind of two or three items net out. The real driver of the increase sequentially from Q2 has a lot to do with the compensation expense and commission expense. As we earn more throughout the year, we've been booking more of those expenses, and that was kind of encompassed in our guide throughout the year. Going forward, you can do the math on the guidance, but you know, you can expect the Q4 number to be basically equal to the Q3 number, plus the incremental for Choptank, which is about $8 million on the OpEx line. For revenue, it's approximately $80 million of incremental revenue for the last two months of the year. Okay. That's really helpful. Maybe looking at the fourth quarter guidance, could you talk about what you're baking in for the truck brokerage segment from a revenue and margin perspective sequentially if you exclude Choptank? Then last one for me is just on thoughts around intermodal pricing in the 2022 bid season. Sure. Brokerage in Q4 ex Choptank is gonna be largely consistent with the Q3 levels. Choptank obviously is the delta. Yeah. This is Phil. You know, we continue to see strong demand on the brokerage side, great cross-selling opportunities there, and we're taking full advantage of the spot market as well. So feeling very good about the results there. We look ahead with intermodal pricing. You know, we're feeling very good about the early stages of bid season as we've kind of entered that now. Some of that pricing was on the lower end given how you know, we've seen rates continue to go up throughout 2021. Those renewals will be consistent with what we've seen in the past, and those will have effective dates early next year. You know, early bid season indications are very strong and a continuation of the current trend. We're anticipating, you know, a strong bid season. Shippers need to lock in capacity, and we've really stepped up, I think, for a lot of our clients, and we'll be able to take advantage of that next year. Feeling very good about our opportunity looking ahead. Okay, great. I appreciate the time. Our next question comes from Scott Group of Wolfe Research. afternoon, this is Jake on for Scott. Thanks for taking my questions. Sure. Can you break out how much of the pricing growth was driven by higher accessorial fees compared to how much was driven by higher base rates? Yeah. Hi, this is Phil. You know, appreciate the question. You know, we've seen very strong base pricing, and that's gonna continue. From an accessorial schedule change, obviously, you know, our preference is to be moving more volume, get more fluidity back into the network. You know, that's really our focus, is working with our clients there. It is not, you know, a huge determinant of our margin enhancement. Obviously, you know, somewhat beneficial, but not anything that would outweigh the benefits that we see from moving more volume and continuing to get more price. Got it. Thanks. How much visibility do you have on rail cost inflation next year? Do you expect more than this year? If the market remains as is, do you expect gross margins will continue to increase from here as rates move higher? Yes. We do have very good visibility to our rail cost increases next year, and we do believe that we're gonna be able to attain rate increases in excess of our contemplated. Got it. Thanks for taking the time. Appreciate it. Our next question comes from Todd Fowler from KeyBanc. Your line is open. Great. Thanks, and good evening. On the step up in gross margins here, both in the third quarter and for the guidance, can you talk a little bit about the driver behind that? Then can you also talk about the sustainability of gross margins at these levels, which we really haven't seen for a while, as we get into 2022? Sure, absolutely. This is Jeff. So the biggest driver of gross margin is gonna be our rates and the surcharges we have in place. We do have incremental transportation costs that are going up sequentially and year-over-year, rail costs and certainly drayage costs, both internal and third party. But price is a very big driver of margin for us, and that was the driver of the increase. Yeah. I would just highlight, I think, you know, in our Logistics segment, we're seeing strong performance there, nice improvements in our transportation management margins and a nice sequential improvement in CAC, as well. Our Final Mile business is, I think gonna see some sequential margin improvement and, you know, pleased with what we're doing there. You know, I think with brokerage, you know, you have Choptank as an addition that's gonna be a nice driver of incremental gross margins, and we're seeing a lot of opportunity on the cross sell, as well. You know, to Geoff's point, intermodal is gonna continue to obviously be a large driver of that. We think that the margins are gonna be sustainable, and, you know, we just need to stay focused on great operational discipline and, you know, continuing to enhance our pricing. Just so Phil, if I put together the comments that you made to Justin about, you know, intermodal contract renewals being positive and think about, you know, prices being a big driver for the gross margins, you know, that would suggest that going into 2022, as long as you're able to see that positive pricing that you can run, you know, somewhat these levels, obviously with some seasonality and some other, you know, kind of factors moving through the numbers. Correct. Yeah. We would also believe that we're gonna see improved volumes next year as fluidity, one, we get our containers fully onboarded, and two, you know, we see some improved fluidity. We're starting to see some sequential improvements in fluidity and turn times. We didn't see that from Q2 to Q3, but here in Q4, we're seeing some of that sequential improvement. If that continues and we maintain strong pricing, could really create a nice benefit in it, you know, for 2022. Great. Then just for my follow-up on the operating expense question, Geoff, it was helpful for the fourth quarter, and we kind of get a sense for the run rate. As we move into next year, what are some of the moving pieces? I would think incentive comp would be one, you know, a full run rate for Choptank. What are the other things we need to think about on the expense line for 2022? Thanks. Sure. Those are gonna be the big drivers. Obviously, we've got personnel costs is a big chunk of overall OpEx. You know, we are putting together our budget for next year. We're certainly gonna be growing. I think, you know, from an earnings perspective, you know, the expansion in our profitability is probably gonna come more from price than from volume. You know, that meaning not a lot of incremental headcount adds. Kind of a, you know, we'll have more to say on that when we announce our Q4 earnings, so. Okay. Understood. Thanks for the time tonight. Thanks, Todd. Our next question comes from Tom Wadewitz from UBS. Your line is open. Yeah. Thanks for the questions and or for the time, and congratulations on the strong results. You sound pretty optimistic on, you know, on the transition to volume growth, and it's interesting you're seeing some recent improvement. What else, you know, do you think that you can do? You know, any sense, can you do mid-single digits growth? Can you do higher than that as you look to next year? It seems like, you know, with the container additions, you'd be positioned for that. I guess what we're hearing from the railroad seems kind of cautious, and I'd refer to Norfolk Southern's comments about, you know, they wanna hire more people, but they're just seeing higher attrition. Maybe, I guess, some more detail on your views on capacity and how that, you know, might constrain what you do next year on volume. Yeah. Obviously, you know, if our rail partners aren't able to add, that could be a constraint on our capacity. I know that there have been adjustments to wages made, but I also know there's been a great deal of investment in chassis, which has been one of the larger bottlenecks that we've seen this year. That'll really help from a terminal fluidity perspective, and not having trains really stack up. We think that's gonna be a big benefit. Hopefully, the actions that are being taken will lead to additional chassis. I think we've done a nice job of really stemming driver losses on our end and successfully adding third-party capacity. That could be a big upside factor for us next year if we're able to continue that trend of driver adds. That'll really help us in maintaining fluidity and control over service product. You know, our goal is gonna be to grow next year. We don't have any hard numbers yet. Yes, you know, with fluidity and us continuing to add drivers and the investments that are being made in chassis, we think, you know, we're gonna be in a good position to do that. It has been, you know, a bit of a challenging year from fluidity, but we're seeing some improvements actually in the start of Q4, which is great. Tom, I would add that, you know, the macro conditions continue to look very favorable, both from the demand side and, you know, we see truckload continuing to be constrained, which is a great setup for us going into next year, being able to deliver value and service to our customers. I guess, as a follow-up question, I mean, there's obviously tremendous, you know, media coverage and, increased, you know, heightened focus on the West Coast issue and logistics issues in general. How do you think about the kind of West Coast issues and the improvement in fluidity? How does that affect your, you know, your outlook? Is that something that you assume gets better? Or you think that even if there's still challenges at the ports in West Coast warehousing, that you still can see a transition to nice volume growth? Hi, Tom. This is Dave. I would suggest to you that the West Coast port situation is not going to be resolved quickly or easily, that we're gonna continue to see congestion at least through the end of the year, and I would suggest to you beyond. There just is not enough warehouse capacity. The 24/7 is really not gonna work. I mean, you still need skilled labor to be able to load and unload those vessels. You are seeing some diversion to some of the East Coast ports, and people are trying the Port of Portland and other ports on the west. But the congestion is there for a while, and it's not. There's no light switch to turn it off and on. Are you tightly coupled to that, or is that something that, you know, kind of domestic can flow well, even if international intermodal is not? It actually for domestic intermodal, it actually flows quite well, because there's only a limited amount of capacity, both, dray, container, as well as, rail ramp, capacity. So actually, this almost metering in of product actually is probably beneficial and allows us to supply more capacity to our clients because it's kind of stretched out. I would just add, I think that tightness, you know, from an international box capacity is gonna continue to drive more transloading into domestic. I don't see that trend really changing anytime soon. I think that's gonna continue to be a driver of more growth for domestic intermodal off the West Coast. You know, there's gonna continue to be a high level of demand for imports there. Even as we look at other locations, we still think there's a lot of growth opportunity for us. You look at Port of Savannah, that's been a big growth opportunity for us this year, and I think that'll continue as well. Yeah. Certainly seems like there must be a lot of pent-up demand out there. Thanks for the time. Thanks, Tom. Our next question comes from Bruce Chan from Stifel. Your line is open. Hey, thanks. Good evening, gents. You mentioned the shippers need to lock in capacity a couple times, and just thinking about that in the context of dedicated, you know, obviously higher costs there and issues with driver availability, is there more business to exit in subsequent quarters? At what point do we expect, you know, net growth there, especially as you start to convert that new business pipeline? Yeah, no, I think it's a great question. Yeah. I would start with, you know, I'm very pleased that we're generating an improved return in the dedicated business, and that's been our primary focus. What I would highlight, I think with dedicated, is that we were not fast enough to get wage increases in with our customers to be able to go out and recruit and seat trucks. That led to some of the revenue loss that we saw. We've exited the majority of the business that we think is in non-compensatory contracts, and we're trying to make sure that with our clients, we're adjusting language where it might not fit with a standard dedicated contract with fixed and variable sort of charges. I think we've done a nice job with that. We're through the vast majority of those changes. We're still always gonna be trying to make sure that we're working with our clients to set up a mutually beneficial agreement. You know, we certainly see opportunity and demand out there. For us, it's about making sure we're going after the right contracts with the right customers and the right set of charges. Feeling good about our disciplines there and ability to maintain a better return going forward as we bring on new business. Okay, great. That's super helpful. Then, you know, just for my follow-up, you talked about strong residual demand for e-commerce, and I'm wondering how that translates for last mile and some of these big-ticket goods as, you know, maybe some of these stimulus dollars start to wane. Yeah. You know, with our big and bulky kind of Final Mile home delivery, we have seen significant growth this year. You know, I think even if there is a slowdown with some of those clients, we have been able to diversify the customer base quite a bit with our more traditional retail and e-commerce customers. We're feeling very good about the growth opportunity ahead, regardless of if there's a little bit of a slowdown in demand. We actually have some a little bit of a backlog in onboardings, and you know, going in that'll move into Q1 of next year, that'll really be a nice ramp for us as we look ahead into 2022. Okay, great. Thank you for the time. Our next question comes from Charley Yukevich from Evercore ISI. Your line is open. Thank you for taking my question, and congrats on the quarter, guys. Focusing on truck brokerage, when we think about the changes in volume and revenue per load this quarter, how does this break out between contractual and spot? Sure. This quarter, we were right around 49%, right, just under 50%, or sorry, just over 50% contractual. It did move down from about 61% last year, Q3. Okay. I guess I was more focused on how, contractual volumes grew this quarter, if there's any sort of color that you could give on that. Sure. I would say spot continues to be strong. We are doing our best to convert where there's opportunities to convert spot into contract. That's kind of where we played historically, you know, closer to 70%. We think we'll get back there over time. Okay, go ahead. I guess as my follow-up, could you tell me what the split is between contractual and spot for Choptank? Sure. Choptank is around in this market. It's around 65%-70% transactional. Historically, they've been, you know, closer to 50/50. Okay, great. Thanks a lot for the time. As a reminder, if you have a question, please press star then one on your touchtone phone to enter the queue. Our next question comes from David Zazula from Barclays. Your line is open. Hey, thanks for taking my question. Hey, I guess, you know, for Dave or Phil, whoever wants to take it. I mean, you talked on the last call with Choptank about, you know, the good cultural fit that it made with your existing businesses. I guess, I was curious, you know, did you look at any kind of measurable metrics, or how did you measure that, you know, beyond kind of, you know, a personality fit on how the business would fit in? Yeah. I would say, you know, we always really focus on culture and alignment, and you can see through the tenure of their team, the commitment that they have to that business and to the community that they're in, and how long they've been at this, right? They didn't just start up, you know, a few years ago. They've been at this for 20 years and growing this business methodically and have a strategy and a way that they interact with their customers. Most of their customers stick with them for the long term, right? That is different than a lot of brokerages. There's typically, you know, a high level of customer turnover, a high level of team member turnover. That's something that Hub Group really values is our folks and our clients. From that sort of long-term relationship with both stakeholders, we thought, you know, along with all the qualitative aspects of the diligence process, that was really indicative of a great alignment with our organization. Thanks. Following up, I mean, obviously you haven't been integrating for a long time. I know you mentioned a cross-sell opportunity, but do you feel like you've made any progress since the announcement as far as, you know, moving the product onto existing customers in any way? Oh, yeah. Yeah. We're very excited. I know their sales team is very excited. Our customers have been very excited. We've already got wins on the board actually, and we're seeing a tremendous amount of opportunity to cross-sell. Yeah, very, very excited about even the progress through a week. It's been great. Great. Thanks very much. Thank you. The next question comes from Brian Ossenbeck from J.P. Morgan. Hey, this is Kellen Curry on for Brian. Both Transcon and Local West volume was down. Number one, just what's been the sequential trend into the fourth quarter? You know, what's your expectations for the utilization level for the upcoming containers given that congestion is still expected to last into the new year, and rail service still needs to improve? Quarter to date, that's really for the month of October. We are down around 9% year-over-year. Last year Q4 was a very strong quarter for us. We are encouraged that we've seen sequential improvement as the month has gone on. We had our highest volume week this past week all year, really going back to January. We're encouraged by that. We do have new containers coming in. We expect we'll receive all of them by the end of the calendar year. We are forecasting an improvement in our container turn times sequentially from Q3 into Q4. Okay, thanks. Just last question for the follow-up. In terms of the vaccine mandate, based on your reading and understanding of the mandate, does it apply to you? If not, you know, will you be impacted by the mandate, you know, in any indirect way that could, you know, impact operations in any way? Thanks. This is Dave. Certainly, the government contractors, we don't believe that that's going to have a direct impact for us right now. We are not a government contractor. If they do, if OSHA does come out with a mandate and forces truck drivers, it'll have an impact. We're still working through it. It will have an impact on the entire economy, in my view. It's because there will be a certain number of truck drivers that just feel strongly from a personal perspective that they don't wanna take it. I'm not an anti-vaxxer. I'm vaccinated. I encourage people to. If you try to mandate that to what can be a very independent group, I mean, it's just I hope that common sense prevails and it's understood that realistically the truck drivers throughout this pandemic have been out there and getting product to store shelves. I hope that that's taken into account and we get an exemption. Got it. Thanks, guys. Thank you. The next question comes from David Zazula from Barclays. Your line is open. Hey. Sorry if I missed it or if somebody asked it earlier, but did you guys put out the employee year-over-year change? We didn't, but we can do that. We ended the quarter at just under 2000. We had around 30 or 40 more last year, adjusted for non-staff. We are down slightly year-over-year. Awesome. Thanks very much. Appreciate it. That concludes the question and answer session. I'll turn the call back over to Dave Yeager for final remarks. Well, again, thank you for joining us, this evening. As always, Geoff and Phil and I are available, if in fact you come up with, different questions or additional questions. Thank you again for joining us. Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.