Good morning, everybody. I'm John Chappell, the senior transportation analyst at Evercore ISI. Thanks for joining today. This is the first of our fireside chats on the transport side, for the two-day conference. We're starting off with J.B. Hunt. With the team today, I have Darren Field, Executive Vice President, Intermodal; Brad Hicks, Executive Vice President, People; President of Highway Services; John Kuhlow, CFO; and Brad Delco from Investor Relations. I do have a fair amount of questions to run through in this 35-minute fireside chat. For the people in the room, if you do have questions, feel free to raise your hand, and we'll call on you as we see fit. Or I'll try to call on you the best I can. I'm gonna just start with a big picture question at first for really, Brad, Darren or John, before I kinda go segment by segment. It's really been three weeks since your earnings release, exactly. Seems like a lifetime in these equity markets and these freight markets. Just kinda big picture, any interesting pivots or changes of note as it relates to shipper activity or demand, rail service, general intermodal trucking pricing trends, spot or contract that we've seen as we've kinda entered February, and kinda get closer to this peak season? I don't know who wants to start. I'll start, and then maybe you finish, Darren. You know, I would say, it does feel like it was a lifetime ago, but I would say that not a whole lot has changed. In terms of what we were seeing and what we anticipated this time of year, you know, there's nothing new, as a positive, but there's also maybe nothing new that's a negative against what we were seeing at that time. You know, a lot of our speculation is around second quarter starting to see a rebound based on our customer feedback and the insight that we have there. Really that kind of January into February at this point, not a whole lot different. Yeah, I mean, probably just kind of second all of that and say that the conversations with our customers about their supply chain, what their orders are like, what demand their customers are providing to our customers, and how that translates into the need for shipments, has been very consistent. Most people have commented on some seasonal weakness and weakness in this first quarter that was anticipated. It's not any different than what we would have said, certainly, at the end of the fourth quarter last year, and it, it no real changes. I think that the customer base continues to really focus and communicate with us that they do expect a peak season in the second half of this year. They think that it gives them an opportunity to get their inventory more normal, whatever normal means to anybody, anymore. We remain optimistic about the opportunities to grow our business. Really, all of our customers are asking for more intermodal capacity from us, and we're excited about that as we continue to see an opportunity to save our customers money by converting highway business to intermodal, and that gives us an opportunity. That was true at the last earnings call, and it's still true today. I've shared in a handful of meetings we've already had today. So far, I think everything is basically what we expected. Brad touched on it. There's no negative surprises. There's no positive surprises. Things are pretty much how we expected would be at this point. Great. Thanks for the update. We're gonna touch on intermodal a little bit later. I know it's important. I know it's been the focus of most of your meetings today. I wanted to make sure since we have Brad that we cover a lot of the other parts of J.B. Hunt that maybe aren't in the focus all the time. Let's start with dedicated, Brad. My personal opinion, probably one of the most perceived, misperceived parts of your business. You've expanded tremendously over the last couple of years. I think a lot of that has to do with kinda your unique ability to add equipment and labor when others in the industry and the supply chain were struggling. That's also been a little bit to the detriment of the margin side of the dedicated business. The question is effectively, is the pace of the growth in that business set to start moderating a bit, especially given some of the freight weakness that we've spoken about in the last couple of quarters? Do you still have a very full pipeline to onboard in that dedicated market? Yeah, certainly. You know, we did come through, really the last two years, 2021 and 2022, were unprecedented growth years for our dedicated division and that product. You know, it was about how can we solve for our customers in a constrained capacity environment. You know, we feel like we were advantaged in being able to do that both from access to equipment, but that was in part due to us holding trades, that we feel the effects of. We saw some of that in 2022. We're gonna continue to feel that in 2023, but we are hopeful and believe that we'll make really good progress on cycling our equipment a little bit more normal as we get closer to the end of the year. Then just the volume of startup and the pressure that that place. Now, we do expect to continue to sell in any environment, in our dedicated. The value proposition can shift and change, today in a more constrained environment. It's around the cost of capital and letting us be that arm for that customer or shipper, and then certainly about risk management and risk mitigation, whereas maybe the storyline in 2021 and 2022 was much more around, you know, the headline around just secured, consistent capacity. Now, that being said, we don't anticipate a record year in sales like we saw the last two. I think that'll come a lot more in line to what we've historically talked about, which is a gross sales of roughly 1,000 to 1,200 tractors that should net us, you know, on a normal year, 800- 1,000. That could be a little bit pressured on the net side this year just given, you know, our customers, freight volumes are a little softer. You know, we would see, you know, a fleet go from an 18-truck fleet perhaps down to a 17 or 16-tractor fleet to support whatever their demand level is. I do feel like that will start to normalize for us this year. Startup expenses, which have always been a part of our dedicated model, will not be overweighted. At the same time, we should start to see some correction against the older, aging equipment and more pronounced, what we've felt there is in just our maintenance costs by carrying that equipment an extra year to 18 months longer than we historically do. Hopefully we'll start to see that in the back half of the year. We still will be carrying a surplus of trade trucks going into 2024, but not anywhere near the volume that we have right now. Okay. Just to be clear on that margin, you know, going from the pressure of the extreme growth to maybe a more normalization, just trying to understand the timing a little bit. You said the second half, but is this kind of a long-tailed maturation process? It takes a couple of years to take that exceptional growth over the last couple of years and get it to the margin you want, or can it kinda snap back pretty quickly as you get the fleet to the type of age that you'd like as well? It's a little bit timing. You know, even with the great sales year we had last year, what, Brad, we have about 500 starts that haven't implemented yet from 2022 sales. You know, when we think about new business, it typically takes about four months for that business to onboard and start to get in line with our run rate of expectations of profitability performance. You know, dedicated, it has never been perfectly balanced in when we sell and how we sell. Even if, you know, this year as an example, if we hit our targets on our growth, but if all that happens to implement in the third or fourth quarter, we won't get the benefit of those fleets coming out of startup in this calendar year. On the maintenance side, I think that we're gonna carry that burden throughout the balance of this year for the most part. A substantial amount of trade activity is occurring now throughout the entire year. Every time that happens, we get immediate pickup, but it won't start to feel more pronounced until we get towards the back end, is the reason I state that. You know, we still believe in our long-term targets of 12-14, in terms of what our margin profile is for dedicated, and believe that those two things, more moderate on the overall growth and getting back to our normal trade cycle, will get us back in that strike zone. Great. John, I just wanna add a couple of comments if I could. I mean. Yeah. As I think you're aware, but to make sure the audience is aware, you know, when you think about our dedicated business, it is really made up of hundreds and hundreds and hundreds of individual accounts. Each of those accounts is priced really to an ROIC target. Obviously, margin is sort of an output of what is needed in order for us to hit that target. You know, some of the things and nuances of just focusing on margin percent, fuel, obviously, has been a headwind to margin percent performance. Fuel is generally pass-through. There's zero margin. Higher fuel prices, the more it dilutes margins. We've sort of talked about that at times over the last several quarters of it having a year-over-year headwind on margin percent to the tune of about 100 basis points, plus or minus. Maintenance, I think, has been another headwind. You heard Brad Hicks comment on that. Those are probably the two ones that stand out, that maintenance will be a headwind for us in 2023 still. Fuel, I don't know. Of course, startups is the unknown. If startups were to slow, generally, that is beneficial to margins. If we're still growing, that's generally a good problem that we think about having. We sort of hope that we would see margin pressure as a result of a lot of startups. The only other thing I would just reiterate that was said on our last earnings call, the pipeline is as large as it was a year ago. There's a little bit more concentration with some larger deals that are in the market. I'd say there's not as much breadth to the backlog or to the pipeline. Nonetheless, there's still a lot of opportunities for us to sell. Hey, we can free up capital. You can outsource your private fleet to us. We can get trucks. We can get drivers. We can get equipment, and manage the risk, and probably do so more efficiently than the customer's doing today. There's still opportunities out there to sell into. Okay. We like to remind Nick that he was able to hit 2,500 in a year, so. Yeah. He's cute. I would say too that of all that, that high volume of starts, there's nothing uncharacteristic that we've seen or any material change. You know, we monitor those very closely, and, you know, they start to come out of that implementation window in that third to fourth month and get to their targeted performance kind of run rate. I would just, you know, restate that we feel really good about the fundamentals of the business coming out of startup just like we would expect. Okay. Not to reveal your secret sauce, but maybe just an explanation on the pricing of the dedicated model because I think that's the biggest part of the misperception. How can the pricing hold up in a dedicated trucking business when there's such volatility and lately such a precipitous decline in the, in the spot market? Yeah. Our approach, as a starting point, is really a cost-plus model that wants to balance shared risk between fixed cost and variable cost. You know, and so, you know, we look to identify every input that exists right now, and then we layer our margin on top of that. Among other things, typically, five-plus-year contracts that carry with it some type of indexed pricing adjustment on an annualized basis. You know, that's not the segment that we see radical swings based on the market conditions. We do, you know, have needs and costs go up, and we have to account for those in our model. By and large, the indices that we use on the annual rate escalators account for that. Now, they're not always perfect in terms of the timing. Sometimes you get it a little bit later than you want, and sometimes you might get it even a little earlier than you need it. Over the multi-year agreements that we have, it balances itself out. We generally do not have the need for those radical swings in rate. Most customers where we have had private fleet conversions, which is where our focus is, you know, they used to run their own fleets. They understand that every year the cost of equipment goes up a little bit more. They understand that, unfortunately, insurance costs, in spite of outstanding safety performance, those insurance costs and premiums have gone up every single year that I have ever worked at this company. When you ran a fleet, you understand that, and it's a little bit more tolerable of a conversation to work through. The proof though is in the value that we can create for that customer. And again, as we create efficiencies, the model allows them to immediately benefit from those efficiencies because, you know, we have a model that, depending on the fleet, it could be anywhere from 40% fixed cost, 60% variable. So every time we get better efficiency, better utility, they get leverage themselves. That's very different than our transactional business model where, you know, we're generally the recipient of the efficiency gains, and then we elect to use that in different ways. And sometimes it's to be more cost-effective to the customer in hopes of growing our portfolio with that customer. In dedicated, you know, they get the benefit that day, that week, that month as soon as we get those efficiency gains. Yeah. Great. I do wanna touch on ICS and final mile at the end, but I wanna shift it over to Darren now to make sure we have an appropriate time for intermodal. Let me just start big picture first here, kind of more, you know, strategic as opposed to short-term focus. You've been noticeably more willing to acknowledge your Western partner, especially by name, I think, over the last 12 months. Clearly, with two of your biggest competitors moving to the other Western rail provider, what does that mean for your competitive positioning, not just this year, but kinda how do you envision the next three to five years playing out? Yeah. You know, I got asked earlier today, you know, what is, what is core different today versus when other competitors were at the railroad? I wanna say this loud and clear. BNSF and J.B. Hunt have worked together for decades to grow together and have been successful and effective at that. What's changed is, if two years ago we had gone in and looked to do some integration work together or maybe even develop a product model different than what traditional intermodal might be, it might have been BNSF's feedback at that time to say, "If I do that with you, then I need to do it with my other channels, and I'm not sure I can do that right now." That was what used to be. Today, we go in with an idea, and it's absolutely, "Let's get started on that. When should we have a meeting? Who all should be involved? How do we move faster?" Their idea is coming to us to say, "Hey, international intermodal is less effective for us. We're averaging 10 days of dwell at terminals on our international containers. Let's start to talk about the long-term future related to transloading and how can we be more effective at utilizing their assets, which are largely their terminals, and our ability to educate customers on the transit quality. How can we get the equipment moved out and free up a parking space, that helps them? How can we integrate our systems and literally park the container at the terminal closest to the slot on the train where it's gonna get on? What that means is over the course of a year, you find a little half mile I took out of the hustling operation at the terminal. When you execute millions and millions of terminal trays to load and unload the train, that turns into real value that we can then utilize together to help grow with our customers. The next three to five years to me are really integrating our systems, building out processes like that that help define, you know, a more quality, efficiency program. Can their system tell our driver in the cab of the truck where to park when he comes in the terminal before he ever gets there? Can we speed up the process of that driver entering the terminal because we're so highly integrated? The minute we leave the shipper with the unit, that rail provider knows that we're coming and we're just communicating differently. Hey, you know, they announced in October, massive investment in Barstow, California. Over the long term, I believe we're gonna be executing a much heavier percentage of transload units out of international into domestic intermodal, which really gives us a significant growth runway. It gives them a significant opportunity to utilize those terminal assets more effectively than what the current international shipping has meant. We're aligned more than we ever have been. Our executive teams meet regularly and talk through strategic initiatives. I just, it's different. We have been vocal about that because it's been so important to highlight to our customer base that we're aligned in a growth trajectory, and we wanna support each other in that growth. That means we're working together differently than we ever have. You mentioned their big investment. You have a big investment as well on equipment. I think I know the answer to this question, but I'm gonna ask it anyway. I mean, when you think about integrating that equipment, short-termism, we have this, you know, obviously some headwinds from a macro perspective, but this is obviously a longer-term type of investment. And then you have these moving chess pieces, especially in the west. Is the biggest opportunity there, you know, taking share off the highway? Is it kinda consolidating your share gains on the BN? Is it entering new markets? Whatever the case may be, where do you think the biggest opportunities lie with that big investment that you're making? Yeah. I don't, I don't wanna call it new markets because I don't, you know, I don't know how many new, you know, new origin destination pairs can pop up. We still talk about those, but I don't, I don't think the investments either party is making are driven by that concept. It is certainly highway conversion will always be a significant effort for both BNSF and J.B. Hunt, but that's the truth in the east as well. We're very focused on taking loads off the highway that intermodal can and should be the best, most efficient solution for. We wanna do that across the country, but certainly out west. I think, you know, I always tell my team, I mean, there's really kinda three ways to grow for intermodal. We do have organic growth where our customers, just as their sales grow, we get an opportunity to grow with them. That's kind of obvious. Highway conversion will always be a significant effort for us. This transition out of intact international to a stronger transload model at whatever point of entry, port of entry, the import comes through, moving that out of an ocean container into a domestic container can create better fluidity for all of the railroads at their terminals. We are very, very focused on growing our opportunities there. We announced opening, we opened a transload facility in New Jersey at the end of 2021. We announced a new transload facility in Commerce, California last July. We opened Tacoma, Washington in November. You will, and then BNSF's announcement about a future in Barstow. Those are all related where we continue to answer challenges our customers had throughout the pandemic with their international supply chain, and we were able to really speed up the process of that inventory flow. That is where those are the areas that we are considering with those investments. Forever highway conversion will be top of mind, but this future growth in converting international intermodal into domestic is a major, major area of focus as well. Yeah. When we look back historically at a last period where J.B. Hunt grew like this from an equipment standpoint, it actually engulfed the global financial crisis. You take that 2008, 2009 period out, and you had several years before and after where you had double-digit volume growth on your network. When you think about the capacity you're gonna have in three years when you're kinda coming to the conclusion of your own investments, you know, hopefully the rails are running more fluidly, you have, you know, much better box turns. I don't know how you measure this, but what do you think your capacity's gonna look like in 2025? Frankly, do you think that there can be sustainable service on your rail partners to, you know, get to the type of utilization on that capacity that you want for maximum, modal shift? I do believe there can be sustainable capacity from the railroads, particularly the way we're working with them to create a more fluid terminal experience. I think that's critical. PSR was a hard time for us to experience. It felt harsh. Different railroads executed that differently. At the end of the day, it was an efficiency exercise of the railroad industry to take flexibility that they had provided to the customers and to the carriers, and they took that flexibility away and kind of made it their own and really thought that process could dictate change to the customers. I think the realization that even in the pandemic, they couldn't force the customers necessarily to open on the weekends or to operate 24/7 at their facilities. It was a time that we used to educate our rail providers that, "Look, we have to deliver to the customers a product that they want to buy, and it has to fit the needs of their supply chains." I think that the railroads, as well as us, are working closer than ever on how do we translate what the customer can consume, and let's make it as efficient as we can, and let's work together to drive efficiency at your facilities rather than just sort of try to make demands of the customer to change the way they behave. I think that's what's different today. As we move forward, we're gonna continue to grow by adapting to the way the customers can and want intermodal. We're gonna be very focused on doing that. When I do go back to 2008, 2009, other times of really, really significant growth for us and why we're so confident that as this year goes on, we're gonna continue to find new growth opportunities, everybody needs to save money. Everybody's under pressure. The last couple of years have been difficult. Our customers want to convert off the highway into intermodal. That's an enormous opportunity. You get into the second half of the year, hey, last year, fourth quarter was not strong. Volumes, there was no peak season. As we think about next year and our ability to solve and serve for those customers, that's where we get some confidence that volume growth will be there. 2025, I don't even know how to address that. I know that we announced 150,000 containers over three to five years. That was in March of 2022. That at the latest puts us at that number by March of 2027. If we need to adapt as demand, environment and velocity impact, we will. I'm very confident we're gonna hit that number because I believe our customers want more of what we do. Last one for you, possibly. Pricing. This is the lightning rod conversation, obviously. I'm not gonna ask you for pricing guidance. Obviously, you wouldn't give it to me anyway. But, you know, just how do we think about the pricing conversations and maybe when we have a decent line of sight on the 2023 bid season amid this weakening truckload market, amid this fuel volatility, amid some of the demand weakness? Just, certain any talking points around the pricing environment? You know, our customers are all talking to us about their bid cycle. They're talking about the cost of transportation and the need for their budgets to get a benefit this year, and they gotta have a cost takeout. We too are talking to the customers about what they can do to help us take cost out. How can we get the equipment unloaded faster? How can we layer on volumes that complement a different customer's volumes so that each of those customers can get some benefit for that? I think that'll continue to be the case. You know, as we add volume, as we make, and, you know, container turns seems to be the area of focus often from our investment community because it's kind of an easy visible number. Certainly we wanna improve the velocity of our containers. Driver productivity is a major component of our cost in intermodal. Better service provides better planning for our drivers, which makes their work hours more productive, and they're actually executing stops more regularly. We're able to find a cost takeout with that. Velocity improvements result in cost takeout. You've got driver productivity, which can drive significant cost takeout. You layer on new volume growth that complements an existing network, which actually sort of finds its way into just leveraging out cost over more loads. That's been our focus. We are aware that we have to compete over against highway capacity. Our customers do find value when you consider the all-inclusive price, including fuel and all. There are a handful of lanes out there where truckload capacity may be less expensive, and we either have to adapt and find a way to take enough cost out to compete, talk to our rail providers, and say, "Hey, we've got a problem in this particular lane." Though it's pretty rare, in most cases, intermodal is still the best cost answer for the customers. I think our customers want to get intermodal back into their supply chain because they know in the future it needs to be a regular part of their capacity source. That is what we're talking about. Obviously, I'm not answering any of your pricing questions, but I think that the conversation on price relative to highway and pressure, we're acknowledging, there's cost takeout, and that should result in a lower price for our customers. We are encouraging that conversation and welcome it and feel like our industry needs to respond with a better product, and we need to be valuable. That happens when we grow. Got it. Brad, back to you, integrated capacity solutions. You hit this inflection point on profitability earlier than I think even you expected, but you're obviously no one's bigger than the market. You have had some headwinds there as well. When we think about ICS over the next two to three years and your path towards getting to your long-term margin rate, is that something that just happens with, you know, maturation and organic growth, or do you really need, number one, a big cyclical tailwind, and then possibly number two, some inorganic growth in that business? No, you know, we feel good about, and to your comment, that maybe we even got there a little earlier than anticipated. Certainly, the height of the pandemic was a contributing factor, really in the area of what was going on in Spot. And obviously, we know what's happened with Spot on the back half of 2022 as we turn into 2023. We feel really good about the investment in the technology platform. You know, we do believe that both JBT and ICS, you know, what we've created is less about brokerage or our truck line, and it's more around live freight in the system and drop freight in the system. With 360, JB Hunt 360, technology kind of as the platform, it allows us to start to bring those two networks closer together. Through that, we create efficiencies. That's where we're very excited and really optimistic about what the future holds for both ICS and JBT, because they are a lot closer together now. We can use live freight to complement our 360 box initiative, in terms of just helping make things go and being a more efficient answer for our customers. The idea now is that, yes, for the most part, the investments have been made. We have the right people, the scale of our people, the platform, and now we are extremely focused on growth. This isn't the best environment to be focused on that growth. It's a fight more so in brokerage today than in any of the segments at J.B. Hunt. That's where we feel the impacts of this softening freight market more pronounced. We don't lose sight of, you know, brokerage does create flexibility for shippers. We've seen over the last decade that shippers have progressed from, call it 10%-12% of their books, being comfortable and that, that brokerage is an answer. I think some of the more recent third-party data would suggest that that's upper 20s now, 26%-28%. That trend is expected to continue. We think we're well positioned, on our non-asset and our asset light, leveraging the technology. The last thing I'll mention is that technology is also finding ways to create other segments within, within J.B. Hunt, whether that be intermodal, dedicated, or final mile. It brings volume in that can reduce and eliminate empty miles, that creates value for those segments. and then it's also a place for them to come on any of their elastic capacity that they may have, whether that's a day-a-week issue, for dedicated, or even in this softening environment, they can go to our platform and also access that freight. It is really helping J.B. Hunt in total. I know a lot of times we've positioned it perhaps, or at least led with ICS was the reason for that technology, but it really is a platform for our entire company. I wanna mention that. Yes. I have one more question, but I've been a terrible host. We only have two and a half minutes left. Does anybody in the room have any questions? Just wanna let me run with it. That's a good decision. All right. Final Mile. You've done a phenomenal job turning Final Mile around. But I do wanna know, like, it's kinda the same question as ICS, but how do you think about it longer term? On the one hand, do you still invest capital in Final Mile and try to take share there, really tough business, competitive business? Or is this like one where you've done all the heavy lifting, you maximize profitability, and you just kinda go, you know, build on what you have without much incremental growth focus? No, a lot of effort and work went in over the last 18 months. Obviously, over the last four-plus years, we've had a handful of acquisitions that have complemented our strategy, whether that was part of our off-price retail element, whether it was furniture and the penetration of that. And then the one last year, Zenith really helped us complement kind of a first, middle, and final mile, what we call final mile complete, really for the large and bulky moves that are more LTL in nature. Along with that, certainly we had to make sure that it had met our objectives from a return on invested capital. And that's where, you know, the focus on profitability had been. It would be our hopes, though, that we can continue to grow and keep those in sync as we move forward. and, and so, you know, maybe there was a modest degree of pause in, in an effort to clean up some of that. We continued to sell through that, but there were some dispositions that occurred, where we couldn't quite get to, to terms with our customers on returns that we felt necessary, relative to the risk profile of that business. believing that we're in sync now, it would be our hopes and expectations that we grow, at a profitable clip, and not, not let it be kind of, up and down for us. Brad, I don't know if you wanna maybe mention anything to add to that one. No, just to reiterate what Nick said on our earnings call, right? We have spent the better part of the last 12 months-18 months focused on making sure we were being appropriately compensated for value that we were creating in the market. I don't know that we specifically said what percentage of customers we've really been able to revisit, but the focus for 2023 is to continue to focus on the contracts and making sure we're appropriately compensated for that, meaning we will be willing to put business at risk, but also in an effort to make sure we're gonna generate the right return on capital for that business. All right. Thanks to everybody. We're at time. I was gonna ask John Kuhlow how much stock they're gonna buy back this year, but he'll just answer after we shut down the webcast, and you're gonna have to call me to find out the answer. Thanks to everybody on the J.B. Hunt team, and thanks to you guys in the room. Thank you.