Ladies and gentlemen, thank you for standing by, and welcome to J.B. Hunt's First Quarter 2020 Earnings Call. All lines are currently in a listen-only mode. After the speaker's remarks, there will be a question-and-answer session. A replay will be made available after today's call on the company's Web site at jbhunt.com. As a reminder, this call is being recorded. It is now my pleasure to hand the call over to Mr. Brad Delco, Vice President of Finance and Investor Relations. Please go ahead, sir.

Good afternoon, and thanks for joining us. Hopefully, everyone has had an opportunity to review our earnings release that was issued earlier today. If not, you should be able to access the release on the Investor section of our Web site at jbhunt.com. Before I introduce the speakers on today's call, I would like to take some time to provide some disclosures regarding forward-looking statements. This call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as expects, anticipates, intends, estimates, or similar expressions are intended to identify these forward-looking statements. These statements are based on J.B. Hunt's current plans and expectations, and involve risks and uncertainties that could cause future activities and results to be materially different from those set forth in the forward-looking statements. For more information regarding risk factors, please refer to J.B. Hunt's annual report on Form 10-K and other reports and filings with the Securities and Exchange Commission. With that out of the way, I would like to introduce the speakers on today's call. This afternoon, I'm joined by our CEO, John Roberts; John Kuhlow, our Interim CFO, Chief Accounting Officer, Controller, and SVP of Finance; Shelley Simpson, our Chief Commercial Officer, and President of Highway Services; Nick Hobbs, our President of Dedicated; and Darren, our President of Intermodal. At this time, I would like to turn the call over to our CEO, Mr. John Roberts, for some opening comments. John?

Okay, thank you, Brad. Continuing with our format of opening remarks, let me start by thanking the J.B. Hunt teams around the country for their tireless commitment and hard work that has occurred and will continue in response to the conditions we've faced during this pandemic, and in particular, I want to recognize the efforts and sacrifice of our driving forces and our maintenance teams. We have had virtually full staff show rates every day. As you all know, drivers and maintenance teams cannot work remotely. Lastly, I wish to recognize the work of all office personnel in making a swift and effective adjustment to remote-style work to support our drivers and customers. On behalf of the leadership team, we greatly appreciate you all. Obviously, our commentary on this quarter and the balance of this year will be disrupted by the impact of the COVID-19 situation in many ways. Please be advised that senior management across the company meets via conference twice daily on all macro issues relating to staffing, human resources' safety, and customer dynamics to stay very current and agile. We clearly cannot predict the timing or depth of the coming cycles, but by covering this data frequently we do get a sense for direction and potential magnitude of change. Our views on the current situation include a focus on capital deployment, margin recovery, cost-saving levers, prior recession performance, recent weekly and monthly performance trends, cash flow generation, CapEx projections, balance sheet strengthening and liquidity preservation, portfolio exposure, and recovery trends. We will touch on these topics and others as we review our work with you today and in the coming calls. In all, we see the environment showing near-term disruption and turbulence but expect the longer term to present opportunities to capitalize on many of our existing priorities, including our efforts with 360, our Final Mile and private fleet outsourcing businesses in both our Highway Services and Intermodal. We're evaluating several categories of internal and external data to better understand the slope and timing of the import activities that will impact our Intermodal networks, which Darren will comment on during the discussion. We're also studying market information to help us estimate how the domestic freight trends will move in the coming weeks and months. As mentioned, we are working remotely where possible, which includes over 90% at our corporate campuses and approaching 50% in our field locations. We are pleased to report that recent investments in strengthening all aspects of our technology infrastructure and resiliency have delivered the results needed. Our ability to stay connected with each other, our customers, and our drivers has kept us fully operational. In addition to our traditional workflows, the positioning of our digital freight management platforms, known as 360, is enabling a different type of response to fast-changing needs by our people, customers, and carriers. A recent expansion to the baseline connectivity we had been reporting on, we are currently testing a comprehensive electronic bill of lading program to capture needed proof of delivery and signatures in a no-touch environment. This option will be available to all carriers and customers in early May. Shelley will cover some of the details for us here. This is a good example of our continuing development in 360. The comprehensive nature of our transportation offerings creates many benefits for our customers. In addition to those long-held advantages, we are seeing that our broad reach of services presents us with options to reallocate our assets and people. As noted, we are seeing declines in some channels with surges in others. There are several options available to us in the way we handle the demands from our customers in Intermodal, DCS, Truckload, and ICS. During our discussion today, we will call out some examples of how we are providing resources within and across, I'm sorry, pivoting resources within and across segments. A new element of our presentation includes the breakout of Final Mile Services. Lastly, we provided some historical data to help get you acclimated to the trends in this offering. Of all our business lines, this one has been hit the hardest in our ability to relocate assets, drivers, and contractors due to the nature of the equipment and services provided. Nick will be able to provide more information on our near-term expectations for Final Mile. While the environment we are in will make it difficult to effectively model this business in the near-term, we are hopeful that at least you can get more familiar with our recent trends. Even in the current turbulence, we have seen nothing that changes our strategic direction in any area of the company. In fact, we are encouraged by our positioning, and while we plan to be thoughtful about discretionary cost controls in the near-term, our long-term plans and expectations have not changed meaningfully. At this time, I'll ask John Kuhlow to make some comments on our current financial state, and then Brad will close up our planned remarks, opening for questions following that. John?

Thank you, John. As John mentioned, the team is going to cover specifics on the segment results. So, I'd like to provide some comments on our approach to addressing the pandemic during the quarter and more importantly, going forward. We obviously entered the first quarter of 2020 with a very different expectation than what ultimately transpired. While the pandemic offers a level of uncertainty not seen in many years, J.B. Hunt is essential to the recovery, and our focus remains consistent, which is to sell for our customer’s needs. We are confident in our balance sheet strength and liquidity position. Our target leverage ratio is one times EBITDA, which is where we landed at March 31. We're not afraid to go above this target in the near-term if conditions warrant, and we have the credit resources to do so. We ended the quarter with approximately $48 million in cash, and we currently have zero drawn on the revolver, which has $750 million of borrowing capacity, and an option to take that up to $1 billion. We remain confident in our ability to access cash, given the strength of our banker, and we maintain close communication with that group. In addition, we intend and expect to emerge from the current economic environment with our investment-grade rating intact. With respect to cash flow generation, outside the risk of declines in the freight market, we view our largest risk going into the second quarter around our customer's liquidity and ability to pay. We monitor working capital on a daily basis and are in frequent communication with our customers and providers. We're beginning to see an increase in certain customers reaching out to discuss liquidity concerns, and while we understand their liquidity issues, we have to enforce our terms that we have agreed to. Our carriers and suppliers expect us to pay according to returns, and we must expect the same from our customers. From a capital deployment standpoint, our approach remains the same. We invest in our people and business growth, we will maintain our working capital and leverage positions, return value to shareholders through dividends, and we'll continue an opportunistic approach to share repurchases. This has been our focus and will remain so for the long-term. Although we certainly recognize the current environment, we believe our framework allows us to make discretionary adjustments to this approach as needed. In the near-term, we are reprioritizing some of our 2020 spend to essential and critical items. We're evaluating expenditures based on those that must happen, those that can be deferred, and those that are capable of being canceled, but we have an example with plans to expand a terminal facility in our Southwest region during the second quarter to accommodate long-term growth beyond our 2020 needs. However, in light of the current state, we have paused this project until we are in a more predictable environment. Further, our opportunistic buyback approach allows for discretion based on liquidity needs at the time. So, while we have historically planned for excess cash to be used for buybacks, we may have to hold the cash at the interim. Additionally, while we continue to evaluate the market for M&A opportunities, any potential transaction will still follow our normal evaluation process, which considers liquidity and funding requirements. Today, cost reduction actions have consisted mostly of canceling non-essential travel, pausing hiring activities, and delaying other discretionary spend, which we will continue to do so as needed. It's difficult to determine the specific impact the pandemic has had on our revenues and costs. However, we have identified approximately $15 million of specific costs in the first quarter that were not planned going into the quarter. The largest of which was our special bonus for approximately $12 million, as we noted in our release. Considering our cost structure, a large portion of our costs are variable. Our purchase transportation expense, which represents nearly 55% of our cost, is heavily tied to loads. Our next largest cost item is salaries and wages, which includes driver pay. While driver pay is mostly a variable cost, you can expect to see less variability in the near-term due to increases in paid time-off for quarantined employees and offsets to reduce pay due to slowdowns. Today, we have not made adjustments to our costs that are considered more fixed in nature. However, we are carefully monitoring the environment, and are prepared to adjust if necessary. Lastly, with respect to CapEx, we've paused or canceled certain CapEx that was originally planned for 2020 that we view as non-essential in the near-term. This includes delaying or canceling orders for tractors, containers, and trailing equipment, where appropriate. However, keep in mind that not all of this is under our control as we're at the mercy of our suppliers. To the extent manufacturers have production slowdowns as a result of the pandemic, we may need to adjust our CapEx accordingly. We previously provided our 2020 CapEx forecast to be between $675 million to $700 million. Our current view for CapEx due to the factors noted is now in the range of $575 million to $600 million. This is roughly $425 million to $450 million of maintenance, and the remainder is growth or success-based CapEx. And Brad, that covers my prepared remarks.

Okay, great. And just to briefly follow-up on John Roberts and John Kuhlow's comments, I thought it would be worth providing a little more detail in investor speak with regards to the quarter, and what challenges and opportunities we see ahead in what is likely to be a dynamic freight market. In our Intermodal business, we've talked about network imbalances for several quarters, and that trend continued with weaker imports into the West Coast. In some instances, we had stronger demand in backhaulings relative to headhaulings, which puts pressure on revenue per load metrics, as well as network fluidity. We anticipate network imbalances to continue, as well as volume pressure from both demand trends and competitive pressures, particularly in the East with declining truck rates and lower fuel prices. We continue to monitor the flow of goods out of Asia in order to most effectively plan capacity needs on behalf of our customers, and because we're anticipating the question, we will go ahead and knock it off the list and provide our Intermodal volumes by month. January was plus seven, February was plus eight, and March was plus five. That said, we did see a more meaningful drop off in volumes in late March, which has continued thus far into April. In Dedicated, this business was built to withstand the severe ebbs and flows of demand cycles, and we acknowledge that we may have an opportunity to prove the strength of our model in the near future. That said, we should all recognize that DCS is not 100% immune to economic cycles, and we will see some impacts to the business that I'll let Nick discuss in more detail during Q&A, but in short, we feel confident in our ability to service our customers with the high level of service they've come to expect from J.B. Hunt, and that couldn't have been more pronounced than what we saw in Q1. In ICS, investments into building out the digital platform will continue, and we remain focused on investments in three areas: people, technology, and scaling the platform. As you should expect, gross margins will fluctuate based on the relationship between supply and demand in the markets we serve. Clearly that relationship was challenged in Q1. Our focus here remains on executing for our customers and creating raving fans for the digital platform. The business leaders will be able to share how the platform helped drive additional revenue as well as mitigate costs in their respective segments during the vital freight market we experienced in Q1. In Final Mile Service, this is an area where we're seeing the most impact to our business with certain customers shuttering operations. This business is normally seasonal with Q1 results usually the most challenged. While Q2 and Q3 are typically the strongest, it seems likely that we will not see normal seasonality in the business this year, suggesting losses may accelerate in Q2. In truck, the business continues to move towards a more asset-light model. As a result, you should see a trend towards a more variable cost structure that would see similar performance dynamics as a brokerage model. While we are investing less capital in physical assets, namely power equipment, we continue to invest in our trailing fleet as well as technology that should enable this business to evolve and become even more complementary with the 360 platform. This concludes my remarks. Given the number of questions we've already seen in queue, I would ask that each analyst ask one question and one follow-up, and then return to queue. So, Nicole, with that, we'd like to open the call for questions.

The first question will come from Chris Wetherbee with Citi.

Hey, great, thanks and good afternoon, guys. I guess maybe starting on the Intermodal side, Brad, thanks for the helpful color on loads per month in the commentary around April. I guess I know it's difficult to answer the question, but if you think about sort of the pace of what we've seen through the first two weeks of April, can you really give us some sense of what the magnitude of the drop-off might look like so far, and I guess in addition to that, when you think about Intermodal, maybe a little bit of color on sort of the percentage of the customers that may still be sort of operating and maybe what's kind of shut down as it stands currently?

Okay. This is Darren. So, we obviously knew this question would be early on. So, when we came out of March, there was an impact to import volumes on the West Coast as a result of the slowdown of exports from China or the China side of a slowdown based on what was going on in China. As we've come out of March and we're in to April, we're experiencing meaningful declines in volume probably to the tune of mid to high single digits. As we get into what we're learning about the future, we don't have visibility into what probably the back half of May and June represent, but certainly for the next three to four weeks I would expect that trend to continue. And just my opinion and my opinion alone, I mean I would expect that the volumes in Intermodal to be in the double-digit negative for the quarter.

I appreciate the information. Now, shifting focus to the ICS side, I'm trying to grasp the strategy regarding 360 as we navigate this period of uncertainty in the coming weeks or months. Are there any adjustments to spending that we might implement to maintain liquidity, possibly delaying some projects or investments? How do you view this in light of the current situation with COVID?

Yes, just to recap, our investment strategy really focused on three key areas. We've emphasized managing our personnel costs effectively since March and are continuing to monitor these expenses as we move into April. Additionally, we have committed resources toward technology investments, which are not short-term initiatives but rather long-term projects we see as essential for enhancing our transportation efficiency. We will maintain our technology spending plan and feel confident based on current data from both customers and carriers. Regarding scaling our operations, we've accelerated our shipment and revenue plans with our customers and carriers. Knowing precisely when to connect specific customers or carriers presented some risks, especially during the onboarding phase. In terms of our overall investment, approximately 77% was directed towards scaling the business, which exceeded our initial plan by around 35%. As mentioned in our first quarter earnings report, January faced supply constraints and unusual activity during the first two weeks, which unexpectedly pressured our margins. February returned to more typical conditions, but March was challenging for margins overall. Overall, we performed well in managing personnel costs better than our plan, but that was offset by margin pressure and a slight shortfall in our revenue expectations.

Okay. Okay, that's helpful. Thank you very much for the time, appreciate it.

Our next question will come from the line of Justin Long with Stephens Inc.

Thanks and good afternoon. Maybe to follow up on Intermodal, you addressed the volume side, but I'm curious how you're thinking about Intermodal pricing in this environment from a strategic standpoint. Do you see the downturn as an opportunity to leverage the scale and structural advantages of the network and maybe get a bit more aggressive on price to take share, or given Intermodal margins are below targeted levels going into this downturn what would you say you're more focused on trying to hold the line on price going forward, just curious how you're thinking about that balance over the remainder of this bid season?

Well, Justin, you mentioned the term 'Balance,' and that's exactly how we see it. We don’t have a specific game plan that dictates we need to take market share due to the decline in shipping demand. That’s not really our strategy. We will certainly take advantage of customer opportunities if they benefit our network, but we would have pursued those opportunities regardless of the market conditions. Therefore, I wouldn’t say we have altered our philosophy. We continue to communicate regularly with our rail providers, and if an opportunity arises that allows us to reduce costs without sacrificing margins, we would definitely consider it. Again, these decisions are made on a case-by-case basis, focusing on individual customers and proposals.

Okay, that's helpful. And then secondly, maybe following up on the comment that John made in the prepared remarks around the risks from customers' liquidity, is there a way to think about the percentage of your customers or percentage of revenue that you view as a risk on that front? And maybe, Nick, we could kind of hear from you in terms of the mix of DCS business, how it breaks down by end market and the size of those customers as we think about that risk.

So we have evaluated what part of our customers move essential and nonessential goods in total and by segment. And our concern around the customer base in total, we have had communication with some customers that are having good conversation and calling us. Our bigger concern is customers that we're not hearing from, and so that has been, over the last several weeks, a main objective of our sales organization to really lean in and work closely with customers. We are having regular conversations daily with our customers just to make sure that we're staying on top of that. I do think it's a risk, but I do think that we're talking to customers on a regular cadence, and so far I don't see any surprise there.

Yes, regarding our mix of business, especially after the pandemic hit, we demonstrated our ability to adjust assets among customers, distinguishing between those more affected and those less so. While some sectors like retail apparel saw a decline of about 11%, food experienced an increase of 16%, home improvement rose by 21%, and there were significant drops in office furniture and some automotive suppliers. Our agricultural segment remained steady. We have a diverse portfolio, and you'll continue to see this as we progress. We successfully shifted segments that were slow or shut down by reallocating, on average, about a thousand trucks daily from base accounts to others. Within our Dedicated segment, we've reassigned assets from slow customers to those that are very busy. Operating as a private fleet presents challenges since there are no outsourced options, but we provide the advantage of control and service, along with visibility and the flexibility to move assets as needed.

And then to follow up, Nick, are you observing similar dynamics in terms and payment in your business as Shelley is?

Yes, I would say we see the same. When I look at Final Mile, we're experiencing a bit more impact on the furniture side. The volume from the furniture sector is slightly higher.

And I just want to emphasize too that the conversation that we're having with customers is very objective and crisp around how we, as John said, how we are set up to pay our vendors. So when we get into talking through extending terms, it's really not conducive in this line of work as it might be in others, but for us it's not really something we're supporting right now, and now getting good response.

Yes, I would just add, I think our customers understand the necessity of us keeping our drivers and maintenance employees there on the frontline ready for our customers. That has been viewed favorably from them. As well as we did change our payment terms for the carrier community from a truckload space. So anyone that moved a shipment in Carrier 360 in the month of March, we have moved up their payment days to only pay in seven days. So we're trying to get them cash more quickly. We've explained all of that to our customers. They've been very receptive so far. We're just trying to be offensive, be in front of it, and make sure that they understand what we're doing to help.

Great, that's all really helpful. I really appreciate the time.

Our next question will come from the line of Scott Group with Wolfe Research.

All right, thanks. Good afternoon, everyone. I want to start with you, Darren. Is bid season still ongoing, and can you share some of the results you're observing? If volumes are down in the second quarter by double digits year-over-year, it's also down sequentially by double digits. How can you help us understand the margin sensitivity and the extent to which margins might be under pressure?

Sure, I will address the question about the bid season. The bid season is ongoing. Before many people began working from home, we had completed pricing on about a third of our business, which met our expectations prior to the economic challenges. In the past four weeks, a few customers that bid have received results but are not ready to implement, leading to delays. Some have indicated specific delays, such as moving new pricing from May 1st to June 1st, while others have said they will delay indefinitely until they can provide a different response. On the other hand, some customers are asking us to expedite the process because their shipping demands are increasing for the second quarter, and they want to secure capacity. Overall, the bid season is progressing as I anticipated. However, there may be some projects for various customers that typically occur in the spring that might not take place this year in Q2, resulting in lower shipment volumes that historically would have shipped. This could push some business into Q3 or mean that some activity simply won't happen. There is a slight slowdown in this area, but it's not a large percentage of our overall work. Regarding the impact on margins from weaker volumes, we have noted in the past that price changes affect our margins more than fixed costs or underutilization of assets, and that remains the case. Nonetheless, having idle containers seeking work does have an impact. The balance of our network is quite different from what we have considered normal over the last two decades. The West Coast volumes moving to the East Coast, which typically represent longer hauls and higher-value business, have slowed more than others. At the same time, there's been an increase in volumes from the Midwest supporting consumer products on the West Coast. Therefore, we are experiencing an increase in backhaul lanes and a decrease in headhaul lanes, which is significant. While I can’t provide a specific answer regarding the direct impact on margins, we do face challenges, as anyone would, with declining volumes.

Okay, and then for Nick, so when you talk about repositioning trucks in Dedicated from guys that are shut to guys that are open, I guess who pays for that, and then, to the extent that you have customers that are not operating right now and you can't reposition those trucks, do they still pay you right now, or I'm not sure how that works?

Yes. Well, first of all, in Dedicated, all of our trucks are working. So, we've got them all moved around. They're supporting Intermodal in some places, but in other accounts, it's the other account that is surging up, they're looking for equipment, and so, we bring in other Dedicated. So, example, our grocery businesses, we serve probably nine or 10 different grocers. Our business is very, very robust, and so, basically can't handle it, and if they're up 16%-20%, we'll bring those trucks in from other accounts, and so, the account that is busy is the one that pays for them, and then we give a credit back to the other account, where if they had a private fleet, they'd be paying that driver pay and the cost of that equipment, and so, that's all set. So that's how that works.

Okay. Thank you for the time, guys.

Our next question will come from the line of Jordan Alliger with Goldman Sachs.

Hi everyone. I have a question regarding Dedicated. Can you provide some insights on your outlook for truck additions in that business this year, considering the uncertainty? Alternatively, as we start the year, are you engaging with new potential accounts and business? Have you noticed more opportunities to add rather than close deals right now? Thank you.

Yes, I will do that. I will just tell you that we were off to a really good start. In Q1, we signed contracts on 350 plus trucks. So, that's a very good quarter for us. We signed our last deal just a couple of weeks ago. With that being said, as we kind of look ahead, it's hard to get meetings, we're trying to do some teams meetings, Microsoft, Zoom you name it, but those are slowing down, customers have other priorities right now. So, we're seeing our verbal slow down just a little bit, and we expect that to continue just a little bit. If you look back at the recession in '08-'09, our sales went down by about 20%. So, I think it's probably pretty good to assume that that's pretty close to what will happen here. So, I think we gave a guidance of 800 to 1,000. So, it could be 600 to 800 on sales, but also during the recession, the way our model works is our customers long-term, they need to take a truck or two out, we see a lot of pressure on our fleets to downsize a little bit, and so, we'll take some of those out. We look at it for the long-term with the customer, and we'll take some of those out. So with that, our net adds may not be as robust this year as they have been in the past two or three years, but the demand is still out there for private fleets, and we still got a full pipeline, but we just think there's going to be a little pause till we come out of this, and then we'll pick back up again.

Got it, and then just a question, real quick question on the accrual, the $8 million, I'm assuming that time is up the loose ends, and it's related to 2019, and it's just in the one quarter and now that sort of put the bet at this point.

So, well, actually, we received the award at the end of 2019. I think we announced that on October 30. As we implemented that award and went through the first month or two of this year, we understood that we needed to true up the payment for how much we paid BNSF in 2019, and that's what that announcement was about. It was actually related to the entire calendar year for 2019.

And, hey, Jordan, this is Brad. I did want to clarify kind of Nick's response to it because I do think it's important. So, essentially, Nick said, originally truck sales of 800 to 1,000 this year, he thinks that sales process could see a 20% decline from his original estimates, but customers do have some optionality to shrink the size of their fleet, and so, net adds could be something slightly below that, but that's an opportunity where we see where we can take equipment that's already in the Dedicated fleet and repurpose those to some of these new awards, and that's some of the comments that John Kuhlow provided in terms of why you're seeing some flexibility in our capital budget. So, I just thought that would be worth highlighting there.

Great, thanks very much.

The next question will come from the line of Ken Hoexter with Bank of America.

Great. Good afternoon, everybody. Appreciate the remote balance. So, maybe John or Brad, just to follow-up on that, the CapEx discussion there, you've talked about some canceled container and tractor orders, can you talk about the new CapEx guidance, what level of growth of assets are you now targeting? I don't know if you want to talk by segment or maybe just walk us through how you get that, what the reduction and what your growth targets are? Thanks.

Yes. So, Ken, this is John Kuhlow. To clarify, we do have the ability to cancel orders, but currently, it's mostly about timing and delaying those orders. Until we have a clearer understanding of our needs, I'll provide a deeper perspective on capital expenditures. We are likely at about $400 million for maintenance. Breaking it down by segment, that's approximately $50 million for trucks, around $130 million for Intermodal, and $150 million for Dedicated Contract Services. It's important to note that our maintenance investments also include spending on back office technology, which remains around $80 million to $90 million for the year. This contributes to the total, with the remainder being primarily for Intermodal and Dedicated, aimed at any growth we might see in those segments.

Great, and then, can you just talk about the Final Mile now that you're breaking it out, can you maybe just delve into how asset-like you're talking about moving around the assets. I just want to understand the flexibility as you have customers shutting the financial flexibility of that segment, what kind of losses, you know, the current and near term or is that just if you're not using it, you don't pay.

So, okay, let me give some answers on that we have that basically broken down into three channels. The first channel is furniture, and that is probably 95% asset light. So when they shut down, we may still have some buildings and then some of those we billed the customer for those buildings still ongoing. So it is multiple things there you look at, but then for the equipment, it's all contractors, so our contractors, we try to get them connected for paycheck protection to afford them and the direction of a bank to help them through this time, so that costs will go away. Then the second channel is retail replenishment. That's basically our off-price retail, and they are basically all shut down right now; they're non-essential, and so that's where we have some company drivers. And so, on that channel, we have tried to outsource as much as we can, but we also have some different types of equipment in there that can't go do Intermodal or Dedicated work. So there's about 300 of them. And so, we've chosen to pay them so that when the retailer's come back online, we will be ready to go, and we expect when those off-price retailers come back, the volume will be pretty good. And then on the appliance side, which is the third channel, those are up, those are essential. And so, we're still doing deliveries for them. In some areas, there is just to the doorstep not inside, but in other areas it is still inside. That volume in general is down 10% or 15%, but it is still up and going. And that is 50-50 of company employees and non-asset on the appliance side. And so, we were agnostic, and we'll pass both of them to a customer and let them pick and choose on how they do that.

Great. Thanks, guys; thanks, Nick. Appreciate it. And we'll take an extra freezer if you're going.

The next question comes from the line of Todd Fowler with KeyBanc Capital Markets.

Thank you, and good afternoon, everyone. Nick, to wrap up your comments on Dedicated, I understand your points about the decrease in net additions. However, could you elaborate on Darren's expectations for Intermodal volumes? In the first quarter, there may have been a boost from pantry stocking. How should we view dedicated revenue year-over-year as we progress into the second quarter and beyond? Additionally, regarding the margin profile, if we experience a revenue decline, what are your expectations for margins in the dedicated segment? Thank you.

Great. I would just tell you that typically in Q2, we see a big spring surge for home improvement. And so that takes our volume up and our revenue up at some of those accounts. We haven't really seen that. We've seen a little bit, but not a lot, but what I've kind of seen and what I've looked at is, we had a pretty good Q1, and our volume is still across the board very consistent and dedicated compared to Q1 of this year, and it's maintaining. Yes, it's been shifted around different customers, but we're not seeing that fall off any. So at this point, we feel good about our volume being about the same as what it was in Q1, but you would typically see our volume surge up some. Margins, I will still tell you that the margins 11 to 13 ought to be pretty good goalposts for us to hit, but again, there are a lot of moving parts, but I think we feel very comfortable with what we're saying at this point in Q2.

Great, that's helpful. And then just for my follow-up, Shelley, I'd be curious to get your commentary on shipper behavior right now in the market. Are you seeing shippers thinking about modal change, more demand for one service versus the other? Obviously available truck capacity or more available truck capacity, I'm just curious kind of what the shipper response in the market has been changed.

I believe we are currently experiencing a market crisis that is prompting us to strengthen our relationships with our customers. During this challenging time, we are focusing on two main priorities in the second quarter: ensuring the well-being of our employees and fulfilling our commitments to our customers. Each customer has unique needs, and those in the grocery sector are particularly thriving, utilizing our full range of services. We are providing them with ample capacity to address their requirements across all sectors. In contrast, customers who are facing shutdowns are engaged in different conversations with us. Regarding the bidding process, around 80% to 90% of our customers are maintaining their current strategies, while others are adopting a wait-and-see approach. Our business mix remains strong, and fortunately, we engage significantly with customers who are performing well, which has benefited us during this time. Customers seem receptive to finding efficient ways to collaborate, especially when facing downturns in profits or revenues. Overall, there is a willingness among our customers to adapt and grow together. Additionally, I have noticed an increasing inclination among our customers to expand their business with us. Large and mid-sized customers are faring better during this crisis compared to smaller and micro shippers, who are experiencing more challenges. For those facing difficulties, particularly in our highway services, we are willing to be flexible with pricing, allowing us to help them save money as the market fluctuates.

Okay, sounds good. Thanks for the time, everyone.

And we will take one final question. The final question comes from the line of Ben Hartford with Baird.

Thanks for fitting me in. Shelley, just a final point on the supply situation what you're seeing within the brokerage market, the comment that you had made about changing the payment terms in March, I think is interesting. And then the approach that you guys are taking from a cash management standpoint, but I guess first thing with regard to the change in payment terms in 360. Do you anticipate that being a permanent change and if so, I guess in the context of the cash collection cycles being constrained throughout 2Q and 3Q presumably across the industry, do you see this as an opportunity to kind of accelerate the build-out of scale attracting supply into the 360 platform? And to what extent does that change payment terms play into that?

We offered carriers changes to their payment terms for April, and we are also guiding them on how they can receive payments for free within two days. This payment availability extends over the long term. If a carrier engages with our platform and completes their tasks, uploads their invoices, and provides the necessary documentation, they will be reimbursed to their checking accounts within two days without any cost. This represents a significant improvement compared to factoring companies, where they might incur much higher fees. We believe this is a crucial factor in scaling the platform. We are closely working with the carrier community to help them take advantage of this opportunity.

And then, just to be clear, as you see the balance of the year now within ICS on the gross margin and on the EBIT line, the level of compression in the first quarter from a gross margin perspective and the operating losses, are these representative run rates in your mind as you kind of play out the year. I know it's very unclear the year, but just trying to get a sense for, was it unique this quarter, and it'll kind of normalize back up a little bit and still run operating losses, or is this kind of a new run rate for the balance of the year?

Well, certainly I think it's too early to call the entire year. I think I could talk about the next couple of weeks and have a lot of confidence. And then as we get past that, I get less and less confidence. Again, we're spending a lot of time taking care of our people and focusing on meeting the promises of our customers, so there are two objectives. I do think here in April, maybe over the next couple of weeks, margins have improved as shipments have declined in total and we've come-off of those higher margins going or higher PTE numbers. In total, I did talk about being 35% over plan, I would expect to be under plan in Q2, in total from this scaling part of our business, but it'd be way too early for me to call what I think will happen for the year. I would say we're committed to our long-term plan of building the most efficient transportation network and to do that, we have to be scaled. And so that is going to be our focus over the short and long-term.

Understood, thanks.

Hey, Ben, this is Brad. Just to kind of reiterate the comments I made on my opening remarks, as you should expect gross margins will fluctuate based on the relationship between supply and demand and the markets we serve. Clearly, that relationship was quite challenged in Q1. So we have seen the market loosen up. So hopefully that would imply we've seen a little bit of relief on net revenue margins at least thus far in April.

With that, we have reached our allotted time for questions. I'll hand it back to the speakers for closing remarks.

Thank you. This is John Roberts. I'll just close this by saying that on March 13 we called a meeting with our executive team without much time and said on Monday that was a Friday, Monday we would be working remotely in response to a coming pandemic and unknown challenges. We have responded to that in a way that I really didn't fully appreciate or expect, and I just would like many CEOs I've seen on CNBC, I'm incredibly proud of the people in this company for the way they're handling this unknown, and I've talked to some folks downstairs earlier today about these cultures don't lie, and I think in all the conversations we're having about rates and loads and volume and equipment, CapEx that's vitally important, no doubt, but underneath all of that is a team of 30,000 people that are picking up and delivering freight every single day, taking care of customers, making sure we keep this place healthy and solid, and that is I think something we should not overlook. We appreciate your time today. We look forward to talking to you in the coming weeks.

And this does conclude today's conference call. We thank you for your participation and ask that you please disconnect your line.