Good afternoon, everyone. Thank you for joining today's J.B. Hunt third-quarter 2022 Earnings Conference Call. My name is Tia, and I will be your moderator. I would now like to hand the call over to your host, Brad Delco, Senior Vice President of Finance. Please go ahead.

Good afternoon. Before I introduce the speakers, I would like to take some time to provide 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 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. Now I would like to introduce the speakers on today's call. This afternoon I'm joined by our CEO, John Roberts; our President, Shelley Simpson; our CFO, John Kuhlow; Nick Hobbs, COO and President of Contract Services; Darren Field, President of Intermodal; and Brad Hicks, EVP of People and President of Highway Services. At this time, I would like to turn the call to our CEO, Mr. John Roberts, for some opening comments.

Thank you, Brad, and good afternoon. As we reflect on the performance of the overall business in the third quarter, we echo many of the same themes discussed on our last call with an intense focus on changes in the freight markets we serve. The results in many areas of our business achieved appropriate targets in light of the cyclical shift in market balance I referenced last quarter. While some improvement has been seen in rail service and company hiring challenges, particularly with our driver force, we continue to face difficulties in equipment availability for growth and replacement, along with the uncertainty of the direction of macro conditions. Clearly, there are also areas of our business with opportunities for correction. That said, let me be clear, the businesses we've built, the changes we've implemented, and the team's collective experience have and will continue to reveal themselves as value-enhancing catalysts for our customers, our company and our shareholders. Let me address some of the points around the market dynamics referenced. Further evidence has presented itself over the course of the quarter that requires an increased level of caution and awareness on broader demand trends and economic activity. Data, experience and frequent dialogue with our customers will continue to guide us in this area. The complementary nature and diversification of our businesses will continue to serve us well in this changing market. As mentioned earlier, rail service has shown real signs of improvement in both velocity and reliability during the quarter with positive momentum building, the most notable increase coming from our friends at the BNSF. We are encouraged by the trends and Darren will expand on this area in his remarks. I remain in active and regular dialogue with the senior leaders of our primary rail channels on opportunities and investments required to fully restore service levels needed to capture the opportunities presented with Intermodal. We are optimistic about the path forward with Intermodal and with all aspects of our collective services. Members of our leadership team are here and will cover areas of our business more specifically for you. But at this point, I would like to turn the call over for the first time to our new President, Ms. Shelley Simpson. Shelley?

Thank you, John, and good afternoon. First off, I'd like to start by saying how humbled and excited I am to be stepping into this new role at J.B. Hunt. Over the years, you've heard me talk about various areas of the business that I've had the honor to lead. I approach this new position with the same passion for our people, all nearly 38,000 employees at J.B. Hunt, and for delivering exceptional service and value to our customers. As John spoke about some of the current indicators that are present in our industry, I want to remind everyone of our say/do culture. And with that, let me share with you what our priorities are right now for us as an organization. Over my 28 years at the company, I've been fortunate to have worked with some great leaders. As I sit here today, I'm reminded of a saying our Chairman would say, and that is, don't starve your opportunities. As an organization, we recognize unique and significant opportunities in the marketplace that have been and are being presented to us. As a result, we will remain committed to disciplined investments in our company foundations, which I spoke to last quarter. That is our people you trust, technology that empowers and capacity to deliver. When we make the right investments in the right people, give them the proper tools to equip and empower them to deliver value and exceptional service to our customers, all of our stakeholders should reap the benefit. So priority one: remain committed to disciplined long-term investments in and for our future growth, and that starts first and foremost with our people. Over the last two months or so, I've traveled and met with our people in the field and across the organization, and I asked each of them the same question: how can you, in your role, drive more value for our customers? I'm encouraged by the feedback I received, the energy of our people and the rallying around just that simple question. As an organization, we need to deliver the greatest value to our customers by providing unmatched service at a fair and equitable return. So much across our organization goes into that equation from being cost-competitive, being quick to adapt, making the customer experience exceptional, and making sure we are in a position to say yes to our customers' growing needs. So priority number two: deliver exceptional value for our customers across the entire organization. Finally, I believe in something John has always shared with us, and that is growth is oxygen. It provides opportunities for our people in the organization to also grow, develop, and build meaningful and lasting careers. We have a deep and tenured bench of talent across our organization who are leading and developing our future leaders. Having a disciplined approach to our capital allocation process supports and funds the investments we make in our people, technology, and capacity to better serve our customers. This recipe should continue to support our future growth and value we create for our shareholders. So I'll leave you with one last priority: deliver strong value for our shareholders. As John alluded to in his comments, we see further evidence of a shift in marketplace dynamics that will require us to remain fluid in our approach to managing our business. We often reference that word throughout the pandemic as challenges and uncertainties were present, which feels appropriate at this time as well. Our business leaders will cover our plans with you in more detail. And that concludes my comments, so I'd now like to turn the call over to our CFO, John Kuhlow.

Thank you, Shelley, and good afternoon, everyone. My comments today will be brief and will cover our recent performance in the quarter on a consolidated basis. I'll also provide a quick update on our CapEx plans. Overall, we are pleased with the results of the quarter on a consolidated basis. As John remarked, we hit targets in areas of our business and fell short in others, but that highlights the benefits of our diversified and complementary model. On a consolidated basis, revenue grew 22% year-over-year, operating income grew 32%, and GAAP earnings per share grew 37%. From a cost perspective, we continue to experience inflationary pressures across most areas of our business but primarily around labor, equipment, including both parts and labor, and in the area of claims. We are keeping a close eye on receivables, credit, and bad debt as economic conditions change, and we'll continue to monitor the environment and manage accordingly. We purchased just shy of 350,000 shares in the quarter, bringing our year-to-date spend on repurchases to approximately $300 million. We will continue to explore share repurchases going forward as opportunities are presented, and we remain committed to buybacks as a capital management tool with support from our Board. Our balance sheet remains strong with net leverage moderately below our target of 1x trailing 12 months EBITDA. During the quarter, we paid off $350 million of senior notes and entered into a new $1.5 billion credit facility, increasing our flexibility and overall liquidity for future needs. On net CapEx, we spent just over $1 billion year-to-date and expect to fall short about $1.5 billion plan for the year. Our capital expenditures in the future will largely be dependent upon business needs, but levels may remain elevated as our replacement needs are high, given equipment delivery delays and supply chain constraints experienced over the last two years. This concludes my remarks, and I'll now turn it over to Nick.

Thank you, John. Good afternoon. I'll review the performance of our Dedicated and Final Mile segments and update you on other areas of focus across our operations. I'll start with Dedicated. Demand for our professional outsourced private fleet solutions remained strong as we added more than 450 trucks to the fleet during the quarter. While our backlog remains strong, we have some moderation to more normalized levels after two years of significantly above-normal trends. We sold approximately 280 trucks' worth of new business during the course of the quarter, bringing our year-to-date total just shy of 1,700 trucks. As a reminder, this is well above our long-term guidance of 1,000 to 1,200 trucks per year through just the first three quarters of the year. The performance of the business continues to meet expectations as mature accounts are managed diligently and start-up accounts are progressing as expected. We continue to see pressure on equipment and maintenance-related expenses, and that remains an area of focus. Overall, I'm pleased with the performance and remain excited about executing our plan to grow the business as we deliver exceptional value to our customers. Shifting to Final Mile. As we've discussed for the last several quarters, our focus has been on delivering exceptional service but ensuring the quality revenue aligns with the value we deliver to customers. While much work has been done, I am pleased with the progress. Much work remains though. Overall, we saw good demand for Final Mile Services in the quarter in our off-price retail channel with fulfillment as well as the appliance and furniture delivery market. Similar to DCS, the sales activity is moderating some, and we will manage accordingly. Going forward, we remain focused on our profit improvement initiatives while investing in a differentiated service experience for our customers to deliver value to each of them. Closing with some general comments on operations. We have seen improvements in the areas around professional driver recruiting and retention, although at elevated cost. That said, we have not seen much improvement in equipment availability, which continues to put pressure on our maintenance costs. We are still holding trades on several thousand trucks, which were required to support our growth over the last two years. We will make progress in this area over the next year, but we will be dependent upon how much equipment is needed to support our growth. That concludes my remarks, so I'll turn it over to Darren.

Thank you, Nick, and hello to everyone on the call. I'll review the performance of our Intermodal business, including an update on network fluidity and the opportunities we have to deliver exceptional capacity and value to our customers. I'll start by reviewing the performance from the quarter. Demand for Intermodal capacity continued to support growth in our business despite challenges related to rail velocity, customer unloading activity and overall supply chain uncertainties facing our customers. Volumes for the quarter were up 4% year-over-year and by month were plus 4% in July, plus 6% in August, and down 2% in September. Today, so far in October, volumes have rebounded from weaker demand in September. Last quarter, we discussed the challenges we were facing from a rail network velocity perspective, and I expressed confidence and a bit of optimism that it would get better. While we are not back to where we need to be, I am pleased to say that we saw a meaningful improvement in velocity and performance from BNSF as the quarter progressed, but in particular in mid-August and throughout the remainder of the quarter. We continue to work with our primary channel providers at the most senior levels to improve our service quality and reliability, which presents our organization significant opportunities that I will address next. Recognizing John's comments about the shift in market balance, we remain confident in our ability to deliver value to our customers with our Intermodal service offering. With greater velocity in our network, we are presented with an opportunity to remove meaningful costs in our business due to lack of productivity. As I've said before, our customers will participate in those savings while also benefiting from faster and more reliable service. We think this puts us in a position to be able to deliver meaningful value for our customers as they look for cheaper, more efficient, and the most sustainable way of moving their freight. As we stand here today, I'm confident that customers have greater demand for our capacity as speed and reliability improve. And I believe we have a greater line of sight to that now than at any other point over the last two years. In closing, I would like to drive home the point that our business and our rail channel providers all benefit from service quality improvements, and we remain motivated and incentivized to deliver it. We have significant productivity and cost-saving opportunities that will present themselves in our dray operations as rail service quality makes further improvements. I look forward to discussing our progress in this area in the quarters ahead. That concludes my prepared remarks so I'll turn it over to Brad Hicks.

Thank you, Darren, and good afternoon, everyone. I'll review the performance of our Integrated Capacity Solutions and Truckload segments, what we collectively call Highway Services. I'll also provide an update on J.B. Hunt 360. Starting off with ICS, top line revenue was down 11% comprised of an 8% decline in volume and a 4% decline in revenue per load. Diving into those numbers a little deeper, truckload volume in the quarter was down only 1%. Similar to last quarter, we continue to see pressure in the spot or transactional market in volume, but also in rate and margin. Similar to last quarter, our published or contractual volume was up double digits on a percentage basis year-over-year in the quarter, offset by our spot or transactional business down double digits. We continue to manage the business to outperform the market, and we accomplished that against our benchmarks during the quarter. As John discussed, we are seeing a shift in balance in the market, or a pivot, as I like to say, and we are navigating through that but remain focused on our long-term goals and targets. I remain confident in our people and our platform, J.B. Hunt 360, to deliver an efficient and valued service offering to our customers. Shifting over to Truckload. Similar to last quarter, we continue to see steady and solid demand for our drop trailer network service offering we call J.B. Hunt 360box. Volume grew 13% versus the prior year quarter. We continue to believe customers are finding value in the blending of their live network and drop trailer network capacity needs, essentially offering customers the flexibility and ease of use of a drop trailer for use in less dense freight lanes while also offering access to the vast amount of capacity available on our J.B. Hunt 360 platform for freight that would typically be handled by large asset-based carriers. One simple and seamless solution provided by experienced managers of trailing assets and powered by one of the largest capacity sourcing platforms, J.B. Hunt 360, which I'll touch on next. We continue to see the strong usage and activity on our multimodal digital freight platform, J.B. Hunt 360. As we've entered this new market paradigm, we are seeing the expected shifts in usage, including increased offers per load, but also carrier stickiness and measurable data on our ability to buy capacity against the market. Being a little more transparent, over the last two years, our customers relied on our platform to find capacity when it was extremely difficult and challenging to source. We were the go-to, and in this market pivot, admittedly, we may have had too much exposure to spot and project-related business. We will make adjustments and pivot ourselves where needed, but remain confident in investments in our people, technology and assets to support our long-term growth. That concludes my comments, so I'll turn it back to Brad Delco to give instructions before the operator opens the call for Q&A.

Thanks, Brad. I'd just like to remind all the participants on the call that we're going to do one question and then move on to the next, since we have such a long list of folks. So with that, Tia, we're ready to open it up for questions.

The first question is from Scott Group with Wolfe Research. You may proceed.

Hi, thanks. Good afternoon, everyone. Darren, I wanted to discuss the Intermodal side. Do you think September was influenced by rail strike issues or demand? Also, could you share your thoughts on fourth quarter volume? Overall, it seems that Intermodal pricing is currently performing much better than Truckload, but this might be negatively impacting demand. My main question is, how are you approaching bid season? Are you prioritizing market share? If volumes and fluid levels are up but rates are down next year, do you believe you can increase Intermodal EBIT next year? I know that’s a lot, but any insights would be appreciated. Thank you.

Scott, this is Brad. I think I counted five questions there, so I’ll turn it over to Darren and let him start talking.

Okay. First, I don't want to spend all afternoon discussing the potential rail labor situation. September was clearly affected by rail labor issues or the threat of them. Every year, we face network challenges that we don't always address in these calls. In some ways, the results in September were similar to the impact of a bad weather event; it was short-term. Volumes were improving as we moved out of August. The rail labor situation was likely one of several factors that might have influenced our customers. That situation has passed, and volumes have recovered to where they were before. I believe customer demand showed improvement in August and continues to be strong now. Regarding pricing, it's too early in the bid cycle to make any predictions. The bid cycle is crucial for us, and we are engaging with our customers about ways to reduce costs together. We expect that our customers will benefit from our collaboration on this. I've maintained that belief throughout the year. I'm not sure where to go from here, so I will stop there.

Balance over there.

Thanks, Scott. We'll try to get some of those other questions from the next callers. Tia, please go ahead with the next question.

Thank you. The next question is from the line of Chris Wetherbee with Citi. You may proceed.

Hi, great. Thanks. Good afternoon. So maybe sticking on Intermodal, maybe want to sort of understand the comments around the cost sharing and savings that could happen in sort of a more fluid rail environment. So I guess maybe the specific question is, do you think about this more on a profit per load basis where maybe you can maintain profit per load as your costs come down, some of that share? Or is it more on a margin basis? I guess I just want to make sure I'm sort of understanding how you guys are thinking about that. And certainly, probably growth comes into effect, to some extent, next year as well leaning into that to some extent. So I know it's a little bit sort of a loose question but I'm kind of curious how you guys are thinking about profit per load relative to margin growth next year.

Well, certainly, we contemplate the productivity we can generate on a container in a month. That certainly drives some of our thought process. So as we can move more loads on a container in a month as velocity improves, there's some benefit there that we would anticipate sharing with our customers. We're very focused on ROIC-only margin as an output. And as we layer on more volume and look for ways to grow, we would anticipate that there's a benefit in our underlying cost from that. And I would just highlight and tried to in some of the prepared comments, our drayage activity can also get a productivity benefit out of improved rail service. We would anticipate an improvement in the productivity of our drivers and our tractor resources as well as rail service improves. And that, too, is something that we would anticipate our customers can benefit from.

Okay. Thank you.

Thank you. The next question is from the line of Amit Mehrotra for Deutsche Bank. You may proceed.

Thanks operator. Hi everyone. Darren, can you discuss how bid compliance has trended this year? Obviously, truck spot rates have decreased significantly, but the difference between Intermodal Contract and Truckload Contract remains quite large. While the spot market is looser, rail service has improved. I'm trying to understand if you have any insights into bid compliance and what the customer shippers might be thinking. Additionally, related to Chris' question, I want to understand the cyclicality of Intermodal profits in your view. Many investors see Intermodal profits up 65% to 70% compared to 2019, and I think what you achieved this quarter was an all-time record. How do you address concerns from investors who feel that much of this is due to a pricing cycle and that once it ends, profits per load may drop from the 400s to the 200s? If you could address those questions, that would be great.

I'll begin with bid compliance. In 2020 and 2021, we noted a decline in bid compliance compared to previous metrics, which was around 60% to 70% for awards. In earlier periods, it typically ranged between 70% and 80%. Regarding your question about spot capacity influencing this, we've maintained the 60% to 70% range for nearly two years, and I wouldn't say that the recent drop in truckload spot prices has affected customer bid compliance in our Intermodal business. I don't think that has been a significant factor. Truckload pricing does influence Intermodal to some extent, but it's not the sole factor. As for your second question, historically, Intermodal prices have not decreased to the extent that truckload rates sometimes do. What distinguishes this cycle is our ability to reduce costs, which I've mentioned before. The strong pricing we've experienced over the last year and a half is largely due to significant cost increases across the board, affecting J.B. Hunt and our rail providers, as well as rising drayage and equipment costs. This widespread increase in costs is one of the most notable differences for us going forward. The key question is how the industry will manage to reduce some of these costs. Productivity plays a crucial role in that. Our capacity to improve in this area largely relies on how much additional productivity we can achieve with our resources, including both our assets and our workforce.

Thank you very much.

Thank you. The next question comes from the line of Justin Long with Stephens. You may proceed.

Thanks. Good afternoon. So it sounds like rail service got significantly better over the course of the quarter. So I was curious if you could share where box turns are running today, just to put some numbers around that comment. And then Darren, you said things have snapped back from an Intermodal volume perspective in October. Can you quantify where volumes are running quarter-to-date?

I can't provide specific details about current volumes for the quarter. However, I can say that September's volume was down by 2%. If there hadn't been concerns about a potential rail strike, I believe volumes in September would have increased by 3% to 4%. We're back on track with our previous performance for the quarter without that disruption. Regarding box turns for the quarter, they were at 1.5, which is not where we expected them to be. We saw improvement in our velocity starting in the latter half of August and this continued through September. However, there will be a delay in seeing the benefits from this improved velocity in terms of new volume as our customers need time to gain confidence in our ability to maintain this service level. We did not experience significant volume increases due to the service and velocity improvements during the six weeks of Q3, particularly given the fluctuations in September. As we move through December and highlight the advantages of our faster service to customers, we do expect to see improvements in box turns as we progress through the bid season.

Got it. Thanks.

Thank you. The next question comes from the line of Jon Chappell with Evercore ISI. You may proceed.

Thank you. Good afternoon. Nick, I wanted to ask you about DCS. You've had like six straight quarters now of pretty breakneck growth on the truck count. And you've been onboarding a lot and there's start-up costs associated with it. Your comments about seeing some signs of slowing in demand, does this give you the opportunity now to kind of let some of that recent start-up business reach the maturation stage? And maybe if we see a little bit of a slowdown on the top line growth, we can now start to see the margin expansion in that business through 2023?

That's a good question. I would say typically, if our sales volume slows down, our start-ups diminish, you would see our margins improve. But we're facing a couple of headwinds. One, fuel cost is up and that dilutes our margin a little bit. But additionally, our maintenance cost is sky high because of all the growth we've added. We've kept trucks longer and so that's increased our maintenance. If I felt that we could get that fixed next year, I would say yes. But in talking with the manufacturers, and we're even adding a third OEM to our mix to try to help us, we're not going to have it solved as they see demand going forward. So we're going to be carrying used trucks all through next year, not to the level this year. So in normal times, yes, but this is still abnormal just because of carrying trucks and the price of fuel.

Okay, understood. Thanks, Nick.

Thank you. The next question comes from the line of Jordan Alliger with Goldman Sachs. You may proceed.

Hi. Just a question, just overall thoughts on supply chain congestion. Obviously, the rails have certainly been part of it. Perhaps things are improving there. But where do you see the remaining roadblocks to maybe normalizing and hopefully improving box turns as we go from here? Thanks.

I want to point out that customer inventory levels are elevated, which is affecting demand and the ability to utilize assets efficiently. This is an important consideration. Throughout the third quarter, we experienced some congestion with international import volumes at the ports. However, as the quarter went on, much of that business has improved. Despite this, there are still challenges related to moving cargo from containers to warehouses, onto shelves, and into homes. The main issue right now is the high levels of inventory, which means customers are actively seeking space to store their products.

Thank you.

Thank you. The next question comes from the line of Allison Poliniak with Wells Fargo. You may proceed.

Hi, good evening. Just want to go back to the comments around disciplined investment, coupled with not starving opportunities here. Just maybe a little more color or expansion on how you view investing through the cycle here. Is there a specific area of focus that you want to focus on here for that capital allocation? Just any color as we sort of we're working through this potential downturn on your investment capabilities.

Allison, we've been using a keyword here really since the pandemic started, and that word has been fluid. And that has been as our customers have been uncertain as to what the future has either been held for them or will be held for them in moving forward. They've really struggled to find out what was going to happen from a labor perspective, what would happen certainly with the rail congestion that you've heard Darren talk about. But also just overall from a consumer perspective, what people would be buying and how to put inventory in the right places. I think we've done a great job over the last nearly three years of making sure that we stay fluid. We stay fluid in our conversations with our customers, and that's going to continue. As you heard John mention in the prepared remarks, and then you've heard that throughout each of the segment presidents, we're going to continue to stay focused on creating value for our customers. I've stated several times that I believe that the supply chain is the most inefficient at least that I can remember in several years. A big part of that's been from the pandemic. So we're going to be focused on taking costs out of the equation for our customers across all five of our segments where we can do that and sharing back with our customers in that cost while continuing to maintain our margin targets within each of the five different segments. So that fluid response to our customers, we're having to adapt more quickly, be more agile to the process. Our capital allocation process will continue to follow the exact same way that we have done over the last five years. But it will be with what I would tell you from a people and overall capacity perspective. We've been very offensive over the last year or two, making sure that we are prepared and ready for our customers. This is going to give us a chance to take a little bit more of a breadth and be a little more structured discipline, staying in tune and in line with what the market is doing.

Great. Thank you.

Thank you. The next question is from the line of David Zazula with Barclays. You may proceed.

Thanks for taking my question. Maybe for Brad. I mean, this is the second straight quarter of sequential declines in J.B. Hunt 360 revenues. I know you talked about good activities. I guess is that a sign of maturity in the program or customers being a little more selective in where they go looking for that type of activity? Or does it speak to the project volumes that you had talked about? Just if you could touch a little more on that.

Yes, David. Good afternoon. Shelley just spoke about being fluid, and really what we saw at the very end of Q2 and we spoke of it in our second quarter, and we saw more of that in Q3 is really just the downward pressure and reduction in overall spot volumes that we see inside of the marketplace. There's no secret to the downward pressure that, that's had on rates, in particular there, more pronounced than we historically see. In my prepared comments, I referenced the term several times, pivot. Others call it the flip, but we're going from this tight capacity market to a much looser capacity market. And that's being driven somewhat by a softening in volumes that we see, first and foremost, inside of brokerage. But from a fundamental standpoint, we do feel like our investments inside of J.B. Hunt 360, and I would say that many times, it often gets linked specifically to ICS. It's important that everybody on the call understands that it is a product and a value for our entire organization. And we see several data points that it spins off that value inside of Intermodal, inside of Dedicated, and even inside of JBT with 360box. And so those are the areas where we do feel like it's a longer play for us. It's not a one-month or one-quarter play, and we're just navigating this current environment the best we can. It's a fight out there for volume in the brokerage space. And I don't think that's any secret. But we know that, that will course correct at some point in time. We'll see some exits in the marketplace. There's already data points that reveal that capacity is leaving and likely more of it to come depending on how significant the downward trends are. And so we continue to feel confident. We continue to make investments both in the technology of 360 and also our people.

Thank you. The next question comes from the line of Ken Hoexter with Bank of America. Please go ahead.

Hi, great. Good afternoon. And I guess just to clarify, I did turn on the Yankee game for this, so excited to be here. Nick, great job at Dedicated. But sorry, Brad Delco, just a quick one for Darren also. You took on a lot of boxes that you ordered a while ago into a peak season that didn't exist, it seems like. Can you remind us your thoughts on taking on capacity now versus the ability to get fluidity or increased turnover, what the impact is on margins and your thoughts then into '23 on margins? I'm just trying to contrast that with John's comments earlier about increased caution.

We have certainly onboarded a significant amount of equipment and announced an expansion plan for the next three to five years back in March. We've added equipment throughout the year, but peak season volumes are not meeting our earlier expectations from just a few months ago. We had anticipated stronger volumes, but this year's peak season is proving to be less significant, even though we are still experiencing growth. Moving into next year, we will continue onboarding equipment at a pace aligned with our growth. As we achieve improvements in velocity, it will unlock capacity within our existing fleet, prompting us to evaluate the speed of onboarding new equipment. Additionally, if any opportunities arise to onboard equipment that provide cost benefits, we may choose to do so, allowing us to respond flexibly to customer demand, especially as some customers face service challenges from other carriers competing for slots. We do expect to see growth from this situation, and having available equipment is a crucial part of our strategy for the coming year. However, I won't be addressing questions about margins at this time.

Ken, it's Shelley...

That was worth a try.

Ken, it's Shelley. I'd like to add to that. As Darren mentioned earlier, our focus is on return on invested capital. Throughout 2021 and 2022, we aimed to ensure that our customers could have a neutral experience when using our equipment. Given the issues we faced with railroad congestion and our customers' struggles to unload our equipment, I believe our volumes would be negative due to those factors. However, being prepared from a return on invested capital standpoint means we are in a strong position. This allows us to move forward confidently, recognizing that our customers' inventory challenges and rail congestion are likely temporary, and it positions us better for the long term. We have a significant opportunity to convert freight off highways into the most efficient land transportation in North America.

And Ken, I'm just going to add also to give Darren a breather so he can catch a drag in between questions. He said it best. Just keep in mind where we get these boxes currently and the difficulty in getting them here. And so we have to plan accordingly to be able to be nimble. The other thing, as these are 20-year assets, they're priced and modeled from an ROIC perspective to include downturns throughout those 20 years. And so all of that is kind of taken into consideration in terms of our ability to go out and buy and add those units.

Great. Thanks, guys. Appreciate the time. Thanks, everyone.

Thank you. The next question is from the line of Brian Ossenbeck with JPMorgan. Please proceed.

Hi, good evening. Thanks for taking the questions. Just a quick one for Brad Hicks. Can you just clarify if there's anything else in ICS this quarter that impacted margins? And you talked about spot and your need to pivot, but I think there's also a mention of some higher claims and bad debt expense. So anything incremental on that would be helpful. And then just looking longer term, as you think about Intermodal, historically hasn't been able to get volume and price at the same time or it's difficult to do that. So the secular growth has been a little harder to come by from our perspective. Do you think the investments that BN is doing expanding San Bernardino, you got Barstow, those are coming out multiple years from now. But you've been doing more on transloading. Are these the sorts of things that can make the volume growth and the earnings growth behind that a little more durable, a little more secular than what we've been seeing, primarily driven by the truck market? Thanks.

Yes, so I'll start. Thank you. We just called attention to a couple of categories, and we have some bad debt claims at points in times. Usually, they're pretty lumpy for us. And so over time, there wasn't anything that stood out if we look at the business in terms of years. But when we do have bankruptcies through customers that we do business with, and when that happens, it hits you at once. And so I think we did see some of that in the third quarter. Not over-concerned as we look at a broader window of time and where we're at, not seeing any negative trends there per se. But when it does hit, it is a little bit more pronounced in a particular month or a particular quarter. As it relates to the second part of your question on kind of what we're seeing in spots, we saw those continue to decline. Can't really say and I don't want to predict what the future is, so I don't know that we've officially reached bottom yet. I would say that it's somewhat stabilized in the more recent periods of weeks. But we also see other indices, for example, the AOTVI that would suggest that volume trends have continued to decelerate in October versus what we saw in September. And so that's where paying attention to every data point we can to try and get a read. The best thing that we can do is just stay as close to our customers to try and promote and grow on the contractual business side so that we're not as volatile per se in the spot market, and that's what our focus is going into bid season.

Okay, I'll try to dive off into your question there, Brian, on Intermodal. I mean, clearly, in those years, 2015 maybe to 2020, you seem to have a lot of focus on whether or not we can grow both volume and price. Prior to that time, I think we had some success with that. And during that time window, there was a lot of choppiness related to our relationship with BNSF. There was PSR implementation, which in some ways shifted some challenges from the railroads out to us. So just a lot of challenges related there. As we move into the future, I think our relationship with BNSF has never been stronger, and we feel very confident about the work that they are doing, and we are doing together to grow our Intermodal product. We would anticipate that the value proposition we deliver to our customers is also driving enough value to warrant the quality returns that both BNSF and J.B. Hunt would expect. All that being said, does that mean we get a rate increase? I don't know. I know that expansion of their footprint is good for our Intermodal business. And so we're very excited about all the projects that they have underway. And certainly, transload opportunities are big for us and will continue to be important strategies that we work on together with the railroad.

Thank you, guys. Appreciate it.

Thank you. The next question comes from the line of Ravi Shanker with Morgan Stanley. You may proceed.

Thanks. Good afternoon. One short-term question for John. John, I think you said at the top of the call that some areas of the business may be opportune for correction. Can you just expand on that a little bit more what exactly you meant by that? And also, Shelley, congrats on the new position. Maybe I can ask you a longer-term question. What do you think are the biggest opportunities and risks ahead for J.B. Hunt over the next five to 10 years? Thanks.

Thanks, Ravi. I might try to take both of those. Let me just talk a little bit about the opportunities that we have. I think as the market is moving and our fluid approach, we recognized in some of the areas that we've invested in heavily, there's some rightsizing that we have to do. Brad talked a little bit about that in being more offensive with our customers and trying to make sure we're set up from a sales perspective, but then also looking at what is the five-year plan around that business and making sure that we're more in tune with what the model would suggest. There are other areas of opportunity like what's happening in our maintenance. And that number for us, the amount of trucks that we actually have that we are holding is becoming more and more impactful to our bottom line. But it is allowing us to serve customers and we're staying in line with our customers from a price perspective. I think each one of the five segments have recognized where their opportunities are. Nick, I know, talked about Final Mile also in the beginning with our cost recovery efforts. And I was just making sure that the great value we create for our customers that we're in alignment from a return perspective. And that's going to take us more than a quarter or even more than a few quarters. That's a longer-term strategy for us with our customers walking each one independently through that. So I feel like that is really our greatest opportunity. I might add this. What I'm most excited about, our biggest opportunity is really to get the entire organization to understand the level of value we can create for our customers with our mode-agnostic approach. We have the best opportunity of anyone to give a customer an answer that is best for them in cost, service and capacity because we serve the entire supply chain in North America. And with five fairly healthy segments now with the growth trajectory, that really has a market for each one of them in a totally different number, totally different size than what it is today, we think we're just getting started. So I think I'm excited about our long-term opportunity for growth while maintaining our margin and being disciplined in the way that we conduct our business. Yes, I would say we've tried to highlight those. Final Mile is one of the areas we are focused on. For ICS, it's important to remain structured and disciplined with our long-term plan and ensure our costs align with that plan. Those are probably the two areas of focus.

Very helpful. Thank you.

Thank you for spending time with us on this quarterly call. I think you heard us talk a lot about the caution that we have. But I want to make sure that I talk about why we've mentioned caution. For us, caution is just a readiness to pivot. It's a readiness to be available for our customers and understanding what's happening in the market and how we can best prepare ourselves and be ready. With the executive management team having over 25 years' experience at J.B. Hunt, I think we've seen this before. We've seen signs similar, and we want to make sure that we can pivot with our customers and make sure that we continue to create great shareholder value. But might I say that this was our best quarter in our history. It is maybe more muted because we think about that readiness that we're attempting to really solve for. It was the best quarter for JBI. It's the first time DCS hit over $100 million in operating income. And so we're proud of the work that we've done. And I think that you see the results overall. And I also think that you see our diversified portfolio and making sure that we are mode-agnostic with our customers. But speaking of our customers, sharing improvements with our customers is good. It's good for them. It's good for our business. And I think that's going to be important for us as we continue to move forward. The supply chain is inefficient, and we want to help it become a more efficient supply chain. We're a growth company. And we have a complete and total understanding of the importance of ROIC. That will be our focus. We want to create more value for our customers by really trusting the people that take care of them every day. And so I close by saying thank you to the nearly 38,000 people. They work hard every single day on behalf of our customers. And we're going to continue to remain disciplined in our approach but make sure that we are taking advantage of opportunities that are present with our customers and serving them with more value. With that, looking forward to speaking with you on the next earnings call.

That concludes today's conference call. Thank you. You may now disconnect your lines.