Good afternoon. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the J.B. Hunt Transport Services, Inc. Third Quarter 2023 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. Thank you. Brad Delco, Senior Vice President for J.B. Hunt. Please go ahead.

Good afternoon. Before I introduce the speakers, I would like 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 risk 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 JB Hunt's Annual Report on Form 10-K and other reports and filings with the Securities and Exchange Commission. Now I'd like to introduce the speakers on today's call. This afternoon, I am 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. I'd now like to turn the call over to our CEO, Mr. John Roberts, for some opening comments.

Thank you, Brad, and good afternoon. I would like to take a minute to highlight and reinforce some of the key tenets around how we manage the company. While the challenges in the freight cycle are well known and documented, and as a result, there is no need to rehash here, I will again remind you about our long-term approach to the business. Our focus is on deploying capital in areas of the transportation industry where we see long-term opportunity to compound returns. We participate in an industry with a large, addressable market that is cyclical. Remaining disciplined around our investments with a long-term focus on our people, technology that enables and capacity to deliver for and on behalf of our customers will support and drive long-term growth for the company and our shareholders. In March of 2022, we announced a joint initiative with BNSF to substantially improve intermodal capacity and service for our customers. We recently announced and closed the acquisition of the brokerage assets of BNSF Logistics. These are key examples of how our companies are working together to best align efficient and value-added solutions for our customers. While the brokerage market is challenged, we see lots of opportunities to drive efficiency in the supply chain with our people, powered and enabled by our technology, our J.B. Hunt 360 platform. We continue to work closely with BNSF and all of our rail service providers to strengthen and create a more reliable intermodal product. And I am pleased to see the progress in our intermodal segment relative to the market in our results. Dedicated and final mile continue to show resiliency in this environment, proving again that our premium service products can be differentiated from the competition. Our J.B. Hunt 360 box product in our truckload segment continues to experience growth, providing an asset-light solution, while also leveraging our investments in technology to efficiently serve customers. In closing, we have a tremendous team here at J.B. Hunt with a lot of experience. We will remain disciplined on costs and investments to best prepare the company to serve the growing needs of our customers. We will remain focused on earning appropriate returns on capital and driving efficiency in the supply chain to drive greater value for our customers. I remain confident in the future growth of the company. Now, I'll turn the call over to our President, Shelley Simpson.

Thank you, John, and good afternoon. My comments will cover our areas of strategic focus and how we are setting ourselves up for long-term success. Of course, these comments will align with our priorities for 2023, which, as a reminder, are to, first, remain committed to disciplined long-term investments in our people, technology, and capacity; second, deliver exceptional value to our customers; and third, drive long-term compounding returns for our shareholders. As you've heard us say since the fourth quarter call earlier this year, we have been in a challenging freight environment or a freight recession, largely driven by excess inventory in the supply chain. Our customers have been working through excess inventory, and as we stated last quarter, we felt like that de-stocking trend started to moderate in June. As we sit here today, we see further evidence of this trend, and most notably in our intermodal business, which is at the forefront of the North American supply chain. To be clear on the overall environment, we are not at a point yet to say we're out of the freight recession, but we do feel like we're coming out of it or said differently, directionally we are seeing signs of things moving in a positive direction. Going forward, our focus remains on how we deliver value for, and grow with our customers over the long term by finding ways to improve efficiency and drive waste out of the supply chain. As you've heard us say before, we have a long-term approach to how we manage our business and how we invest across our company foundations, which are our people, technology, and capacity. Our people have always come first, and we remain committed to our investments in our people, in proper training, in their safety, and in fair and equitable compensation and benefits. Throughout our company, we have the experience and talent to execute in all types of environments. As an example, the officers of our company have a collective 350 years of experience, not just in the industry, but at our company. The experience and talents of our people combined with our capacity to deliver and connected and enhanced by our technology investments are what combine to deliver exceptional value for our customers. I believe we're seeing evidence of the strength of our brand and service by staying committed to our long-term investments in our people, technology, and capacity. As we progress in the recovery, I'm confident in our ability to meet the growing needs of our customers as a result. In closing, while the environment is still challenging, it is important to keep in mind that pricing is a lagging indicator, while volume is typically a leading indicator. We are encouraged by the performance of our intermodal business that is gaining share in the market and the resiliency of our dedicated business, they continue to deliver efficient solutions for customers. Our final mile business is holding up well despite seeing varying degrees of demand from the end markets which they serve, highlighting the quality of our premium service product. And in our ICS and JBT business, we continue to see both segments feel the brunt of the freight cycle, most notably in price and volume. They continue to believe in our ability to scale this business to drive efficient solutions with our brokerage and drop trailer services. We will continue to manage the business for long-term growth, and I remain confident in our ability to deliver long-term, sustainable returns for our shareholders. With that, I'd like to turn the call over to our CFO, John Kuhlow.

Thank you, Shelley. Good afternoon, everyone. I'll be brief with my comments, but I want to hit on a few items, including a high-level review of the quarter and an update on our capital plan. So starting with third quarter results, overall freight activity remained under pressure during the quarter as compared to last year. On a consolidated GAAP basis, revenue for the quarter declined 18% year-over-year. Operating income declined 33% and diluted earnings per share decreased 30%. These declines were primarily driven by lower freight volumes and yields combined with inflationary cost pressures primarily in the areas of salaries and wages, capital costs, and insurance and claims expense. We did have a discrete tax item in the quarter which lowered our effective tax rate to 18.2%. The overall impact to our earnings in the quarter was $0.16 per share spread across the tax and interest expense line items. We continue to make investments in our business for the long term across our company foundations, our people, technology, and capacity. From an invested capital standpoint these investments are in real estate, equipment, both trailing and power, and as previously mentioned, we did close on the purchase of the brokerage assets from BNSF Logistics in the quarter. Our balance sheet remains strong with ample liquidity available to support our investments. We are conservatively leveraged at still below our target of one-times debt to trailing 12 months EBITDA. Our $1 billion revolver remains undrawn and available as needed. I previously guided to $1.5 billion to $1.8 billion of net capital spent for the year. Excluding the acquisition, we anticipate falling around $1.6 billion for the year. Similar to last quarter, some of this is timing related, but also we are being prudent where it makes sense with our spend. In terms of our capital priorities, no change on this front. First and foremost, we will continue to invest to grow our business. We will maintain an investment-grade credit rating and support our dividend. And finally, we will use excess cash to repurchase stock. In the third quarter we repurchased approximately 267,000 shares and will remain active as opportunities present themselves. This concludes my remarks and I'll now turn it over to Nick.

Thanks, John, and good afternoon. I'll provide an update on our dedicated and final mile segments and we'll give an update on areas of focus across our operations. I'll start with dedicated. I remain pleased with the performance of our dedicated business in the quarter and the resiliency of our model. Demand for professional outsourced private fleet solutions has held up well in the environment, and we continue to see many opportunities in our pipeline. In the quarter, we sold approximately 265 trucks in new deals, which brings us to over 830 year to date. We are feeling more confident in hitting our gross sales target of 1,000 to 1,200 trucks for the year. Based on the timing of some deals that push from the third quarter into the fourth quarter, we are seeing some stabilization in terms of our fleet sizes across our accounts, although we have seen some slightly higher customer churn than we previously expected. In the instances where we have lost an account, we believe the business was lost at inadequate rates of return, particularly considering the value proposition we bring to our clients. Going forward, we remain extremely confident in our ability to deliver value in the market that will allow us to compound our growth over many, many years and further penetrate our large addressable market. Now on to final mile. I am pleased with our performance in the quarter and how we have positioned ourselves as a premium service provider in the industry. I believe we have been able to prove our value propositions as we are nearing the end of some of our work to improve the revenue quality of our portfolio of business. This is evidenced by the year-over-year improvement in profitability in the segment despite lower revenue. In terms of the end markets we serve, we are seeing a slight uptick in demand across some of our end markets in the segment, although furniture deliveries remain in a tough spot. We continue to focus on providing a superior service experience, delivering big and bulky items into the homes of our customer's customers. This continues to resonate well in the market and as a result, we see new brands engaging in discussions and being added to our sales pipeline. Similar to last quarter, I'll close with some comments on safety in our equipment. We continue to invest in employee training and new equipment and technologies that will improve and enhance our safety performance as an organization. This very much aligns with our company foundations taking care of our people, but also the motoring public. We continue to roll out inward-facing cameras in our fleet and remain on track to be 60% complete of our fleet by the end of the year. We are encouraged by the data we have seen so far since this initiative has gotten underway and also encouraged by the impact this should have on our cost to serve our customers. As the industry is well aware, the cost of claims continue to just move higher and higher, and we are feverishly working to mitigate the risk. Finally, a quick update on equipment. I previously stated that we would be complete with cleaning our older equipment by the end of the third quarter. We've had a couple hundred units spill into the fourth quarter, but I would say we are in a very good position with our equipment across all businesses. I would say we are finally caught up with some of the backlogs that were created as a result of the pandemic and our rapid growth over the last few years. This concludes my remarks, so I would like to now turn the call over to Darren.

Thank you, Nick, and thanks, everyone, for joining us this afternoon. I'll review the performance of the intermodal business during the quarter, give an update on the market and service performance, and highlight the continued opportunity we have to deliver value for our customers and long-term growth for all of our stakeholders. I'll start by reviewing intermodal's performance in the quarter. As I said last quarter, and you heard Shelley say earlier, we believe the inventory de-stocking trend started to moderate in June. And we saw evidence of that trend continue throughout the quarter as our volumes inflected positively for the first time in three quarters. By month, our volumes were down 1% in July, up 1% in August, and up 4% in September. In September, we had our largest intermodal volume week in our history and were able to meet the strong demand with exceptional service. I'm encouraged by the fact that we are seeing the volume lift across both our transcontinental and eastern network highlighting overall increased customer demand for our intermodal service. We believe this is driven by the overall market, but also we believe we are taking market share with our strong service that is outperforming the competition. During the quarter, we did see margin pressure both year-over-year and sequentially, largely related to the full implementation of the recently repriced bids, which is a reminder trended toward the lower end of our pricing expectations as bid season progressed. We continue to carry resources and capacity and the related costs to ensure that the quality of our service holds up as customer demand for a differentiated service product grows. With regard to rail service providers, we have been pleased with the service from each of our providers, their commitment to the intermodal offering and growing the overall market. In fact, I'd say that our rail providers are dialed in both in the East and the West. We believe that the railroads realize that the true test of their service will come once freight volumes increase with overall demand on their networks. But we and they are confident in their ability to maintain high service levels throughout the recovery. We are very encouraged by the current work we are doing with BNSF in the West and feel even more confident about our differentiated service. We now have J.B. Hunt employees in their headquarters in Fort Worth working side by side together to create and customize solutions for our customers and solve to eliminate service challenges as they arise. We continue to work collaboratively to solve for and on behalf of our customers a clear differentiation in the market. We believe Intermodal presents a strong value proposition to customers with significantly improved rail service at a discount to truck pricing, all while cutting carbon emissions on a load by 60% compared to the truck alternative. As such, we see an enormous amount of freight that we believe should be converted from truck to intermodal. We continue to work closely with the rail providers and are encouraged to see the strong service which contributes to a better overall experience for customers. In closing, we strongly believe in the strength of our intermodal franchise and the opportunities to drive significant growth over many, many years. Our customers trust us, believe in our product, and want more of it. We have the people, the technology to enable, and the capacity to handle significantly more volume than what we are handling today, and are excited to work with customers to meet their growing demand for efficient transportation solutions. That wraps up my prepared remarks and 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. I will also provide an update on J.B. Hunt 360. Before I begin, I would like to publicly welcome the new employees we recently onboarded, as well as the agents from our acquisition of the brokerage operations of BNSF Logistics. We are excited about the opportunities this creates to leverage our investments in technology and the breadth of services we provide to better serve our customers. Starting with ICS, overall, the brokerage environment remains challenged and competitive. Segment gross revenue was down 48% year-over-year, driven by a 38% decline in volume and a 17% decline in revenue per load. Overall truckload demand, particularly in the spot market, remains muted versus the prior year period. During the quarter, we did elect to focus our efforts on revenue quality and leading the market to push rates on certain lanes and accounts to appropriate levels. As a result, we did cull a decent amount of revenue and freight from our portfolio. As the quarter progressed, though, we did see a sequential improvement in gross profit dollars per load, particularly in our spot business, but also in our contractual business. We continue to invest in areas to mitigate strategic theft, enhance capability in our platform, and right-side resources with our current demand through attrition. Overall we believe some of these changes will position us for better success in the future. Wrapping up on ICS and to level set a little on expectations in the near term, we are seeing some margin pressure related to peak season so far in Q4, in addition to expecting some dilution from the recent acquisition in the fourth quarter. Shifting now over to JBT or truck load, segment gross revenue was down 17% year-over-year, driven by a 22% decline in revenue per load and partially offset by a 6% increase in volumes. Overall demand for our J.B. Hunt 360 box service offering is outperforming the overall market as volumes in the quarter were up double digits versus the prior year. Customers continue to see value in the flexibility and efficiency of combining the drop trailer capacity with the ability to source the right carrier on the J.B. Hunt 360 platform to move the trailer. The right carrier on the right load and at the right price, that's the power of the platform. Going forward, we will continue to make investments in the development of our 360 box offering to strengthen this product and drive greater efficiency for our customers. Overall, we believe there's growing demand in the market for this service offering and we see long-term opportunities in this area. Wrapping up on 360, as you have heard throughout our comments, we remain committed to investments in our company foundations, our people, technology, and capacity. I think it's appropriate to point out that technology as a foundation between our people and capacity is the link that connects them. Technology enables our people, helps drive productivity, and creates efficiency in how we source and serve customers with our available capacity. That capacity comes in the form of our own assets or the assets we can secure for or on behalf of our customers. J.B. Hunt 360 is our platform that empowers and enables our people and helps us access the right capacity to serve our customers efficiently with a valuable service. Our platform, J.B. Hunt 360, informs us about the market and provides a solid foundation to drive productivity in our operations across the organization and eliminate waste in the overall supply chain. While some of the productivity is masked by the current environment, we remain confident in our ability to drive long-term value for our customers and our company with our investments. This concludes my comments, so I'll turn it over to Brad Delco to provide instructions before the operator opens the call for Q&A.

Thank you, Brad. And just for the audience, given the number of folks in queue, we're going to limit the question to one question with no follow-up. Krista, you can go ahead and start the Q&A.

Your first question comes from the line of Chris Wetherbee from Citigroup. Please go ahead.

Hey, thanks. Good afternoon. Maybe really wanted to start on the margins, particularly intermodal and maybe get a sense of how you guys are thinking about that and really maybe more specifically from 2Q to 3Q, it seemed like the cost per load went up decently. And I guess I'm trying to make sure I understand if that's mixed or if it's just sort of the full brunt of labor costs, labor inflation. And how do we think that that kind of trends going forward because we did see a step up in load sequentially. Curious if we see that continue, if it'll start to drive some operating leverage in that part of the business.

I'll begin by saying that we are not satisfied with our margin. We faced cost pressures this quarter, with fuel being one of the contributing factors. Our growth does not always occur in a straightforward manner, as we had to move a lot of empty units to accommodate new business. Our ability to onboard new business quickly is a result of our preparedness. We have strong confidence in the product and service we provide. As the upcoming business cycle approaches, we are open to discussing our cost challenges with customers. We believe that increased volume can lead to greater efficiency. However, during a rapid ramp-up, some cost elements may arise that we need to address. Additionally, we have fully implemented our pricing strategy, and as anticipated, our prices decreased this quarter, which contributed to the margin pressure.

Hi. Good evening. Just sort of in line with Chris's question, there's the positive, you're seeing more positive trends. There's certainly a market share grab from truckload potentially that's out there. How do you think of releasing that excess capacity into the market at this point, just given your share gain and the opportunity out there? How should we think of that as we kind of move through the progression of the more positive trends here?

I cannot provide specific guidance on how quickly we can onboard new business. We engage with our customers daily to find ways to reduce their costs, primarily by converting highway business to intermodal. Our goal is to achieve a better balance by onboarding new business that supports our network. The pace of this onboarding will depend on our customers' growth and overall market conditions. I have confidence in the service we provide, which is what we can currently control, and that will be our main focus.

Yes. Hi. I know it's hard to put all the moving pieces together, but I'm sort of just curious. The third quarter margin in intermodal, I mean, do you think this could represent the bottom of the cycle if volumes continue to inflect positives and box turns move up sequentially, which occurred in the third quarter? Thanks.

Well, I think when you phrase it like that, it really all depends on what happens with our customer's volume. But if everything were to remain equal and we can onboard more volume and there's no violent recession we're faced with, then yeah, it can be the bottom. But there's so many external factors that are going to influence that.

Hey, good afternoon. It's Ken Hoexter. Just on intermodal again, I guess your thoughts on the trend up 4% at the end of the quarter, was that due to the Canadian port strike? Is that maybe talk about if that trend is continuing in October? And then just if you're focused on long term and keep buying the assets, I just want to understand that CapEx comment, because it sounded like you're slowing down. But if you have all these 15% of assets stored do you lengthen the downturn by continuing to buy and store? Does that make it a longer time turnaround?

Hey, Ken, this is Brad Delco. I'm going to try to see if we can answer all five or six of those questions with each of the executives. So I’ll let Darren address the intermodal one and let John Kuhlow address the CapEx question. And if we missed one, send me an email, because I know we already cut you off.

Well, as the quarter went on one thing that intermodal volumes, one of the more positive elements is, we were really growing throughout the network. Certainly imported goods that transload somewhere on the West Coast are a part of that, but we were pleased with growth we were able to see inside our Eastern network as well. So it was really evenly spread. I mean, you might have heard in the prepared comments, we set a single week volume record during the month of September, and that felt really good for our team to see the value of our services and how our customers trust us and are giving us more of their networks.

And Ken, just from a CapEx standpoint, broadly speaking, we've been talking about how we had to retain a lot of equipment in 2021 and 2022 just because of the inability to get that. I think that we've made a lot of great progress on working through our replacements in 2023. We'll still have some in 2024. As you know, all of our growth CapEx is principally success-based through dedicated and even with intermodal. We are carrying, as we've talked about, excess container equipment right now, but we'll work through that and then we'll purchase new as our growth plans deem necessary.

Hey, thanks. Afternoon. So Darren, as we enter 2024 bid season, do you think there's further downside risk to intermodal rates into the first half of the year? Is the next wave of contracts will start to reset or is there a shot that intermodal pricing can start to get better? And then just separately, just quickly, the dedicated retention went from 98% to 94%. Is that a one-off sort of blip or is that sort of a new potential trend?

Well, I'll start on the intermodal pricing question. Look, I mean, the reality is, it's both an opportunity and a risk. We don't know. The freight recession has been a real thing. As you know, we've talked about inventory de-stocking, and the role that that played in demand in our industry for several quarters now. And we're confident that that pressure relief during the third quarter. Questions remain about the U.S. economy, what's going to happen to the consumer, what will demand be as we head into 2024? I guess, we don't really know that. Do I think that the quality of our service warrants a good discussion with our customers about our costs? Absolutely. So will there be an attempt? And will we talk about the need that we have and the costs that we're faced with? Absolutely, we will. But we're going to have to wait and see how that plays out.

Yeah, this is Nick. I'll talk about retention. We did face some pressure in the quarter on some losses of a couple of accounts that to competition. We also had an account or two, smaller account or two that went bankrupt. And then just our CBD process as our customer's business slows down, we try to value engineer and reduce fleets. So with all that being said, the way we reduced or we measure that retention, there was some loss in there from same store sales a quarter ago. Can't tell you what the future is going to be. I don't know what the economy is going to be. I do feel very confident with our execution and our discipline around all that. And so, I feel good about the future, but I can't predict what the next two or three quarters are going to provide.

Thanks, I wanted to ask one on the acquisition of the brokerage business from BNSF Logistics. Is there anything you can share on the impact this could have on both the top line and the bottom line? And as you think about the longer term, does this deal change your strategy for ICS, including your targets on profitability?

Hey, Justin. This is Brad Hicks. I want to start by saying that when we looked at that acquisition, there were several aspects we found appealing. One key factor is how their customer base aligns with ours. Additionally, as I mentioned earlier, we are enthusiastic about welcoming agents, which represents a new investment area for us. We believe there is potential to explore and leverage this opportunity. Considering the wide range of services that J.B. Hunt can provide, we are confident that this could enhance the agent business model. We're very excited about this. Regarding the deal, I noted that we'll incur some ongoing costs in Q4, which we estimate will be between $5 million and $6 million due to acquisition and integration expenses. As a general reference, we anticipate that in Q4 this will lead to approximately $100 million in incremental revenue for ICS.

Thanks, everyone. I wanted to revisit the topic of volume. We've been experiencing a back-and-forth dynamic with volumes since January. There have been some positive cyclical factors, such as the West Coast imports a couple of months ago and gaining some market share. However, leading indicators suggest that the volume at West Coast ports may be decreasing as the peak season appears to be somewhat subdued. I want to balance this with the confidence you all seem to have regarding volume and understand if we might find ourselves a couple of months from now looking back at September and August and realizing that the current volume trends might not be as solid as they seem. Please help clarify your confidence in what you're observing and your ability to maintain that trend.

Thank you, Amit. The challenging aspect of discussing volume is that our customers haven't been very reliable in their forecasts or their ability to anticipate their needs. However, they have confidence in us, and we maintain a strong belief that when they do require our services, we are their preferred provider. We are consistently building confidence with our customers regarding our execution, capacity, and responsiveness in quickly initiating new business. Our strategy will remain unchanged. Our customers face cost pressures, and one way they can reduce expenses is by shifting their highway business back to intermodal services. Therefore, we will focus on growing in that area. Additionally, we are gaining market share, and any growth toward the West Coast will benefit us. The past year has been quite confusing regarding how our customers have managed their inventory, making it hard to find predictable patterns. Nonetheless, we are very confident in the products we offer and in our commitment to support our customers with a product they want to use—this is within our control.

Hey, good evening. Thanks for taking the question. So maybe just to tie all that up, Darren, can you give us some sense as to how the rest of peak season is going here into October after those records in September? And then just more broadly speaking, as you talk to folks for next year and the shippers that you're dealing with, go you get a sense that any of them are trying to lock in capacity for potential uptick and they want to get something on board before rates start to move up? Or do you feel like there's still a little bit more inflation that they want to get out of their system from freight rates and maybe they're taking a harder look to start the year? And maybe one more last bite of the apple. So any sense in terms of partnership positioning and outlook for next year will be helpful?

Well, let me start with sort of the exit from Q3 into Q4. I mean, we continue to bring equipment out of storage. None of our equipment has gone back into storage and demand remains really, really strong, just as it was throughout September. So far, here we are. It's October 17th. Things have effectively continued coming out of the back end of September as they were.

I believe you asked about expectations and whether shippers would have another opportunity. I think Darren already addressed that it's too early to comment on what pricing expectations will be for next year.

I think there has been a handful of customers that are at least engaged in dialogue about what we might be seeing. It's different from simply trying to win more business or asking for a rate reduction. There is a concern about not wanting to run out of capacity in any of their service offerings, so it is at least a dialogue. I don't want to imply that they are just trying to secure capacity right now. However, I believe customers would love to lock in low prices, which ties back to my earlier comments about the cost challenges we face. I think that understanding is there, but I'm not saying anyone has agreed to anything. There are still many questions out there.

Thanks, everyone. So, I think you guys are flagging competitive risk in multiple segments, dedicated, ICS, I think maybe also IM. Is this a surprise? And kind of where's this pressure coming from? Is it coming from other public companies? Is it coming from small and mid-sized carriers? And just to follow up on the IM side, a related question. You said that you feel like you're taking share and that's driven some of this volume acceleration. Again, is that share exclusively from truck or are you also taking share from other IMCs?

Where do you want to start, Brad?

Yeah, I'll have Darren start on the intermodal side and then I'll let Nick talk about the competitive dynamics that he's seeing to the extent he is seeing it in DCS and then Brad Hicks can wrap up with comments on brokerage and what he's seeing on Power Only.

I think we're taking share both from the highway and from other intermodal channels. I've been really proud of the team's focus and efforts on the highway conversion front, but inevitably there have been pricing actions by our customers earlier in the year, and maybe we didn't win something, and three months later, they come back, and through a mini bid, we win it a second time because maybe a provider struggled to service that opportunity. And that's not new. That happens every year, but that has certainly been something at play here this summer.

For the dedicated, I'd just say that the fleets that we lost were a couple of other publicly traded companies and we just couldn't match that from a return standpoint. So we walked away. But I would say that if you look at our pipeline, we have a healthy pipeline and the deals that we've won and priced meet our return requirements, so we're very happy with that. So we're always fighting competition out there. So I feel good about the future and where we're going.

And I'll round it out from maybe what we're seeing in brokerage. I think that in brokerage, as you all well know, it's been an incredibly difficult environment. Radical swings in rate from just 12 months to 18 months ago versus what we see today, so it is probably more competitive in the brokerage segment than what you heard from Nick and Darren. It's a fight out there. As I mentioned in my prepared remarks, we hold some freight that was not favorable for us, but we've also lost some freight due to the competitive bid process that our customers took advantage of or utilized during this bid season. But I'll tie it back to our acquisition and really the value of J.B. Hunt 360 and what we see is letting our platform execute and creating that value for our customers. And so with that acquisition and where we're at, I largely feel like we're at the bottom and just kind of bouncing along. But there is extreme pressure on PTE. And so we do see carriers pushing back on the floor of what PTE is today and really just kind of navigating those choppy waters as we work through the beginning of the fourth quarter.

Ravi, I would also say, I feel like organizationally we want to be physically responsible and take a long-term view on the business that we have and also business that we onboard. If you heard anything from kind of what these three presidents have talked about, Nick's comments around not making a proper return, we aren't talking about a couple of points here. These are dramatic changes that maybe our competitors decided to be strategic with that account for whatever reason. And we believe the best decision for J.B. Hunt and the health of our business and our customers long term is to walk away from that business. Same thing from Brad's perspective, really challenging what's happening in the market. I think Brad is leading in that space and really talking to our customers about the long term benefit, long-term value. Has that business been able to be as sticky as we would like? No, I do think Brad's comments around it's been a fight there. I think the fight doesn't last for that long. You can't lose money for a long period of time in this business. And so, I think for us we take a long-term view. I think in intermodal, we're largely where we thought we'd be, maybe at the lower end of our pricing expectations, but pleased with what our customers have talked to us about and where we are moving forward.

Good afternoon. Thanks for taking my question. Shelley, maybe to follow-up from that and the idea about being disciplined around capital, because you guys have been reinvesting the business here for the last two years at pretty elevated rates. And I know we had the pandemic in the last five years, but intermodal volumes have really been kind of stagnant looking back that far. I guess, what do you guys see in the next five years that transitions out of this stagnant volume outcomes? I know there's been a lot of changes with the rails of the pandemic, but I guess the fear here, and I think historically you guys were always valued higher because of the focus on ROIC, but maybe are we just over investing this cycle now?

Well, let me say this, Brandon. I believe our customers, as Darren mentioned earlier, are still struggling with their forecasts. We completed the bid season, and I would have expected our customers to show significant improvements in the freight they're providing us, specifically in bid compliance. However, we haven’t observed a substantial change in bid compliance. Currently, we're in the mid-60s for intermodal, whereas back in 2017, it was in the 90s. This indicates that customers are having difficulty predicting what will happen with their forecasts. In terms of our one-way operations, like intermodal, JBT, and inside ICS, those bids fully implemented are hovering between the mid-50s and mid-60s. This poses challenges for us in understanding our networks, and we recognize that customers are not satisfied with this situation either. It's the reason behind the mini-bids, as companies seek to find the right balance among price, service, and overall costs. Additionally, regarding our investments, a significant part of what we carried over from 2022 into 2023 was due to our struggles with equipment acquisition, especially tractors. We're focused on fleet replenishment to maintain good condition. In intermodal, our speed in responding to customer needs has been crucial to our success lately, as Darren pointed out. We're actively unstacking, which involves substantial numbers moving quickly. We have experienced what it means to shut down our supply chain, as we did in intermodal in 2020, and it was challenging to resume operations. We're effectively assessing customer feedback alongside our own experiences to anticipate our equipment needs. We remain optimistic about our long-term future, and our customers share that confidence. I would like to add that while our customers had many questions in the first half of the year regarding inventory, our discussions have evolved, and they are now more confident that our intermodal services can deliver. They recognize that there are numerous shipments on the highways that require conversion, which is why we've decided to increase our intermodal container availability to 150,000. Ultimately, it comes down to timing. We do not price our services based on our equipment availability; rather, we price them considering each customer, market conditions, and the balance. Our decision to expand into storage reflects our disciplined approach to avoid significantly affecting the market.

Thank you. Good afternoon. Shelley or Darren, I just want to revisit the leverage part of the intermodal model. Your volumes were up again, but the margin was at a cycle low, maybe a multi-cycle low. So is this strictly a function of carrying too many resources, you need the volume to come back, once you get the volume you can add significantly more without adding resources and you get the margin improvement there. Or how much of it is actually moving the pricing needle and then therefore do we have to wait for kind of a full year of resetting the price before we can kind of revisit the bottom end of the long-term range?

Well, so I've said this multiple times. Volume is maybe a little bit more valuable to our margin today than it ever has been because of the amount of capacity we've had underutilized. So yes, volume is one of the key components. But volume proportionally doesn't move the margin needle near as fast as price does. The harsh reality is, we need both of those elements. Pricing has long been a lagging indicator. And here you are at the end of Q3 and you can see the results from more or less a fully implemented recent bid cycle, and now we're going to go into a new one. And so you don't get to see the full results of that probably until next summer, the end of Q3. Meanwhile, we'll be looking to grow and unlock benefits there. But there is no magic recipe here. We need both of those elements and that's why we're so focused on delivering excellent service so that we can generate the value for our customers that translates into an appropriate return on our investments.

Thank you very much. Shelly, thank you and your team for answering all that you have. I want to ask a question a different way. You've seen a lot of cycles, and each one's unique, and each one's different. I think what's different about this one is, we came out of this extremely tight capacity situation and into a very loose one because of de-stocking. I hear you saying we see signs that looks like it's ending. But what is different in terms about managing this cycle than the previous cycles? And kind of to the question that's been asked two or three times, based on where you are right now, when do you think on a corporate basis we come out of this volume morass? And when do you think on a corporate basis we're in a position to realize higher yields on the service you're providing because of the higher costs?

Yes, thank you for that conversation Jeff. And you know I would say we have had a lot of experience managing through the cycles. I do want to repeat something that I've said previously, and that is, this freight recession largely resembles the great economic recession of 2009. I think when I look back to what we did, and we did a great job was really investing in our people, making sure that our people felt safe, our people understood our long-term strategy, and we did a great job coming through that. I believe for us in this near term, continuing to evaluate what our customers are saying compared to what's happening in the market and making sure that we're prudent in our short-term costs while not losing long-term focus, I think is very important for us continuing moving forward. You've heard Darren talk about pricing, you've heard Brad talk about pricing. I think the cautiousness that you hear from us is, we can talk about a freight recession. We're not experts on what's going to happen in the economy. We don't have customers negative. I would say they are neutral to positive. But I don't know that anybody is an expert here as to what's going to happen from an overall freight demand perspective. So it's difficult for us to see what's happening moving forward. I will tell you, we're not changing our margin targets. We are very focused on delivering value for our customers. We know that we can deliver value for customers. Our customers will pay us an appropriate return and therefore delivers long-term compounding returns for our shareholders. That's our focus. Our entire company, all 35,000, really focus on making sure we do that very well. We deliver for our customers and we look at it from their lens. We have a great opportunity to eliminate waste through mode converting into intermodal, using the power of the platform and how we service it, continuing to differentiate our value inside our final mile business segment, and delivering the most efficient fleets through our dedicated contract services. That's our overall vision. That's how we talk to customers, and we believe that can deliver the right returns over the long term. But also if we see something changing in the near term, we'll continue to adjust, have conversations with customers, and make sure that we are delivering on the promises that we're making.

Your quarter end dedicated truck count rose for the first time in a year this quarter. Can you talk a little bit about if you think we're through the worst of the like-for-like shrinkage and in customer churn and whether or not that can be stable to grow again? And you know if we end up in that environment the next year, do a lot of costs have to come back to support that growth after you've been in degrowth mode for several quarters? Thank you.

Yes, I believe we're currently stable. When I review our renewals and upcoming opportunities, I feel positive about our position. Conversations with customers indicate stability, and our pipeline looks healthy. We're on track to meet our sales targets and are confident in our ability to achieve them. However, the economic outlook remains uncertain and might influence customer behavior. Nonetheless, our new customers continue to appreciate our products, demonstrating strong sales performance even in this environment. With only 4% to 5% of the market share, we are optimistic about our future.

Hey, Bascome, this is Brad Delco. I want to add a bit more to that. When Nick mentions that the fleet is stable, it's important to note that there have been new startups throughout this year. As Nick pointed out, we anticipate reaching our sales target of 1,000 to 1,200 trucks this year. This has involved some shrinkage in certain accounts and losing some accounts, which is reflected in the 94% retention rate compared to the usual rate above 98%. However, we have experienced new startups, and our margins have held up relatively well. Depending on external economic factors, we could see fleet growth without the extreme pressure on margins that we faced during the COVID years when we were adding several thousand trucks annually, which was an unusual pace of growth.

And the other thing on the truck that we don't need to lose during the year were, there was about 600 trucks that we had extra from having old trucks out there. So we take that out of there and it paints a little different picture. So we feel good about that.

Nick, let me add to that just a bit, because that's exactly what I was going to try to talk through, is that, you've done a great job taking out the incremental trucks that we've had, having to carry, because we couldn't get new equipment. But also the CBD work that you've done, being offensive in our strategy there.

Well, let me say this to close. As I mentioned before, there's a lot of opportunity out there as we've discussed. I truly appreciate everyone's time and questions today. And I encourage anyone with additional questions or clarifications to reach out directly. Thank you very much, and we'll see you again next quarter.

This concludes the Q&A portion of the call. I'd like to turn the call over to President, Shelley Simpson for some closing remarks.

So thank you so much for joining our call. I will say that you've heard us talk through this last hour really as to where we see the businesses today, but also focused on our future and what our long-term prospects are across all five of our business segments. We do love the complementary nature of all five of our segments as our customers really ask us to help them through the North American supply chain. We feel like that we can answer our customers with any of those five segments. Pleased with the volume growth in Intermodal and what our customers have told us that they want to buy from us. We're starting to see that in our results. We love the resiliency of our dedicated model and I think you're seeing that play out here in the third quarter. Very pleased with our progress in final mile. We didn't talk about that much, but very pleased with us continuing to push our customers on making sure that we are paid appropriately for the value that we create. And also pleased with what's happening inside 360 Box with volume growth overall. The freight environment has been challenging. That is nothing new to our team. It's not a matter of if, but when, we actually come completely out of the freight recession. But we are encouraged by some of the results in some of our businesses. I would say, in total, we're very proud of our people. And in this environment, for us to be able to flex in all of our businesses and make sure that we are delivering on what our customers are asking us for is the highlight of everything that we do. Sometimes our people are working so hard and they don't get to see the fruit of their labor, but I would tell you, they're working harder today than they've ever worked in total. For that we're super proud of our team. We remain committed to our team and remain committed in our three key priorities, delivering value for our customers, committed to our people, and finally committed to long-term returns for our shareholders. With that, I'd love to turn it over to John Roberts, our CEO, for final thoughts.

Thank you, Shelley. Very well said. I continue to land on your idea here that this recovery is not an if question at all. It's a win question. I really appreciate and respect the callers need more on the win. We wish we could give you more. The compliance data definitely tells us that we're all working towards a better understanding, but the data and the results in the quarter tell us that there's a lot of headwind out there. But I think we continue to find our way back to this idea of people and experience. And the people on this leadership team have an absolute ton of experience. And that gives us confidence to not feel like we have to make short-term decisions when we know what the right long-term decisions are. For instance, When we talk about our container ads, we use very large micro numbers, but I want to emphasize that was a very, very precise calculation made with the railroads on, real capacity, real availability, real conversion opportunity. We didn't just make up a number there. And when we don't see that demand, we look at and we alter the timing. But what Shelley said is so vitally important. When we were asked questions about just today, the volume in Intermodal. What drove the volume down in Intermodal was PSR, very, very simply. And we reacted to that by completely shutting down our desire to continue to bring on equipment that is extraordinarily hard to source and takes a very long time to get landed. That's experience working right there for you. Saying, hey, we did the calculation, we did the math. These assets have an extraordinarily long life. They sit quietly. We're not out stockpiling Class 8 tractors. We're buying the right assets. When I ask myself, how can we best position the company for the win, for the win we recover? We have to invest in the right assets and we have to learn from our experiences and when we apply that, it's just preparation for the win. I totally appreciate what the folks on this call do, but when you're here with us in this room, we're looking at that long term. So much real good conversation on CapEx and it is elevated and that is a very serious matter, but I want to reiterate the drivers behind that were a shortage of supply. We don't really talk about the impact that shortage of supply has on our system, but when we carry equipment over its natural life, you have to carry extra, you have to fix it more, you have to park it more. We're looking at that with our OEMs saying, wait a second, let's think this through like we're thinking through container management. And those are all capital events. I am, like Shelly, really pleased with the progress in final mile. I think that's an important business for us and I know there's a lot of pressure on it. I'm thankful for the discipline that I see in the businesses when we're under so much volume pressure to have the experience to know that holding on to bad deals is not going to turn out right in the long run. We have tried those exercises. They don't really work for us. We have such great visibility into every aspect of the company. Every single fleet in DCS has its own standalone P&L. We know top to bottom what's happening in there. And categorically, if you go around the businesses, we know where we have the problems and we just aren't tolerant to sit. And if someone else was to do it at those margins, then that's fine with us. We'll be ready when the right business comes along. But finally, I'd just say that Shelley is exactly right. The most important asset we have are the 35,000 people that work here. And the investments that we'll make in them, in the technology and in the capacity that will take us where we're going are well in place, well supported, and are underpinned by something that I wrote down that Shelley said that I, it's one of my new favorite phrases, but you can remain prudent with short-term costs while maintaining a long-term focus. With that, we thank you for calling in today. Talk to you in a quarter.

This concludes today's conference call. Thank you for your participation and you may now disconnect.