Good afternoon. And welcome to the J.B. Hunt Transport Services, Inc. First Quarter 2025 Earnings Conference Call. All participants will be in a listen-only mode. Please note that this event is being recorded. I would now like to turn the conference over to Brad Delco, Senior Vice President of Finance. 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 Transport Services, Inc.'s current plans and expectations and involve risks and uncertainties that could cause future activities and results to be materially different from those set forth in the forward-looking statements. For more information regarding risk factors, please refer to J.B. Hunt Transport Services, Inc.'s annual report on Form 10-K and other reports and filings with the Securities Exchange Commission. Now, I would like to introduce speakers on today's call. This afternoon, I am joined by our President and CEO, Shelley Simpson, our CFO, John Kuhlow, Spencer Frazier, our EVP of Sales and Marketing, our COO and President of Highway Services and Final Mile, Nick Hobbs, Brad Hicks, President of Dedicated Contract Services, and Darren Field, President of Intermodal. I'd now like to turn the call over to our CEO, Shelley Simpson, for some opening comments.

Thank you, Brad, and good afternoon. The team will provide more details on each of our business segments, but at a high level, our results during the first quarter came in largely as we expected and as we shared with you back in January. I continue to be proud of the work of our team and remain confident that we have better positioned the company for future growth and success. We are seeing our service performance provide us benefits during this bid season. Safety is core to our company's culture, and we continue to improve on our key metrics despite two consecutive years of record-setting performance. We also remain focused and disciplined on our costs without sacrificing our strategic investments in our people, technology, and capacity. We are well-positioned to scale into and leverage these investments as we grow in our large addressable markets served by our portfolio of services. As we've shared, efforts across the organization continue to reduce and eliminate costs, refine our capital plans, and drive further productivity across our businesses. As I said last quarter, beginning to repair our margins and improve our financial performance remains a top priority for our leaders and our company. Looking ahead, while headlines are changing daily, our overall strategy and focus as an organization remains the same: be operationally excellent, provide a valuable service for our customers that is critical to their business needs, and scale into our strategic investments. That said, our executive team has explored various options we might employ to more aggressively eliminate costs in some of our scenario planning analysis. However, we are fortunate in that our assets move to where our demand for our services originate, so we will have to stay agile and make quick decisions if the market dynamics change. We will stay informed by our internal data, customer feedback, and outlooks, and make decisions as needed to maximize long-term value for our shareholders. Before turning this over to the team, I'll close with this. The strength of our business supported our investments during this challenging freight environment while meaningfully enhancing the future earnings potential of our company. The timing of the market inflection still remains uncertain, but we will exit from a position of strength, which is unique in our industry and becoming even more unique each day. We have proven our service levels and safety culture are unmatched. We had record first-quarter intermodal volumes, Dedicated continues to have industry-leading margins, and we're seeing signs of improvement in our highway businesses. Our brand is very strong with customers, and we have the talent, systems, and capacity to support our future growth. With that, I'd like to turn the call over to our CFO, John Kuhlow.

Thank you, Shelley, and good afternoon, everyone. I will review the first quarter, provide some additional details on our efforts to control costs, and also give an update on capital allocation. As a general overview, our results for the quarter came in as expected and on the better side of the guidance range we had provided last quarter. That said, seasonally lower volume and rate pressure coupled with inflationary cost headwinds more than offset our cost control and productivity improvements and weighed on margins versus the prior year period. Starting with first-quarter results, on a consolidated GAAP basis, revenue declined 1%, operating income decreased 8%, and diluted EPS decreased 4% compared to the prior year quarter. The declines were primarily driven by lower yields and inflationary cost pressures across the business, with noticeable increases in insurance premiums for the third consecutive year. For the full year, we continue to expect our tax rate to be between 24% and 25%, with the cadence throughout the year similar to what we reported last year. On the subject of cost, we have made progress to right-size our cost structure across the business, and this remains an area of focus. Over the past two years, we have reduced our people cost by over $200 million through headcount attrition and performance management. That said, a portion of these savings has been offset by annual merit increases and higher benefit costs for our employees, particularly in the area of group medical costs. While the economic backdrop remains unpredictable, we remain focused on being cost-disciplined without disrupting valuable asset and preparedness to meet future customer needs. Our leadership team is consistently reviewing the business with our customer needs, and we will adapt to economic conditions as necessary. In addition to managing our people costs and reducing discretionary spending, we have and will remain focused on improving equipment utilization, network balance, and efficiencies, and reducing events to mitigate claims costs. I'll wrap up with some thoughts on our capital allocation and priorities. First, I want to highlight that during the quarter, we issued $750 million of new senior notes, which extended the term on some of our debt that was maturing later this year. For 2025, we are now expecting net capital expenditures to fall between $500 million to $700 million, below our prior view of $700 million to $900 million. Despite the continuation of a tough operating environment across the industry, we continue to operate from a position of financial strength with our leverage at a target of one times trailing EBITDA. We have prefunded much of our future capacity needs; our capital needs are really for replacement and success-based needs we have in our dedicated segment. We expect to generate strong cash flows and put that cash to work to generate the highest returns for our shareholders. During the first quarter, we repurchased $234 million of stock and have $650 million remaining under current authorization. This now concludes my remarks, and I'll turn it over to Spencer.

Thank you, John, and good afternoon. I'll provide an update on our view of the market and some feedback we are hearing from our customers. During the quarter, overall customer demand trended in line with normal seasonality, giving consideration to the weather events that occurred in January and February. Demand for our intermodal service continued to be strong as our focus on operational excellence differentiates us from our competitors. This focus enabled us to safely execute and meet the expectations of our customers. In our brokerage and truck segments, we saw some weather-induced tightness. However, the truckload market loosened as the quarter progressed. This suggests truckload capacity continues to exceed demand. One thing is certain, we will continue to focus on providing the best service and value for our customers. And this focus has benefited us during bid season, affording us additional opportunities to grow with customers while also getting some rate improvement. I'll close with some customer feedback. First, regarding service. Our customer sentiment is high, and we were honored with several awards during the quarter. Secondly, and not surprisingly, we recognize there are a lot of questions right now about how tariffs may impact the market. We believe they have the potential to impact both supply and demand, but the magnitude and timing are difficult to predict. Our customers continue to plan for multiple what-if scenarios, but most of them are waiting for the dust to settle on their short- and long-term business strategies. As part of this scenario planning process, some customers are considering ways to alter and/or their country of origin sourcing. But these changes will be part of a much longer decision process. Regardless of the strategies they deploy, we believe we are executing from a position of strength. Across our suite of services, our brand has never been stronger. We've made the investments to support our customers' business, take share in the market, and make appropriate long-term returns for our shareholders. I would now like to turn the call over to Nick.

Thanks, Spencer, and good afternoon. I'll provide an update on the areas of focus across our operations, followed by a quick update on our highway and final mile businesses. I'll start with some comments on our safety performance. As Shelley mentioned, safety is core to our company's culture, and we are coming off of two straight years of record performance measured by DOT preventable accidents per million miles. I'm proud to say that through the first quarter, we have seen further improvement in our performance. During the first quarter, we also achieved another big safety accomplishment that we're proud to share. Our maintenance team in Cedar Rapids, Iowa, achieved one million collective work hours without any injuries. This is an outstanding accomplishment that represents over nineteen years of dedication and attention to detail to ensure safe, injury-free operations. Shifting to the business, I'll start with final mile. Demand for big and bulky products remains muted with relatively weak demand for furniture, exercise equipment, and appliances. That said, demand in our fulfillment network was positive, driven by off-price retail trends. Going forward, our focus remains on providing the highest level of service with a strong focus on being safe and secure as we deliver products to and on behalf of our customers. Moving to JBT, our focus is on methodically growing this business while remaining disciplined on maintaining balance in our network to drive the best utilization of our trailing assets. Bid season is always competitive, and this year is no different. But we are relatively pleased with our success so far in terms of retaining business, getting some modest rate increases, as well as winning new customers. Our service levels remain strong, and that has been noticed by our customers, which has resulted in additional bid opportunities compared to last year. Going forward, we like the progress and direction of the business and the improvements we continue to make. But meaningful improvement in our profitability will be driven by overall demand for truckload drop trailing solutions and our ability to fill excessive capacity. I'll close with some comments from ICS. Our focus here remains on profitable growth, targeting the right customers where we can differentiate ourselves with service while also diversifying our customer base. Compared to the first quarter last year, we've seen more than a 20% increase in our customer count. We're about a third of the way through the bid season and are pleased with our awards so far and have confidence that we will continue this momentum. Our gross margins performance held up well in the quarter as we managed our purchase transportation costs, which will remain a focus while also continuing to drive efficiency in and cost out of our operations. Going forward, we remain focused on scaling into our investments with both new and existing customers while making improvements on our cost and our productivity. With that, I would like to turn the call over to Brad.

Thanks, Nick, and good afternoon. I'll provide an update on our dedicated results, review our pipeline, and how we focus on operational excellence in our business. I'll start with the quarter. At a high level, the first quarter played out as expected despite the challenging operating environment. Weather did impact us slightly more than we've considered normal, particularly in the Southeast, but we were able to recover some of that impact. Additionally, we have not seen as much of a spring surge with our lawn and garden customers, which could be delayed as we experienced a sub-seasonal lift from February into March across the portfolio. At this point, we think it's too early to tell if this is a seasonal shift or less inventory being pushed out to stores. Nonetheless, the team did a great job of managing our costs and resources to deliver value for our customers. Overall demand for our professional outsource private fleet solutions has held up relatively well in the market. We sold approximately 260 trucks of new deals during the first quarter. As a reminder, our annual net sales target is 800 trucks. While our pipeline remains strong, as we have said for several quarters, we have visibility to some fleet losses throughout the second quarter. Our value proposition to customers remains strong as the cost and complexity of managing and running your own private fleet continues to rise. As a reminder, we have a long contracting process that typically takes about 18 months to close. Admittedly, we have seen some customers take a little longer to execute contracts as they are taking a more wait-and-see approach. As is always the case, we remain disciplined on the type of deals we underwrite without sacrificing our return targets. We'd still say we are pleased with the activity and recent sales we've been able to close. We believe our performance in our dedicated business during the downturn has been a standout and highlights the strength and resiliency of our model. We have a diverse set of customers by both industry and geography, with the average size of our deals remaining relatively small. With over 25% of our business serving food-related industries, we also see consistency and stability across the portfolio. Our big focus right now, aside from our customer value delivery activities, is a strong focus on safety, which, as Nick mentioned, is core to our culture. It is important to our drivers, the motoring public, and also is our best risk and cost mitigator in the current environment. Going forward, we continue to expect to return to net fleet growth in 2025, but the timing of when deals sign and close will largely drive our ability to return to modestly positive revenue and operating income growth for 2025. We believe our differentiated model and the value proposition we offer customers further penetrate our large addressable market. With that, I'd like to turn it over to Darren.

Thank you, Brad, and thank you to everyone for joining us this afternoon. I'll review the performance of the Intermodal business and give an update on the market and how we are focusing on operational excellence. I'll start with Intermodal's performance. Overall, demand for our Intermodal service was strong as we expected in the quarter. I am pleased to share we set a first-quarter volume record, which comes on the heels of two consecutive all-time volume records in the second half of last year. Volumes in the quarter were up 8% year over year and by month were up 9% in January, up 6% in February, and up 7% in March. As it pertains to mix, our TransCon volumes increased 4% during the quarter, and Eastern volume grew 13%, our third consecutive quarter of positive Eastern network performance. We also saw very strong volumes in our Mexico business, a market in which we see significant opportunities in the future. I remain encouraged by our demand, particularly in the Eastern network, where we face the greatest competition from depressed truck rates. This is a testament to the strong service levels of the rails and how that translates into an attractive and valuable alternative to truck for our customers. We came into bid season this year with a three-pronged strategy, and I would say we are mildly pleased with our success so far. We know our margins need repair, and rates will be a large driver of that. But the degree of rate repair will be somewhat market-dependent. While we are still in bid season and have some large bids that will be awarded over the next couple of months, we have had only modest success in repairing rates while retaining existing business. Second, we were focused on achieving more network balance and winning the right freight for our network. This is an example of ways we can reduce costs and drive efficiencies by eliminating the costly movement of empty containers. We have been more successful executing on this part of the strategy. Lastly, as in the case each year, we want to grow with new and existing customers while remaining disciplined with our rates. As a result, we have lost some business, but I believe we have still been successful in this third prong of our strategy to grow our overall portfolio. Our focus on operational excellence continues to be on delivering value to our customers and positioning the business for future growth at acceptable returns on our investment. We remain focused on driving out waste and improving asset utilization by working to eliminate empty moves of our equipment. We also are strongly committed to further improving our safety performance to mitigate risks and costs associated with safety events. In closing, we remain confident in our intermodal franchise and the value we provide for our customers. We have the capacity and capability to grow into our investments while continuing to lead the industry in returns on capital. I'll now turn the call back over to the operator to give instructions for the Q&A portion. And your first question today will come from Chris Wetherbee with Wells Fargo. Please go ahead.

Maybe, Darren, we can just pick up on where we left off, I guess, in terms of intermodal bid season. So, you know, we're three months later than the last time we all talked about this. I think at the time, you were maybe a little less confident or maybe didn't want to say that you'd get rate increases as we go through this year. It sounds like it's still a challenging environment, but maybe you're pleased by some of the progress. Do you think we get rate increases in intermodal in 2025 as you kind of complete the bid season over the next, you know, couple of months?

Okay. Appreciate the question, Chris. So we commented in those prepared comments about being mildly pleased with our success in the bid season. And I think that's because we approach it really in three key areas. We want to fill some empty legs and fill up some of the costly empty moves. And I do think we've been effective at that. We have achieved growth in our East network, and we have absolutely had some wins in pricing. We've taken some losses in prices. So I want to be clear that I don't want to sound like we're getting rate increases across the board. I think we've been effective at communicating with our customers about the value we represent. And we have achieved some rate increases. We've also lost some business due to a disciplined price approach where we asked for a price increase and the customer wasn't willing to give us. It is competitive. I will say that.

Okay. I guess in terms of sequential, just one quick follow-up just to make sure I'm understanding what you're saying. As you think about the environment, is it going to be more dictated by sort of mix of the business? And that's what you know, yields might be influenced by more so as we move forward? Just to get a sense of how that plays out?

Yes. Clearly, growth of 13% in the Eastern network while 4% in the TransCon is going to change some of the revenue per load modeling that you might see out there. And let's face it, Eastern network loads have shorter length, fall, and are smaller revenue per load. That doesn't mean that the margin profile on those loads is worse or anything like that. So certainly, recently and as we continue to grow in the East, that will be an influencer on our revenue per unit that you see in the quarterly results.

Great. Thank you for the time. Appreciate it.

And your next question today will come from Daniel Imbro with Stephens Inc. Please go ahead.

Darren, maybe to follow up on the intermodal side, I guess, from a profitability or what is going well through bid season, it sounds like you are repairing the network. You're successfully filling some of those empties, I guess. How should we weigh the puts and takes, maybe an unfavorable mix, but more empty being filled as you think about the profitability? Standpoint from here. And then I guess with the uncertain macro and who knows what happens, so I'd love to hear some commentary from what your customers are saying. But how are you guys thinking about managing your cost base as we move through the year? Just given the uncertainty on demand and the visibility into volume due to Q3 Q?

Okay. Let me start with the ability to fill empty legs and how you might think about that. I do want to be clear; I think so far in bid season, we've been effective at that. I also know that historically, we have delivered, we've communicated that 30% of our pricing implements each of the first three quarters and about 10% in the fourth quarter, and that's no different this year. And so the impacts of the benefits of filling empty lanes probably weren't fully visible inside the first quarter, and we look forward to seeing those benefits as we move throughout the remainder of the year. I'm not sure I can follow what the other questions were.

Yeah, Darren. Daniel, thanks for the question. This is Spencer. Regarding what our customers are saying, I shared earlier that each one of them is going through scenario planning. And, really, they've been doing that, likely since maybe even ahead of the election. And they've been implementing various strategies that you could really expect, whether it's pulling some stuff forward, pausing some shipments, possibly canceling a few, and also changing really the origin of manufacture. But one thing, I've had the opportunity to talk to several customers the last few days, so has our team, and we support a really broad cross-section of industries. And the thing that stands out in these conversations is they are resilient. They're finding ways to work through things as things change daily. And they're also thinking about long-term plans and what they might need to look at. And you can also think about my perspective and ours here. We view these as opportunities. We've been through this before. We've been through challenges before with our customers. And our value proposition stands out in times like this. When the dust settles, it will create opportunities for us to grow with our customers and serve them with our broad suite of services from a position of strength. And as a commercial lead, that puts us in a great position to take care of our customers as they make changes today and over the long term. So appreciate that question.

And Daniel, I'll try to take the last question, which is really rent cost. If you think about how we came into this year, we established our budget, really with an effort to grow, repair our margins. Everything we set out, you know, we finished the first quarter with results that largely came in as expected. We're in a unique environment now because we've finished our record for our third quarter in a row record performance in Intermodal with volume growth. Our dedicated business, that pipeline stays strong, and we have customers asking us to grow in highway. But having said that, we recognize things are changing and, you know, that's changing by the day or the tweet or the moment. And so for us, you know, we want to be fluid, and we need to make sure that our plans align as conditions change. So, you know, I talked about this in my opening remarks. We have to be focused on growing, but our scenario planning really is a three-pronged approach. What next steps can we make in cost management depending on which different scenario plays out? How do we think about our stock, and our buyback strategy there, and how we'd be prudent in capital spending? You heard John say that. Results and how much we bought back in stock. Reduced our CapEx guidance by $200 million, but our commitment is to strike the right balance. Between adjusting short-term and that short-term, if that becomes longer-term, that changes our scenario planning. We're not gonna jeopardize the value we can create over the long term. And I might just assume with this, we have a seasoned executive team. Our average tenure at J.B. Hunt Transport Services, Inc. is 27 years. We've been here before. We've been through ups and downs, and every single one on this team are shareholders and are directly tied to our shareholders as well from a compensation perspective. And so when I think about the good and the bad times that we've been through, we know how to be nimble. And as we see more clarity on the environment, we're gonna respond appropriately.

Yep. Really appreciate all the color. Best of luck, everybody.

Again, as a reminder, please limit yourself. And your next question today will come from Jordan Alliger with Goldman Sachs. Please go ahead.

Yeah. Hi. I just wanted to circle back on tariffs and perhaps what you are seeing in terms of pull forward. There's been some thought that over the next 90 days with this pause, there'll be actually a step up in pull forward, and if so, what could that mean for the back half of this year from a volume growth perspective? Will we move into a destock mode and year-over-year volume pressures in the back half? Realized things are fluid, but if you could maybe give some thoughts on that high-level stuff, it'd be great. Thank you.

Hey, Jordan, this is Spencer. You know, like I said earlier, each customer is in a unique spot. And they've done different strategies up to this point, and I think they're making changes that Shelley even talked about in a very fluid way and almost daily. One thing I do think as time goes on here, you know, whatever the outcomes of these trade negotiations are, if it does go a little bit longer, like we've seen, there might be some downs. But when there are ups, it creates tremendous opportunity and could create challenges across our customer supply chains that we can help them out with. In really helping them to optimize their order shipments, their modes, as well as their fleets. And one thing has been consistent though is in our customer conversations, they're always trying to drive towards reducing cost finding efficiencies. And one of the top conversations we've had, and are still having, it's almost, I think, we're having 100% of them. As an example of finding efficiencies, it's really both conversion from the highway to intermodal. And I think that's the long-term thought of our customers. They know things are still in a changing environment, and that's a great way for them to find the most efficient answer to move their supply chain. So that's one of the things I think we'll see as things go on here and until the negotiations are settled, you know, we'll just move with that.

Jordan, let me jump in here. This is Darren. I'm just trying to say on the pull forward discussion. Look, we've said this now. This will be our third consecutive quarterly call where we don't have a bunch of customers telling us that they have pulled forward shipments. Now is it possible some have and just haven't talked about it? Is it possible that some of them, their marketing arms made orders to maybe transportation didn't know? I mean, that's all certainly possible, and we don't want to be guessing at whether or not it was pull forward or not. There are a few conversations that clearly there have been some, but we're struggling to get direct customer feedback about that. Now, we did see some pull forward out of Mexico for a short window of time last quarter. I think that was it's not a big impact on our volumes, but I certainly want to acknowledge that that has happened. So again, we continue to look for feedback from our customers every single month, every single quarter about what's happening with their own demand. And again, everybody's remaining cautious with their feedback, and they're trying to adapt their plans to the environment that they're in.

Thank you.

Your next question today will come from Brandon Oglenski with Barclays. Please go ahead.

Thank you for taking the question. Darren, I was wondering if you could follow-up on the commentary about some accounts going to other intermodal carriers on pricing. Is that reflected in the current run rate, or the run rate that saw in volumes in March, or is that incremental to the outlook? I guess more broadly just, you know, what is it gonna take to get, you know, to the right pricing outcomes in this market?

Well, certainly, we believe strongly in the service offering that we've really invested in and delivered on. Throughout last year and throughout the first quarter, we asked our customers to help us in with prices. And in some cases, the customers felt like maybe prices that they saw from competitors would give them the service and the quality of capacity that they needed, and we didn't feel like the alternative to the price we asked for was good enough for our returns and felt like we needed to be disciplined in that approach. And so yes, we did have some losses. I don't want to overplay the magnitude of that. There's still a lot of the bid cycle to implement, and there's really a lot of decisions from our customers we're still waiting on. And so don't know what the run rate coming out of March was. We wouldn't typically provide that level of detail, and I don't feel like we can do that today. I don't even know that I know it exactly given challenges with volumes that just, you know, customers were doing a lot of different things at the end of last quarter, and we gotta wait and see kinda where that shakes out. But the disciplined approach to the price we ask for to get correct returns, particularly in the demand-heavy headhaul markets, is an important part of our strategy, and we've been successful with that in many cases, and there are some examples where we weren't.

Yeah. Brandon, this is Brad. Just following up on that. I think just to digest what Darren said, you know, in headhaul markets where we see the greatest demand, that's probably the areas where we're having the greatest success getting rates. I think it was important for us to share with you and other investors that there are in some instances situations where we're pushing rate hard enough to where we are walking away from some business. And that at least should be a testament to ourselves as well as to the market that we're willing to walk away from business that we don't think makes sense in the network.

Thanks, Darren. Thanks, Brad.

And your next question today will come from John Chappell with Evercore ISI. Please go ahead.

Thank you. Good afternoon. Spencer, I think we've talked about uncertainty quite a bit at this point, and no one really knows how things are gonna transpire. It sounds like you have three different scenarios that you're looking at as an executive team. The MRF did come out with some pretty steep reductions on import numbers starting in May. Twenty plus percent for several months. So if that's one of the scenarios that you're potentially considering, how does J.B. Hunt Transport Services, Inc. manage your assets and really kinda your price acts if that's the type of outcome that we're looking for starting in a couple of months?

Well, I think that research note that showed a pretty steep decline in demand, particularly from China, is something that we've obviously considered in terms of how we would manage the assets and do we start, I think, if part of your question is, are we gonna start changing our pricing direction based on research like that? I don't believe that would be our strategy. And we can't chase business with price because of a fear that is really unknown now of such a sharp decline in imports. And the other elements there are, some of these products might be manufactured in Asia, and maybe the consumer spends money on a product that came from somewhere else. So we just don't even know what volumes are gonna produce as those changes really impact. And so I think that it's pretty fluid right now, and we're trying to adapt to the environment that we're in and feel like we will be effective with that.

Yeah. And Darren, I might add in some of the customer conversations that we've had, like I said, people were making changes even pre-election, post-election, post-March first, or pre-March first, and April. And that's still happening, and several have been very aggressive in moving their country of origin sourcing already. And so to your point on that survey, I think that's one viewpoint of what could happen. But also, as Darren mentioned, there's lots of places that people are shifting things to make sure that they can serve really ultimately the American consumer and their customer and have product on the shelves, and we're gonna be in a position to move that.

Thanks, Spencer and Darren.

Your next question today will come from Bascome Majors with Susquehanna. Thanks for taking my questions. Some of your largest customers are value-focused retailers with significant China import exposure. I'm just curious, you know, qualitatively, how have those bid conversations evolved in the last two weeks? And not just specifically to pricing, though I would like to hear if that tenure has changed. But, you know, more broadly, with issues of, you know, lanes involved or, you know, concerns about, you know, big compliance or a number of loads, just understanding, you know, if there has been a shift in the back and forth in those large accounts.

Yeah. I might just talk about compliance through the quarter. Our compliance was strong. I think our customers, one of the things that we said is they've returned to kind of normal seasonality and trends. That does allow them to forecast better. And connect really their demand to their transportation needs. They've done a really nice job of that. And so I think our compliance so far has continued to improve. Really across all of our businesses, highway, intermodal. And then, you know, really what comes forward, we continue to talk with them and be transparent about asking for forecast information. And right now, customers have not changed their forecast with us regarding their demand trends.

And your next question today will come from Scott Group with Wolfe Research. Please go ahead.

Hey, thanks. Afternoon, guys. So just a follow-up just on the tariff piece. Maybe do you have any, I know it'll be an estimate, but any sort of rough estimate of what percent of intermodal at some point originates overseas and maybe what percent comes from China? That's just the first part. And then just secondly, what's the plan in terms of what you're doing with capacity? I know we have a lot of record volume, but there still are a bunch of seemingly, a bunch of containers not being utilized. Is there any thought of cutting capacity to manage the environment to start getting some better price and margin? Just thoughts on capacity. Thank you.

Well, let me start with your last question first there. Certainly, we don't necessarily think that reducing the amount of capacity we have is gonna change the way we price. Now certainly putting it in storage and being prepared to come out of this cycle with ample capacity for the long term. Again, those investments are really long-term in nature, and so that's why that equipment exists. Yes, we have excess equipment today, and we have a lot of capacity to grow with our customers. We're looking at options on what other ways can we use some of those assets in other parts of our business. That's certainly something that we're investigating. We don't have anything to say about that today, but we're looking at other ways to utilize the equipment. You know, we've probably never given this data, but we can do that here today. I mean, call it between 20% and 30% of Intermodal's volume originates on the West Coast. Now, inside that, what I don't know that we've ever done that study, and so I'm gonna be hesitant to actually make a guess here, but certainly, the imports that originate in China and the ever-changing environment that we're living in, we're just gonna keep in close contact with our customers, with our rail providers, and try to understand what's headed at the West Coast and make plans accordingly based on what we see.

Thank you, guys.

And your next question today will come from Ken Hoexter with Bank of America. Please go ahead.

Hey, great. Good afternoon. So it sounds like it's not being driven by a pull forward in terms of these strong intermodal volumes, but you're hitting record levels of volumes. So but you've got mid-single-digit margins now. So you're talking about losing some business on price. Does that mean you're not pushing hard enough on price? I'm just trying to kind of contrast the record level of volumes with kind of the smallest margin, you know, level or smaller margin levels than you historically pushed for. Then, Brad, maybe to lead into that, is there any comment you'd throw out on 1Q to 2Q historical seasonality on margins like you gave in the first quarter?

Well, certainly, Ken, the volume that we're seeing was a lot of it is continuing on from last year. And we've highlighted that we would live with last year's pricing cycle for some time. So that's been part of the challenge. Growth in the Eastern network, that's not quite, you know, you don't have as many days of containers consumed inside that kind of volume. So we need even more growth. The good news is there's a lot of growth to go get in the Eastern network, and we would anticipate growth in that market for years to come, and we'll continue to focus on that every day. But the cost of the equipment continues to be a challenge for us, and the imbalances inside our network have been a headwind for us, and we're looking to make repairs in that area and feel like we have had success in the bid cycle so far.

Hey, Ken, to your last question, I assume it's you're asking me and not Brad Hicks about dedicated guidance. But aside from the one slip-up we had last earnings call where we did provide some guidance, we're gonna revert back to our 64-year trend of not providing guidance about that. So But we'll give you guys updates as we have on relevant and important items as we go through conference season.

Is it guidance, or is it just asking for what historical trend has been? I just looking for an average versus from your perspective.

Well, I'm sure everyone on this call has an Excel model where they can do averages and come up with their normal historical trends.

Hey, good afternoon. Thanks for taking the question. Since the quick follow-up, just maybe looking at the profitability on a per load basis. You know, we've seen record volumes the last three quarters, but per load is one of the lowest on record. Is there anything that potentially could change in how you get paid for some of those network inefficiencies? Anything in terms of how contracting is being done differently in the next cycle that might prevent this from happening again? Obviously, it's been a record. So maybe it won't. But just wondering how you have to wait so much time to really get that payoff after delivering so much volume. And then just a quick follow-up on truckload conversion. Sounds like it's actually going pretty well in the pretty soft market, so wanted to hear how that was progressing. Thanks.

Well, obviously, our margin, and we've been pretty vocal for a number of quarters. We're not satisfied with it. We led with really excellence in operations and service provided to our customers. We've had two consecutive great peak seasons and felt like we were in a good position to ask for more price. The reality is the market around us is a challenge. Highway capacity remains one of the biggest competitors, if not the biggest competitor we have, certainly in Intermodal to generate better pricing. And the amount of equipment that we have, the challenges from network inefficiencies. That's just empty moves. You know, as we fill those, that's a cost takeout to improve margins, but it takes time to get that implemented and takes the full bid cycle, and we'll continue to need to work on that even further even after this bid cycle. So an awful lot of effort goes into improving that margin. It's not a lack of willingness to talk to the customers about it, but certainly, there will always and forever be a balance between the price we ask for and the volume we receive from our customers, and we do need both. And that's the harsh reality of it. And we don't sit around and stare at the excess containers and change our price based on that. We're working hard to deliver great service to our customers and asking them to pay us fairly, and they're asking us to be relevant with what the alternatives to our product are. And at times, their alternatives don't support the rates we're asking for. And so that's the balance we're constantly fighting in.

And hey, Brian, I wanna you had another part to that question. Really just talking about mode conversion trends. And I wanna touch on that again. I think the opportunity there if you kind of separate the import supply chain from the domestic supply chain, our customers coming into this year definitely knowing where we've been at in this prolonged kind of freight recession, they understand that capacity and their planning and things like that from a truckload perspective there is less elasticity every day. And so they're thinking longer term, and that's why on the back of, like Darren said, our operational excellence and the value we've created over really the last, I'm gonna call it, close to 20 to 24 months of great service, our customers have tremendous confidence in leveraging intermodal to meet their supply chain needs and transit cost and high service levels. So with a little bit of a concern still longer term about things could change in the domestic truckload market. Highway conversion is the number one topic. And on the back of great service. So they have confidence, and they know that they need to have alternatives as things do change. And that's still a conversation regardless of the import supply chain drama today.

Okay. Thank you.

And your next question today will come from Rich Harnain with Deutsche Bank.

Hey, everyone. Thanks for welcoming me on to this call. So I wanted to ask, you know, I know, Shelley, you talked about how you're trying to stay fluid and not sacrifice some of your strategic investments if you don't need to. But is there a floor to margins we should be thinking about here as you go through the exercise on identifying cost-out opportunities or maybe thoughts on how to think about a level of decremental margins if demand really worsens? Will they be similar to history or better considering some of your latent capacity that you can presumably take out if the market requires it?

Yeah. Great question. Thank you for that. So that's part of our scenario planning. You know, say from the most dramatic, and I think there was a question earlier on the call that said, hey, there might actually be a pull forward here in Q2 and then a drop off in the second half of the year. Can imagine the scenarios we are trying to plan through and for what length of time that those exist. How much, you know, is this short term actually longer term? Is it only a three-month problem or a six-month problem? So that's everything that we're working through as we speak. We're listening to our customers. We're watching internal data. We're getting information from the rail as well. So really trying to digest all of that information right now. To say what steps should we take and at what point, and certainly margins are a part of that process.

And one more. Maybe more for Darren. You talked about how you're proceeding through bid season. This is not guidance, but just directionally. You know, consensus is baking in about 2% gains in intermodal revenue per carload for the second half of the year. Is it fair to assume that could prove optimistic just given where we are in bid season and pricing trends where they are? Or given the ongoing negotiations, you know, you still could maybe get the positive price at some point in the near future.

Yeah. I don't know what any kind of consensus element is. We continue to work hard with every single customer to generate more appropriate returns and begin to repair our margins. It's a good bit different maybe than as we sit here today in this current environment; it's a little bit different than what we would have anticipated, you know, but the continued growth in the east gives us a great opportunity, and we'll continue to watch what happens as West Coast demand becomes more clear to us as the summer goes on.

Hey, good afternoon. So just to kind of maybe beat a dead horse here. I'm curious to hear, what are the prospects for seeing intermodal margin improvement on a year-over-year basis through the rest of the year? Just if you can give your thoughts on that. Like, I understand in the first quarter, you still had some contracts that were kind of carrying over from last year. But as you get these rate renewals, like, should we expect margin improvement in the second quarter and beyond? And then, Shelley, maybe if you could talk about just, like, has something changed in terms of the dynamics of the industry versus what maybe existed pre-COVID that makes it harder to get back to that kind of pattern that you've been on of kind of seeing earnings kind of steady earnings growth through the cycle with higher highs and higher lows? Thanks.

So I'm not gonna guide you on margin repair throughout at what point can you see that? We just aren't gonna provide that information. Certainly, every day that we get an opportunity to execute for our customers, look for efficiencies, find ways to take cost out, grow our volumes, grow in the right corridors at the right rates, is the strategy. I know our shareholders want to know exactly when that will happen. There's no lack of effort at this team every single day trying to make that happen.

And maybe I'll tell you what has really shifted. So we go pre-COVID, you know, if you think about the times where we've had a downturn, I'm gonna go all the way back to '09 because that's so clear in my mind. Not only do we have a downturn in volume, we have a downturn in price, but we also had a downturn in cost. Here we've come into now finishing up our third year of our freight recession with meaningful pressure to reduce cost from our customers. And you've seen that in the work that we've been doing trying to eliminate cost, but the inflation that's coming alongside that, I can't think of a single cost item that is actually down through this freight recession. So that's very unlike anything we've ever experienced. So we have at least two years of pricing pressure downward. With inflation in that same time period moving up, the combination of those two things we are really pushing hard to eliminate the cost in between that. So if you just think about pricing coming down, pick whatever it is, and you hear it in the market. It could be double digits, and our margins have deteriorated, but if you think of the inflation associated with that, the amount of cost we have to take out is meaningful. It becomes more meaningful if scenarios get more dramatic. And so I don't think that is just J.B. Hunt Transport Services, Inc. I think that's what's happening across our industry. So we haven't seen a relief from a cost perspective, and that's what's creating more volatility. It's different from maybe what the past has been. And then last thing, if I think about the highs of highs and lows of lows, you know, COVID really created that, and that's unusual as well. So those two-year earning seasons were extremely high. Now they're extremely depressed. You know, the problem is we're in this environment where it's gone on for so long. You know, we have to repair our margins. And you just think about what's gonna happen in the next turn. I think that's gonna be challenging to try to smooth things out because we're not at a good starting spot to begin with. So those would be the comments that I would make around what's different than what we've seen in the past.

Shelley, if I could follow-up quickly. Do you think carriers are more willing to take thinner margins than in the past? Or live with kind of thinner margins?

Well, from what I can see, some I don't know if I'd call it thin margins if there isn't any margin. So you know, it's I've been here almost 31 years. Nick has been here 41 years. I've never seen a recession three years. I think everyone's holding on. And so if that's thinner margin at no margin, that's the hold-on position. So it's it is a very difficult environment that we're operating in, and I think everyone is trying to adapt to it.

This concludes our question and answer session. I would like to turn the conference back over to Ms. Shelley Simpson for closing remarks.

Great. Thank you. And thank you to everyone on the call. It has been a difficult past few years. And sometimes our people's hard work just isn't reflected in the operating performance of the company. And I know we've been talking on this call of looking forward and what's happening, but I just want to take a pause on behalf of our people. We've been very focused on being operationally excellent, and that's been a key priority, and they delivered on that this past quarter and have continued to deliver. On track for another record year in safety. We've delivered unmatched service to our customers. And that's led to increased retention, we're growing our customer count, and we're producing record volumes, and we will repair our margins. And all that has to sync up in timing. We're ready to be nimble and react to any environment, and that's exactly what we're gonna do. Thanks for joining the call and your interest in J.B. Hunt Transport Services, Inc.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.