Good afternoon. My name is Jessey, and I will be your conference operator today. At this time, I would like to welcome everyone to the 2018 Q4 earnings call. All lines are placed on mute to prevent any background noise. After the speakers’ remarks we will have a question and answer session. [Operator Instructions] Thank you. David Mee, CFO, you may begin your conference.

Thank you, Jessey. Good afternoon, everyone. Welcome to our second earnings call. We hope we learned a little bit from the last one. So hopefully this will be a little bit more informative and not quite as robotic as the last one was, but we will continue on with these sayings as long as everybody thinks that productive. I have got the team with me this afternoon, John Roberts, CEO; Terry Matthews, President of Intermodal; Nick Hobbs, President of DCS and Shelley Simpson, President of Highway Services, which to remind you all is old ICS and Truck. Jessey gave you some housekeeping, but again if you make sure that you state your name clearly, so when you ask a question we know who is asking and how we can respond. And again, limit your question, one question and one follow-up and we’ll try to get through as many people as we can in this hour. We do have a hard stop at 5 o'clock Central, 6 o'clock Eastern. As far as the general comments, overall, we felt it was a good quarter. I wouldn’t go so far as to say it was a great quarter, but a good one nonetheless, which obviously still have some cost and efficiency opportunities we need to address. But there was also the 2018 bid cycle and pricing efforts and our targeted growth areas were evident in our first quarter - fourth quarter results excluding our pre-announced charges. In Intermodal, we saw rail service interruptions and congestion that continue to hamper our ability to react to unplanned customer demand spikes. But overall, demand for the quarter was relatively consistent with the strong fourth quarter 2017, even though we were a little disappointed and frankly a little surprised that demand did not accelerate throughout the quarter.…

[Operator Instructions] Your first question comes from Bascome Majors. Your line is open.

Yes, thanks for taking my question here. I realize the BN arbitration situation is still very much contingent but I mean, it does appear that, at least they will be able to or preliminarily able to extract some more value out of that relationship from you going forward. Does this change in any way assuming that they do prevail in the way that you guys are seeing so far though that you approached intermodal business long-term from a growth versus pricing perspective? I am just kind of curious strategically, it we will see anything different from Hunt in intermodal over the next three years versus the last three?

Yes, this is Terry. I don’t think it will change our strategy. Our strategy has always been able to grow, grow where we are capable of growing, as the western network allows us to grow we will grow, as the eastern network allows us to grow, we will grow. Obviously if we have cost coming at us we will try to price that into our product and recoup those costs from our customers.

And maybe in expectation for bid season outcomes early on in intermodal for this year? Thank you.

Well, we have had about 20% of the first rounds of bids have been priced and most of them have been implemented and we are pleased with what the outcome has been. It’s been a very orderly market and continues to be very orderly market and I believe in the future that will persist going through this year. And the first 20% of the bids we will see in high-single-digit rate increase and we’ve been able to grow some volume and we will need to be able to grow some volume because we have some headwinds in the east with some of the rail rationalization that’s going on with precision early. And annual we will probably cost us 50,000 to 70,000 loads depending on the timing on lanes that basically the railroads in the east for the most part have decided to get out of because, they doesn’t meet their expectations or whatever the rationale for that is. But I can say through the first 20% of the bids, we have been able to replace half of the business that we think that we will lose during the calendar year of 2019.

Your next question comes from Tom Wadewitz. Your line is open.

Yes, good afternoon. I wanted to ask you just kind of within fourth quarter and then I have a follow-up. So, within fourth quarter, how much should we allocate from the charge, the $134 million charge related to BN? Can you identify how much of that would have applied to the fourth quarter? And then, just in terms of fuel, if you could offer a thought of how big might be fuel timing or fuel basis benefit? How large and if you can ballpark that for me in terms of the impact in fourth quarter?

As far as the charge with - in our pre-announcement, we disclosed that $89.4 million was for 2016 and 2017 and that $44.6 million was for 2018. That would have been a full year picture. So the best you could assume is that 25% of the $44.6 million should be applied to fourth quarter. And as fuel, I am really not sure where you are going with that comment, but we don’t break down fuel by business unit, never have.

Was it a meaningful tailwind to earnings or not so much?

Frankly, I don’t even know what the direction is, because we always consider it a watch when it all comes out. So, we were chasing it. It would have been a headwind and if we get ahead of the curve it would have been a tailwind for the short period of time.

Yes. Okay, and then, I guess the second question would just be in terms of – I think, Terry, you gave some thoughts on rates and it sounded pretty constructive in early part of the bid season. So, just to make sure I heard you right, high-single-digit rate increases and I think that would be with respect to intermodal. So how would you think the overall bid season plays out? I mean, do you think, truck and intermodal rates end up mid to high? I guess, that seems like that’s pretty – would be a pretty bullish outcome given that spot rates are down a bit at the beginning of the year, admittedly versus tough comps but wanted if you could add some more color on how that is developing and what you might think on the kind of overall bid season?

Yes. I think, as I mentioned in 2018, I thought intermodal was held very closely to truck in terms of the elevation of rate increases as a percent. I think this year it might be a little bit different. There is a little bit of that economy going on because of what’s going on in the spot market in truck. I’ll let Shelly speak to the asset and non-asset rate structures there. But with regards to intermodal, everything that we’ve seen in the orderly market that I talked about is that everybody is, they see similar challenges with regards to rail PTE, higher grade cost and one of the things that we are starting to see is that there is a bigger need for trans load in the West Coast. We have heard from the ocean carriers that railroads and sea is early in the bids that there seems to be more trans loading which will support pricing power off the West Coast. So, I think you could see a scenario where intermodal rates could be higher at the end of the year in terms of overall rate increases than truck, which is different than what we saw in 2018.

Yes, and if I had to talk about the truckload market in generally, we see our customers really try to create stabilization in their capacity and being able to predict what their cost will required. We have good conversations to the bid season. Our early indicators for us is to the mid-single-digit on price. But I think that depends customer-by-customer, I think as they year plays on, we will be able to have this conversation bit too early out for the full bid season. But I do think that what Terry said on intermodal could be a change from what the truckload market will see overall and also if we think there is an opportunity this year for intermodal conversions to occur as the railroads do speed up and have more capacity and they are more predictable as for customers could be moving into that at maybe a higher price for intermodal but it would lower their overall transportation cost.

Your next question comes from Chris Wetherbee. Your line is open.

Hey, thanks. Wanted to come back to intermodal loads for a minute and maybe talk a little bit about some of the potential outlook. I know you are not giving guidance, but with maybe, it looks like potentially a 3% headwind from some of the PSR actions from the eastern railroads, just give us a sense of maybe how you are thinking about the outlook for 2019? Is this still a growth assumption or maybe the last couple quarters are indicative of what the demand environment is?

Well, I think I mentioned that, we are going to grow in 2019 even with the headwinds that we have with the rationalization in the precision railroading that the eastern folks are doing. I believe I mentioned that that will equate to 50,000 to 70,000 loads and as I mentioned through the first 20% of the bids, we have been able to replace half of that volume that we are going to lose this year.

Okay, okay. That’s helpful. I guess, when you think about the dedicated side and when you are looking at the growth into 2019, maybe strip out or look over your side for a minute, when you think about the private fleet conversion opportunity. How should we be thinking about fleet as we move into next year? The tractor count doesn’t move for 2019.

First of all we came off of 2018 which is a record-breaking year. So we were excited about that. Moving forward, we think we are going to have another good year. It’s too early to tell what it’s going to look like. We measure our pipelines and they are very consistent. But it’s really too early. People are just getting back from holidays and trying to figure things out. So we will be able to have a little bit feeling right around.

No real reason though to suggest that that would be the demand environment feels any different in terms of the conversion opportunities that it has been for the last couple of quarters?

No. There is nothing out there really driving that at this point we see.

Your next question comes from Allison Landry. Your line is open.

Hi, good afternoon. Thanks for taking my question. In terms of just going back to the $134 million charge, Dave, I know you mentioned, about $45 million was relating to the full year 2018. Is there a way to sort of think about how much of that was attributable to the fourth quarter? I am trying to really just get a sense of what the core operating ratio is?

Well, I mean, - you mean, as far as in the fourth quarter, Allison?

Yes, yes.

Yes. We don’t do non-GAAP publications or discussions. But the audit can maybe – our audit can maybe asked that same question. So I’ll tell you what I told them and then you guys can all determine what you want to acknowledge or use or whatever. In the – what I told them was, in the fourth quarter, and they were looking at their entire company, not just intermodal. They said, how do I compare fourth quarter 2017 to fourth quarter 2018. And so, I said, fourth quarter 2017, you got to add back the 38.9 charge that we had in that, 38 million and 900 thousand and in the fourth quarter 2018, you have to add back the 89.4 and 75% of the 44.6. Okay?

Okay.

That would give you the operating income between the two quarters on a normalized basis.

Okay. That’s definitely helpful. Thank you. And then, as far as the Transcon volume in the fourth quarter, how much of that do you think was related to the deterioration in BN service? And is there, how would you frame the risk to 2019 loads in Transcon if this persists for some time?

Yes, the service that we received from all railroads in the fourth quarter was not what we had hoped and the velocity was obviously down which consumed boxes as we have been going around and talking with the various railroads. They believe the velocity in service will be up with all railroads. So we are anticipating better box churns, better velocity, better service as Shelley alluded to that should help conversion with regards to 2019. So, the rail service that we see in so far the first 15 days, it’s early. But it’s refreshing. We see some of the best service we have seen in the last year-and-a-half much better than last January and hopefully that would continue. We will just have to see.

Your next question comes from Matt Reustle. Your line is open.

Thanks for taking my question. A bit of a follow-up to that. You have mentioned some of the cost pressures and bottlenecks that you are seeing in the business. Curious if you are seeing improvement in those areas and easing in cost pressure and is it reasonable to expect that operating income can outgrow revenue again in 2019 or do you see headwinds on the cost side which might offset that?

Are you talking only about the intermodal?

Intermodal and broadly for the business, if you could talk on each?

Broadly for the business, I think that where you will see is, you will see for us an acceleration in our IT spend that will be buried in each of our business units as they consume that development of upgrading of their platforms as well as the enterprise platform that hosts all of the business units. That’s probably going to be an extra $50 million in our expectation this year. We will expect to get some benefit out of that. But it’s probably going to be more in the back half of the year than the front half. So I would expect those cost to increase – that cost increase to be there. I expect rail purchase transportation, I’ll let Terry to speak a little bit more to that. I think the rails will continue to try to recover their costs associated with their operations. We will continue to have driver and frankly all salaries and wages are with mechanics and frontline people and managers and things of that nature, maybe not to the pace we saw a year ago. But we certainly don’t expect to see cost reductions in the labor pool by any means. We know that the insurance capacity out there is still tight. We’ve renewed some policies recently and tried to keep down our rate increases even our safety record. We are having to take rate increases to get insurance capacity. Those are the big ones that I can think of, Terry, in intermodal, is there anything that I missed?

Well, as velocity picks up and as service gets better, you are going to see better box churns are changing with more loads with fewer boxes and as well as I am hoping that should show up in the dried efficiency because of the more on-time the railroads are, the more efficient our dried fleet would be. So, that could be a potential upside for us.

Okay, great. That’s really helpful. And then, one follow-up on CapEx. It looks like, you came in above that $800 million target that we got on the last conference call. Is that pulling forward dedicated business? Anything that you would mention there? And then how should we think about CapEx in 2019?

Yes, it definitely is a reflection of the amount of dedicated business we added on in the back half of the year. We certainly try to get the equipment in place. So it would generate the revenue and we were fairly successful with that. We still have a very heavy trade cycle beginning 2019. But we would expect our CapEx to be somewhere around $200 million less than what we had a year ago in 2019.

Your next question comes from Amit Mehrotra. Your line is open.

Thanks. Hi, everybody. Could you just offer the monthly cadence of intermodal volume cost in the quarter? And more broadly, just comment the overall volume environment, because a lot of uncertainty out there in terms of trade wars and just overall slowing growth. If you could just help us kind of contextualize those concerns in terms of what you are seeing on the ground today, that would be helpful. Thanks.

Hi, Amit. I thought we just heard that truck canceled the trade war.

Okay, so everything is great, right.

Anyway, to answer your question on volume on a calendar month, in October, we were plus five, year-over-year. In November, we were minus three year-over-year and in December, we were minus 6, year-over-year. And then, as far as, some of the general demand.

Yes, the volume churn I think that some of the tariff activity that was supposed to go in December 1, helped some pre-shipping. So we are a little disappointed as Dave mentioned in his opening comment in December. But now that we will see what happens after today’s announcement, but January, everything we’ve heard from the international future companies that their boats are 90 plus percent loaded here in January, which should make January equal to or from a intermodal standpoint, as well as last year. Now there could be a low – Chinese New Year, I think is in the first week of February which basically plays out into this third or fourth week of February. So, they are pre-shipping now because what could possibly happen in March or is that going to kind of wash itself out. Overall, I think when trucks get a little bit looser, and intermodal service goes up, and there is an opportunity to move some freight back over to intermodal, even though there is some rationalization going on, I think some of that has happened in the marketplace. So, with regards to volumes, even with the rationalization it’s difficult in January, February, March, but it’s pretty well in line with so far with what we anticipated for the first half of January.

Okay, that’s very helpful. Thanks. Just a follow-up on, I guess, incremental margins. What’s the right way to think about incremental margins for both the intermodal and dedicated business in 2019? Super intermodal it’s a tale of two halves, if you can just kind of give us some color of how to really about the dynamics of that and really the second half of 2019? And then, the dedicated incremental spiked up pretty significantly. The start-up costs have weighed down that for several quarters now. What’s the right way to think about that in 2019? That’s it for me, thanks.

Yes, well, I mean, just generally, I would tell you, well, I mean, they talk about your base business on dedicated. We will start there and then we’ll go to Intermodal.

Yes, we are very pleased with how 2018 turned out for our base business. We operated our base business in dedicated within the guidelines that we say, we want to operate which is at 11 to 13 operating margin. So, we are pleased with that and that’s with start-ups loaded in there and everything. So we are just very pleased with the base business. We are facing some headwinds with growth in final mile and that provides some challenges to it, but the base dedicated business is performing within our guidelines.

So, all said, I mean, if mix shut down grow completely, he would be running in that 11% or 13% margin range. That is how really how we look at it and that’s how it’s priced and that’s how it’s always been. In intermodal, as far as just general aspect, again, we haven’t moved our margin targets just yet. We think that 11% or 13% is the right long-term margins. We have some room to get up there. So the incremental margin in the short-term, I don’t know how to answer that, because we have to get back to the base case before we can talk about what an extra load is to get to our – to cover our overall cost nut inside of intermodal. But at this point in time, we have to inch back into that 11% or 13% margin range and we do have some cost tailwinds. We have to overcome in order to get there.

Your next question comes from Jason Seidl. Your line is open.

Hey guys. This is Adam on for Jason. Good afternoon and thank you for taking my question. I guess, I just wanted to ask you guys about your thoughts on last mile delivery, particularly in light of the Cory’s First Choice Purchase. Is this an area where you guys feel pretty good where you are now with this purchase? Do you feel like you maybe want to kind of grow a little bit more in last mile and maybe look for other acquisitions, maybe just a little bit about your thoughts and strategy here surrounding last mile deliver? Thanks.

Okay. Yes, this is Nick. We are very pleased with our acquisition. It gets us into the furniture side of final mile in a big way. We are pretty heavy on the appliance side and so this gets us into the furniture side and if you look at the final mile big and bulky delivery, we think it’s $12 billion to $14 billion spend. $5 billion is the largest and that’s in the furniture area. So we are excited about what that can do and then $3 billion of that is in appliance and then you get smaller on medical and exercise equipment. But where we are focused is on the big ones right now and we are excited about that. We are not planning on any more acquisitions. We think we will take this one now and it will really launch us into the big segment and we are excited about that. We think that we are one of the larger players in the big and bulky delivery and give great service and Cory was a great match. They’ve got a great reputation on the service side and their culture matches ours very well. So, I’ve been on the call with all of their customers and it’s been a great transition - setting up for a great transition. We will close on that next month. But we are going to be able to do a lot of integration, I think with Shelley’s team and even Terry is on some intermodal inbound. So I think there is going to be some extra revenue picked up from that from our relationship. So I think it’s going to be beneficial to a lot of different divisions.

Great, thanks. And then maybe just a quick follow-up and I know you guys have spoke a bunch about intermodal already and a little bit about precision railroading as well. But I was just wondering if there is anything else that you guys might be able to share regarding PSR and specifically with the rollouts at NSC and UP? Just any other details maybe that you can share about the rollouts there and maybe how it's affected you guys or your customers? Thanks.

Well, I would say that, obviously the CSX is all in on precision railroading and I think the others have taken pieces of it and implemented it in various stages. It looks like the EP is going to accelerate with what they were doing and some of the things that they do, I don’t know if they’ve all been done yet, so there maybe some new things that developed on the Union Pacific side of things with regards to some of their rational as they precision. Precision railroading by definition is this should be better on-time service, better on-time service means that intermodal should grow. And then, the quality of the revenue should also follow that as well. So, I think one of the things that I think that you are seeing why pricing is going is holding and going up is that, if all these railroads are trying to get a 55 ORs as quickly as they can it’s difficult to do that if you are slashing your rates. So, that’s one of the reasons why I think it’s an elderly market because everybody has some of those PTE opportunities in front of them along with the dray as I mentioned and it’s going to create an environment similar to last year and we see what kind of level it settles out in the next months ahead.

Your next question comes from Brad Delco. Your line is open.

Thanks. Good afternoon everybody. Can you hear me?

Yes.

Yes.

John, I got a question for you about the broader portfolio. Another acquisition that Nick just spoke about, but when you look across the portfolio, where do you want or what are you wanting to these businesses to represent of the total pie and to the extent there is more inorganic growth opportunities out there. What would you be looking out?

I don’t have anything specifically in mind right now other than, something it would be very logically adjacent to services that we are providing today that suggest us with something we can’t do organically. I think the two acquisitions that we have made, we saw like both of those companies something that we could use quickly and would take us long-term to build. We don’t really have and we’ve got a lot of in the works now that are very complementary and we haven’t really had conversations here that say, here is a big gap, we really need to be looking to fill that gap. I think we did feel that way on that delivery side and particularly on the contracted delivery and the furniture side. So, Cory was a real good add-on for us but nothing is a burning platform that we don’t have in internal activity cooking around and we do have a lot of projects going right now. So I would want us to be careful getting deals. I’d like to see us finish off some of the bigger projects that were pre-late stage on and see what they present. Dave’s opening comments, he remarked about increasing our investments on our technology platform. We are pleased with what we are seeing there. We can’t get too many places on too many sticks as one. I think we want to be thoughtful about that and be careful. Now that’s not to say that, I think one of these comes in with a deal they really like, they way we do this now having done in a few times, said now that several of the assets is, we have a little bit more on program internally that seeing the workforce. So, one of these divisions had the consumer within our DNA really like and they have some entry for and they have a good story to tell around that’s in and we’d be listening. But I wouldn’t say that we have anything that’s current at the moment.

Okay, great. And then, maybe if I can follow-up to that for you Dave. You gave us the capital budget plans for 2019, $200 million less than 2018. How should we think about that capital being deployed amongst the segments?

Yes, I think, obviously the biggest user is still going to be dedicated. But even intermodal has got a heavy trade here. So I would say that they are going to be obviously a large consumer of that as well. And then, part of that – part of our overall CapEx spend is an additional $50 million and technology spend that we are going to end up as we develop our enterprise software and the hardware associated with being able to run these platforms – these digital platforms, that requires capitalization. We’ve been looking at - intermodal is looking at yard expansions, things of that nature, which are high cost one-time items. But as far as breaking out how much goes where, it’s in our plan, but that would been guidance had we decided to issue guidance.

Your next question comes from Brian Ossenbeck - JPMorgan Chase & Co. Your line is open.

Hey everyone. Thanks for taking my questions. Shelley, just elaborate on ICS a little bit, specifically marketplace. It's generating – it looks like about 50% of revenue. Can you just walk us through the next rollout for VFB control tower and optimizer? It sounds like those are increasing and the margins were pretty healthy but the revenue per load was down. Do you think that is that a function of just the lower cost to serve with 360?

Well, that was a great question. Lower cost to serve with 360. So we definitely see a lower cost to serve with executing in the platform. There is a delta between traditional brokerage and executing in the platform. So that has happened in general. But I would say that softer to the spot market impacted us, specifically in ICS, in particular in December, but just always on fourth quarter as well and continue into January. We think about what’s coming out in the platform, we do have I think, Dave has mentioned the acceleration that's happening. We have quite a few features that we are working on inside the 360 platform and we need to drive more efficiency inside the network but that’s going to be very predictive. So, we get this rollout our very first piece of machine learning. So, using the data points that we have from carriers coming and searching and so what we do with that information in turn and how we create better matches for carriers and also for shippers that something that was implemented in the platform and we will continue to work on the data, time, speed. So a large investment happening inside that space. We are also working on a small and mid-sized market inside 360 but then to have access to the platforms, that’s another key component inside the 2019 budgets internal and then really just expanding the services, so really that our entire organization can gain benefit from the platform. And you'll start to see the rest of the segments coming on to the platform here in 2019.

Okay, great. Thanks for all the detail there. Just to go back for a follow-up just a bigger picture question for you Shelley and or Terry. Why do you think we could see rate increases but a higher fare model this year than truck when there is pretty tighter correlation than we’ve seen in the past year last year stronger market was. So is that a base effect? Is that a mix shift? Maybe you can just walk through a little bit more on the logic behind that? Thank you

I think it’s the cost headwinds that all the intermodal providers are up against in inching the rail PTE, the higher dray cost, and then we think the tightness in the West Coast will continue with more transloading as the international players don’t want their boxes in certain points inland and I think they are going to be pricing in such a way that they are going to see an option maybe better to transload. So, you got a supply and demand situation on the West Coast which is positive for price, and you have higher dray cost and higher rail PTE ease, so – and improving service. So with that, we might have a first sight here and there and some backhaulings in the East. But generally speaking, there is many lanes in the East that are now #-day lanes that were priced maybe for a day, day-and-a-half that I think that intermodal will be able to hold its ground within. As I said, if this economy normally doesn’t be this type, I think this year it might be different and for those reasons.

And I might add to that, I feel like in the truckload sector that from a customer perspective, there is more stabilization happening from a bid award. And so, if you look at what happened in 2018 and in 2017, the freight market was very volatile, consumers were churning, it remains a tip and that in turn made – the truckload service have to churn at what rates they could accept or what really works for their networks. I think there is a more stable network today. So less churn in the bid business that is favorable I would say, that prices don't have to move at the same cliff and then you look at the disruption happening in the intermodal. Terry talked about this. Lane closures in the rail rationalization that alone will create this cost pressures that are happening. And so, I think the disruption happening in intermodal is different than what’s happening inside the truckload side.

Your next question comes from Scott Group. Your line is open.

Hey, thanks. Afternoon guys. So, wanted to just follow-up on the arbitration. Is there a better number to use for this forward-looking impact in the $44 million from 2018? Is there anything more specific you want to tell us? And then, I guess, I just wasn’t clear on your answers earlier. If you think intermodal margins can still improve in 2019 even with the impact of arbitration? And then, just adding to that, you had a comment, we haven’t changed our 11% to 13% margin targets yet. And I wasn’t sure if what you really meant by it, is there just something changed because of arbitration with the 11% to 13% or am I misreading and do you still feel good about 11% to 13% longer term?

That’s three questions in one. It was incredibly clever, Scott. And now I forgotten exactly what all three of them. And I’d start with the margin. At this point in time, 11% to 13% is still our margin target for a long-term basis. However, we'll have to wait and see and we are not pinning this down on arbitration. The other rail cost pressures are also out there. Let’s not, forget that we ride all but one of the big railroads. And so we have to look at as rails pass their cost on us and then as our customers accept price increases, where those margin targets will end up being. But as it stands today, we still think 11% to 13% is the right long-term range. As far as the arbitration itself, I don't have any other information that's not what we’ve already issued public as far as cost.

And then the part was just given that do you think you can improve margins this year in intermodal?

In the short-term, again, it have, but, it don’t hanging on just one railroad. We have to look at our entire mix and see what our rail PTE will look like from all the railroads and we are expecting some cost increases and whether we can capture all that back in a one period bid cycle, we’ll have to wait and see.

Your next question comes from Todd Fowler. Your line is open.

Great, thanks. Good evening. Just a follow-up on the dedicated comments. I think a comment was made that the expectations that dedicated is going to continue to grow at the recent runrate which has been around 25%. Is that a thought that that’s really what’s the revenue for dedicated should grow throughout all of 2019? And then, if I could also follow it up with kind of the expectations for the cadence for the margin improvement understanding the business isn’t coming through right now with where the targets are for that business. At what point do you see that in the second half of 2019 or is that more pushed into 2020 with some other growth?

Todd, that would be asking for guidance, clever. However, before I allow and make Dave answer, I just wanted to make that point very clear, he will not give you guidance, okay.

Well, I think if we say directionally and how to think about it, which we always try and do. That’s not really guidance, you are just helping us think about it.

Well, I mean, Nick is looking at me, I will tell you that, when we do, dedicated is probably the most volatile, because frankly their growth is all dependent on what it being customer size of contract, right?

Right .

So for lack of a better scheduling, maybe their budgets and hand them to me it’s pretty ratable throughout the year, okay?

The growth is ratable? The trucks?

The growth is ratable, that’s right. It’s throughout the year. That’s here we are, what, January of 2017, we don’t have any data that’s I think anything otherwise. But the good part about it is, we’ve seen him what he is layering on this revenue we are overcoming the start-up costs, because the start-ups are coming out as scheduled and priced. So, I wouldn’t expect a huge lag in their margin as they go on. I think their biggest headwind to margins and I am going to let Nick speak to this, because he can talk about growth in this area is, as they mix in or getting to start – they are starting to get to a size in the non-asset piece that has that mix is with the asset side. That would put pressure on their ORs.

Right.

For a number of things for their ROIC which is what we want but we will have to discuss that as we start to see that happening.

I would just say, particularly, once we get the acquisition owned, it’s 90 something percent non-asset. So it’s going to come on and then, just the growth in general that we already have on the non-asset side and the final mile, it’s going to be a bigger percent of our portfolio and it’s climbing. And so, that’s going to put pressure on our overall margin in dedicated that has both final mile and dedicated in it. And so that’s what I was trying to allude to. We are very pleased, we break it out internally. We are very pleased and it is hitting the margin targets that we have shared numerous times. So we feel very good about it.

Okay. And then, obviously, I mean, the questions are I mean, I think that we all want to get our expectations directionally correct. We don’t want to have the volatility. So that’s I think, at least where I'm coming from in the questions and I guess from my follow-up, and I think that Brad Delco asked something directionally about this earlier. But John, when you think about again the portfolio of businesses, the investments that you are making, should we read into that there just is more growth outside of the intermodal business going forward? Is that by design, is that a reflection of the opportunities that you see or is that just something that’s been opportunistic recently?

I think as a whole, we are really listening to the customers and the systems that we work in. If it’s intermodal, it’s what’s going on with our rail networks and how fluid are they, how responsive are they to that customer need if it’s in developing new technologies or creating final mile services. I really think we've been very open minded and open ears to that we're hearing from that base of people we serve and even from new customers that we are reaching now with things like marketplaces. Historically we’ve been kind of a big shipper provider and I think we are opening some doors that get us into smaller shippers which we can now serve more efficiently with some of the platforms that has unique needs across their whole supply chain. So, one of the things that we discussed here is, is there a need who else is providing this service, are they good, is there a return and for us it’s also obtain service, getting that offer and grow. So meaningful on that size if we are going to move our needle and because I think we've learned from some of our past that you can’t let - your management can’t get distracted with ideas that aren’t going to present you meaningful growth along the way and take away that talent of things that are not going to be big enough to really matter. So, again, this comes back to what do we need to be doing today based on what our customers are telling us. Where do we have gaps and overall, I think we've always enjoy organic growth here. We have the cash flow to support us and good capital program if it needs investing in equipment or property or systems. I think we've brought on a lot of really good pool in the last few years, some from the outside, that has helped us think a little differently and that’s been real good for us than a little disruptive. But we hired a lot of people this year to support the growth that we brought on and I just found that kind of a self-fulfilling system in a lot of ways. So that we will have a pre-conceived notion that we know that the best return for us is going to be organic growth and we’ve always been keenly aware of that. But we also are not allergic to looking in other places. If whether that's an acquisition or like our recent announcement with working with some outside people that can help us do things that we can do on our own, again I am pretty simple minded about this. What the customer need? Can we make a good return it would be great. What we are good and is it big enough to matter?

Your next question comes from Ken Hoexter. Your line is open.

Hey, good afternoon. Terry, just you mentioned your thoughts on pre-shipping impact to volumes. I just want to understand if we have this continue until the end of February, do you expect a kind of sizable low as you move into March or April, May just given the pre-shipping activity at the ports? And then, Dave, just want to understand your comments on the container adds. You said accelerated due to the state of market demand or because of congestion trued up your boxes?

Well, the congestion, when it’s relieved and the velocity goes up, it leaves more boxes. I think we talked about that the rail velocity or the slow rail velocity last year consumed five or six thousand of our containers and we are getting some of those back rather quickly. With regards to the tariff, March 1st, the potential tariff, I do think it could be similar to December where we are seeing some pre-shipping going on. We always see some pre-shipping before the Chinese New Year. So, you might have not only the normal Chinese New Year low, but you might have some activity or less activity because of the tariffs. Where Easter stands, sometimes that kind of washes itself out. So, we will just have to see what happens with regards to the tariffs.

So it sounds like you’ve already seen a significant oversupply or pre-shipping that is significantly low?

What I said is, the steam ship companies that we’ve been in contact with said that they are – their boats are more full in January and the reservations they have versus what they had last January coming to the West Coast.

Okay. And then, Dave just...

Your next question comes from Matt Brooklier. Your line is open.

Hey, thanks. Good afternoon. So, not a guidance question, but could you give us some color in terms of how much revenue Cory’s First Choice did over the trailing 12 months and you also talked to there is potentially a mix impact on the margins that the businesses use a lot more owner operators. If you could talk to kind of the relative margins to help us think about dedicated as a whole next year from a margin perspective, that would be pretty helpful?

Okay, trailing 12 months would be between $155 million and $165 million in revenue that they did in the trailing 12 months and we had conference calls with all those customers and thanks. So we are very pleased with the acquisition. I think we can help them grow a lot faster when they have a lot of pent-up demand that Cory didn’t quite have the capital to grow with. So they are excited – the customer is excited about that. And then the other question was, our margins in there – it depends on the capital required to develop non-assets. We are going to be in the 5 to 7 range is what our operating margin targets are going to be in that business.

Okay, that’s helpful. And then, you mentioned, shifting over to intermodal, you are looking to grow volume in 2019. I am curious if that volume growth potential factors and negative headwinds from PSR at Union Pacific and is there are service level disruptions than they are meaningful. What’s the potential for JB Hunt to maybe take on additional volume in the West? Thanks.

We should have the boxes available and if continues the way they have started the year with their increased velocity. So, as long as there is boxes, I think we can – and their terminals can stay fluid, we will have the necessary power origin destination to pick up and deliveries. So, I would say it’s good as long as the rail network stays stable.

And just to specifically answer your question, Matt, yes, the growth expectation in 2019 is in spite of the rail rationalization and the loss of those loads.

Your next question comes from David Vernon. Your line is open.

Hey, good afternoon and thanks for fitting me in. You gave us some good color on sort of how you are feeling about the rate environment. I wanted to ask sort of the question in a different way. Are you seeing any sort of signs on the hiring side that is getting easier to see drivers? Is the labor market losing in any material way? And then, I just have a quick follow-up.

We’ll let – since has the Nick has hired the most drivers, we’ll let Nick take that one directly.

Yes, I would just say that it’s still a challenge out there. There is some markets that are still really tracked. But I would say it’s eased slightly, but it’s still difficult to find good quality drivers and we are still needing quite a few of those. So, there is still hire on bonuses that are out there. So that tells you that it’s still tight. There is not as many, but there is some out there. So I would say the market is still very tight, particularly in our dedicated side, so.

And Nick I would just note that our cost to hire…

Absolutely.

Are still at a high level. So we talked about hiring bonuses, but just our cost in total W2 also paying for those hiring bonuses as those we are doing more now it’s our cost to acquire new talent and new drivers.

Well, that’s a good point.

All right. That’s helpful. Thank you. And then, Dave, I kind of do want to ask you a question about guidance. I understand there is uncertainty around the year, but I think one of the things that – one of the pieces that push back that we often get on JB Hunt as the stock is, we don’t have a lot of visibility around the company. They use to not hold earnings calls, and so I think this is helpful. But is there a point that you are here where you are going to feel more comfortable in giving us some directional guide probably, so that we can sort of make sure that we are not letting our wildest models are in a way from us the 15% pricing? And is there any point where you are going to be able to tell us at least the kind of timing-wise, when this arbitration stuff may come off as an overhang Any assertive that two and there is a follow-up.

Yes, it is not likely that we will talk about guidance in 2019 even when we try to get more visibility, it’s either been ignored or caveated depending on who is reading it. And then it’s never updated. So, we are always behind the curve. So, we’d never use to issue guidance. We thought people are getting out on the lens too far. We started doing it. It worked for about two years and then we are back out to where we were before even putting our numbers out there. So I doubt if you are going to see us issue guidance definitely in 2019 and as far as the arbitration, the information that we have issued to the public is all the information that we intend to issue in public. When we get more information, we will issue more information to the public.

Your next question comes from Casey Deak. Your line is open.

Thank you. A question for Shelley, some more long-term in nature. If you are looking at more revenue, more growth coming from marketplace over time, does that change how you look at the general ICS business and the brokerage model? Does that change your needs on the labor front, how many brokers you need or the footprint that you have in that business? And then kind of along those lines, if you can just comment on how you view on margins and return profiles going forward?

If I could take your questions just a little differently, because I thought you were going to say, differently about brokerage having marketplace and I would tell you, I think if you look at our ability to grow share to continue to accelerate now that we have better data, more real-time visibility in understanding where the procedures are happening where we can fill the gaps in that. So I would expect ICS to continue to have stronger, but also expect that organizationally, because we use that data to help customers know how to transition into intermodal better or create dedicated fleets or backhaul for owner footprint. So I would expect that to continue to prove beneficial to our bottom-line here over the next several years also long-term. And then from a labor perspective, we do think that margins – as a large portion of margins go to fund the expense of labor. So people do the business. We aren’t expecting in the near-term. So lower our total headcount. We have to accelerate that headcount. We think the platform will be successful when we fit our experienced people with great technologies. And so we think we need both really to accelerate with work to do for our customers and carriers. So we think our gross margin percentage will shrink over time. But our bottom-line percentage should still be in a range of brokerage as we get efficiency and my computer is doing really a lot of the works that’s not that fun to our brokers. So brokers will transition and use their more creative side of problem solving skills with the computer can, and more that the computer can collect the bids and do things that are more automated.

Thanks. And does that change the type of person that’s going to take that job over time or kind of change your labor force of who you are looking at for hiring to come into that business?

Yes, we definitely have started to segment the work of our ICS sales team. And so, we are looking for different skillsets for carrier sales versus carrier procurement. And so, I do think that that will change over time. Those jobs can be shared at times, but I do think we are going to be talking to carriers about the platform and the adoptions and features and benefits of saving their money, giving them more time that we are having giving them a better experience, let’s just be doing at the moment when something needs to happen.

And presenters, do we have enough time for another question?

Yes, we will take one last question.

All right. Your next question comes from the line of Ben Hartford - Robert W. Baird & Co.

Thanks. We will finish. Terry, just your perspective on the inventory levels across the channel, I mean, you made the comment about transload activity in the first quarter, something warehouse capacity is tight, particularly in the LA Basin. But overall, give a sense as to what customers are saying as it relates to inventory levels in planning for 2019?

Yes, I think inventory levels – the latest data that I have seen are down versus what we saw maybe a year-and-a-half to two years ago. I am really curious to see what the new data would say in December and January. But I haven’t seen any spike up in regards to that. We know that there is various warehousing shortages throughout the country in certain markets which is some of freight sits on our trader and that’s why we pursued like others as it soils not only for dual but also for storage. I don’t think it’s changed materially from anything that I’ve seen in the last two or three months. But we will have to see the new data when it comes out here in the next couple of weeks.

Okay. That’s helpful. Thank you.

And this is all the time we have for questions. I’ll turn the call back over to our presenters. Thank you all for joining us. I am sure we will see out on the circuits and I know a bunch of you have got scheduled to come off – are scheduled to come on down and see us and we are excited to talk to you about where we are planning to take this company in 2019 and beyond. Thank you.

This concludes today’s conference call. You may now disconnect.