Hello, and welcome to the Hub Group, Inc. Fourth Quarter 2014 Earnings Conference Call. I am joined on the call by Dave Yeager, Hub's CEO; Mark Yeager, our President and Chief Operating Officer; and Terri Pizzuto, our CFO. At this time all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. In order for everyone to have an opportunity to participate, please limit your inquiry to one primary and one follow-up question. Any forward-looking statements made during the course of the call represents our best and good-faith judgment as to what may happen in the future. Statements that are forward-looking can be identified by the use of words such as believe, expect, anticipate and project. Actual results may differ materially from those projected in the forward-looking statements. As a reminder, this conference is being recorded. It is now my pleasure to turn the call over to your host, Dave Yeager. You may now begin.

Good afternoon, and welcome to Hub Group's fourth quarter earnings call. Hub finished the year with $3.6 billion in revenue delivering earnings of $1.73 per share. Like the rest of the industry, we continued to be challenged with rail service issues throughout the fourth quarter. The service challenges created significant inefficiencies within our Intermodal network and while we do believe that rail service will incrementally improve near-term, it is not expected to become more normalized until the second half of the year. However, we continue to be very optimistic about the future of Intermodal. Despite service issues and lower fuel costs, the industry continues to grow as customers take advantage of the cost savings through Intermodal conversions. So while 2014 was a challenging year, we look forward to improve service and financial results in 2015. And with that I will turn the call over to Mark.

Thanks, Dave. Good afternoon everyone. I will start by saying that there were few surprises in the fourth quarter. Service remained a challenge. Our drayage issues produced unusually high costs and we continued to see solid growth from Unyson and Mode. Consolidated Big Box Intermodal volume was down 1% for Q4 and flat for the year. Hub segment volume was down 4% in Q4 and down 2% for the year while Mode's volume was up 22% in Q4 and up 17% for the year. Hub's volume decline improved throughout the quarter and we anticipate further improvement as we lap volume losses experienced earlier last year. Hub's local West volume was up 1% in Q4 and up 4% for the year. Transcon volume was down 6% in Q4 and down 4% for the year and local East volume was down 8% in Q4 and down 7% for the year. Rail service reached its low point in November, improved in December and continued to improve in January, so it remains well below prior-year comparables. In order to compensate for this and for the disruption caused by our drayage model conversion in California, we incurred significant costs in the fourth quarter for additional headcount, container repositioning, dray capacity procurement and short-term leased tractor expense. We also incurred unusually high maintenance and repair expenses associated with older tractors and rail-furnished chassis. Nonetheless, as a result of our efforts, we were able to maintain customer on-time performance above 90% throughout the quarter. Rail service appears to have stabilized and late in the quarter, we were able to bring drivers home, terminate most of the expensive leased equipment, and get back into a more normalized maintenance and repair cycle. As discussed last quarter, we have a number of initiatives currently in place designed to lower cost,…

Thanks, Mark and hello everyone. As usual I would like to highlight three points. First, fourth quarter Intermodal margin continued to be plagued with the same challenges we saw in the third quarter. Rail service deteriorated in the fourth quarter and driver availability issues were more prominent. Second and better news, Mode delivered an impressive 22% increase in operating income. And third, Unyson Logistics delivered 14% revenue growth. Here are the key numbers for the fourth quarter. There were unusual items in the fourth quarter of 2013 and 2014. As we reported last year, the fourth quarter of 2013 included a $2.9 million non-cash impairment charge related to changing Comtrak's trade name to Hub Group Trucking. In the fourth quarter of this year, we had a $1.5 million tax benefit associated primarily with changes in state tax apportionment resulting in a 32.1% effective tax rate compared to a more normalized tax rate of 38.6%. The numbers that I'll report today have been adjusted to exclude these unusual items. Hub Group's revenue increased 3% to $915 million. Hub Group's diluted earnings per share was $0.41 this year compared to $0.50 last year. Now I'll discuss details for the quarter starting with the financial performance of the Hub segment. The Hub segment generated revenue of $696 million, which is a 2% increase over last year. Let's take a closer look at Hub's business line. Intermodal revenue decreased 1%. Intermodal volume was down 4% and fuel was down. Price and mix were both up. The good news is that the price increase this quarter was higher than the past eight quarters. Loads from consumer products customers were down 15% and loads from paper customers were down 21%. These declines resulted partly from pricing actions that we took to improve freight mix. Rail service…

Thank you, Terri. In conclusion, in 2014 we certainly faced a lot of headwinds. So for numerous reasons our Management team is very upbeat to see 2014 in our rear view mirror and we believe that 2015 is shaping up to be a much better year. From an Intermodal perspective, we believe that rail service will improve throughout the year and should be back to more normalized levels in the back half of the year. We believe the truck capacity will continue to be tight. We believe that the pricing environment is stronger than the recent past as a result of capacity issues and all of these factors bode very well for Intermodal. For truck brokerage this is a market where we should succeed and we have plans in place that will help us to get that business back on track this year. The Logistics business continues to bring a great deal of value to our clients by allowing them to more efficiently operate their supply chain and, very importantly, saving them money. It also is poised for continued growth. Lastly, Mode had a great year in 2014. We believe that our agent model that offers flexibility in routing plus the ability to utilize Hub’s driver capacity and equipment offers a unique set of tools for our agents to continue to grow. At this point in time, we will open up the line for any questions.

Thank you. We will now begin the question-and-answer session. [Operator Instructions] And our first question comes from John Barnes [RBC Capital Markets]. Please go ahead.

Hi, good afternoon guys. Mark, can you talk a little bit about just from a rail perspective, a couple of them have talked about potentially pursuing more of the premium freight directly and maybe cutting out the IMCs, the brokers, that kind of thing. Have you seen any trends or anything from the rails that suggest that they’re actually following through with that? Has it resulted in any pressure on customers or anything like that?

Yes, John. That is not something that we have seen. Certainly the rails enjoy a very significant direct relationship with people like UPS that they would put in a different class of service and that clearly would be regarded as a premium product. Yes, there’s a second tier type of service that some of the rails have periodically offered. They’ve always chosen to do that in a wholesale fashion as opposed to a retail fashion. So certainly the rails, I think, want to establish a relationship with the customers and its common practice for us to bring them in to our customer meetings, but we have not seen any instances in which they’ve elected to directly compete with us for business that would normally be through a wholesale channel.

Okay. All right. And then obviously they’ve all laid out pretty material capital spending plans this year and a lot of it seems to be geared towards alleviating some of the service concerns. The word Intermodal was mentioned quite frequently in their discussion of CapEx. Are you a believer that it’s sufficient enough to correct some of the issues? And are you buying into the notion that come spring, that we should see some material improvement in rail service that begins to help you?

We certainly think that these issues are fixable. Right? And that they can be solved and can be solved this year. It’s not entirely clear to us that spring will bring a materially improved service environment. To be fair to them, I will say that service improved in January. Not just on-time performance, not just speed, but we also saw, for example, significantly fewer LOGs left on the grounds with our rail partners and actually got to a point last week where it was better than the prior year, which is the first favorable comparable we’ve seen in quite some time in any aspect of rail service. Our general feeling is it’s probably going to be summer before we see that kind of material rebound in service levels to what we enjoyed in 2013.

All right. And then lastly, if there is some alleviation of the labor issues out of the West Coast port, and you start to see the International traffic flowing again, what do you think the ramifications are on the domestic Intermodal service and is that a concern to you at all? Or if you start to get the International boxes moving again, does it create maybe a more fluid Intermodal situation? How does that impact you going forward?

Yes typically they’re operating out of different terminals and have different train sets that they’re running so there isn’t a lot of overlap. Not likely that we would be crowded out of trains because of International. Obviously everybody fights for the same amount of locomotives. But this time of year, we’re not as tight on locomotive power as we would have been certainly at peak. We have been down off of the West Coast really for the last several months, largely because of the West Coast ports slowdown. So I think if that were to normalize, we’d actually get the benefit of a lot more trans loading activity, particularly with our consumer products and retail customers.

Very good. Thanks for your time, guys.

And our next question comes from Ben Hartford [Robert W Baird]. Please go ahead.

Hi, good evening everyone. Might have missed it, but did you disclose what your volume growth expectations in core Hub are for 2015?

No, we didn’t talk about that but we can’t give you our projections for that.

Yes, thanks. Yes.

We think that our volume growth in the first half of the year will be pretty slight. And then we have mid-to high-single digits in the last half of the year is our projection, which would mean for full year, Intermodal volume growth could range between 3% and 7%.

Okay. And maybe this is a related question, but when do you expect to finalize your final 2015 CapEx budget need and what is the reason for the contingency?

We expect to finalize it by the time we release earnings in April, for the first quarter, and the open questions are we’re sure we’re going to buy 100 tractors. We may buy more to replace some of the older equipment that we have, which would be more efficient from a cost perspective and we’re still evaluating that. On the container side of the house, we don’t think we’re going to buy any more than 1,000 containers. So that’s pretty set in stone. And then from a technology standpoint that’s set, too. So what the variable is, is how many tractors we buy.

Okay. And then if I could just get your perspective on industry trends more broadly, with crude down at $50 as opposed to $100 or so, it really wasn’t until 2008 where you saw a pivot or an inflection in terms of domestic Intermodal volumes several years ago. At higher crude levels, obviously circumstances in terms of industry capacity are a bit different, but when you talk to shippers, as you look at 2015 and you look at $50 crude, but you look at this ELD mandate potentially and the other constraints, what is the appetite for Intermodal, is it more sensitive to crude or is it more sensitive to service restoration and having the consistency on the rail side?

This is Dave. I would suggest to you, it’s much more sensitive to service than the price of crude. It certainly does allow truckers to be a bit more competitive on shorter lines of haul. But for the most part, I think that the truck driver capacity issues supersedes that. And so it’s a matter of the service levels and as long as we can get those back to more normalize level, I think, we can see some decent growth in the mid-high single digits this year as well for the industry.

Okay. Appreciate it.

And our next question comes from Kelly Dougherty [Macquarie Capital]. Please go ahead.

Hi, thanks for taking my question. Just wanted to see if you could give us some expectations on around Intermodal and trucking, what you’re expecting on the pricing side both from a base-rate perspective? And then kind of following on the question that just asked, you know, what the yield impact will be when you factor in for the lower fuel costs?

We don't disclose what our - we think we got more price in Intermodal than our competitors this past year. We are going to be price disciplined again this year. We don't disclose how much price we got in Intermodal or truck brokerage. Like I mentioned in my prepared remarks, our price increase was the highest that it's been in the last eight quarters, so we're happy about that and we'll continue to focus on that. And then…

Do you think we still - I'm sorry...

I'm sorry. I was going to answer your third question on the fuel. Our goal for fuel is to recover the cost of fuel from our customers. And so with the price of fuel where it's at, we're looking to make sure we've still got good margins on the accounts because the price of fuel has come down and making sure that's compensatory for us, but our goal is just to have it be a pass-through.

I appreciate that. Do you think that you can continue the pricing momentum? You said that it had increased sequentially from the third quarter to the fourth quarter. Do you see that trend continue at least for a few more quarters till you're having tougher comps or I guess anything directionally you can give us as the magnitude maybe?

I would suggest to you that it's really - this is a perfect environment for prices to continue to rise. You've got capacity constraints within the truck market. The economy appears it's not growing dramatically, but it is growing. And so as a result of that - and we've also got a competitive environment where I think the entire industry is focused on increasing price. So I would suggest to you that we are really just in the initial stages of being able to see price increases through the remainder of this year.

And then since you have the good visibility already onto the rail and dray costs, do you think your price increases can be in excess of what you're expecting for the cost side of things?

That is certainly what we'll focus upon, yes.

Great, thanks. And then I just want to shift gears really quickly. Can you help us think about maybe in more detail why the brokerage business wasn't able to post better results in 2014? Especially later in the year, really was a good market from a brokerage perspective. So is there something different about your brokerage business and maybe are there things that you're doing to address that or change things so that it seems to be in a better place going into 2015?

Yes, I think we certainly were not tremendously pleased with our performance in Highway. I think we do have a model because of the fact that we are 80% contract that is not as well-positioned to take advantage of spot opportunities. We have developed a team of people who are focused on those type of opportunities. And they are currently doing business with a number of our existing customers who are having capacity challenges. Not big enough to move the needle yet, but certainly moving things in the right direction. I think the organization at Highway spend some time not necessarily focused on growing their core business. They were spending a lot of time responding to bids, and also a lot of time servicing Logistics accounts. And that's a very important thing, and as we had these large onboardings with Logistics customers, it did take a lot of their time and attention, and to a certain extent that may have taken away from their focus on core business. And what we tried to do is really reestablish that focus on the core business and been more selective with the opportunities that we're pursuing. And when we take that, we really do believe that we can get back to the kind of double-digit growth that this organization saw for quite some time from 2006 until about 2009.

So do you think that double-digit growth can actually happen in 2015 or do we kind of have to gradually get back to that level?

I'm guessing we're not going to see double-digit growth in 2015, but I think we will see growth and I think we will see some positive benefits out of the increased focus. But I think mid single-digit growth would be a positive outcome for Highway for 2015.

Thank you guys very much.

And our next question comes from Todd Fowler [KeyBanc Capital Markets]. Please go ahead.

Great, good evening everyone. Just for a point of clarification for the margin improvement in the second half of the year, with normalized rail service, are you expecting the rails then to be back to kind of pre-fourth quarter of 2013 levels or is it more of just a situation where the train speeds or the service needs to be more dependable versus the train speeds actually getting back to where they were a year and half or so ago?

The service just needs to be more reliable and they need to be able to have enough trains, if you will, in certain corridors where they've been - basically they've had more business than they can handle. And they are building out for that, some of it's in Dallas and there's some construction Union Pacific has done which will be very helpful and is improving service. But it's really the consistency of the rail that is the biggest thing, not necessarily the train speed.

And, Dave, from kind of a contingency planning standpoint, I mean how much visibility I mean do you have in working with the rails if it's a situation where it feels like that, it's not really the summer time where they're starting to show some improvements? Will you be able to adjust your business and put some things into place and maybe have a different outcome than what we saw this year?

As Mark had said earlier, we are seeing incremental improvement even now through the fourth quarter. And certainly January was an improvement as well. In fact, probably from an LOG perspective the most we’ve seen in probably eight months. So we’re seeing some benefits. We are very reliant, of course, upon the rail. There's really not a lot we could do as far as from a contingency perspective if, in fact, the service fails dramatically. But we are seeing improvement and we think we're going to continue to see ongoing improvement as we are seeing a lot of investment, a lot of construction going on, on the rails right now.

Todd, one of the things that we are doing is simplifying the network model. So we're not going to build a network model that has more moving pieces than it needs. And we got a little bit exotic, I think, with our network model last year and some of the core components ran into capacity issues that that really locked up the whole network. So by keeping it simpler, we think that we avoid some of that downside in the event rail improvement isn't complete or isn't where we'd like it to be for the second half.

The first time exotic and Intermodal have been used in the same sentence. Just for my follow-up, Terri, you went through kind of three buckets of costs during the fourth quarter. When I put them all together, it's about $0.15. I mean is that right that there are all mutually exclusive, so it's $0.04 of volume from the rail service and then $0.05 of costs related to rail service and then $0.06 of dray? We're not double counting that there was lost volume kind of in some of the other numbers? It was going to fit…

Yes.

Okay. And then with the $0.06 of dray, that's all related to having to fly drivers out and rent equipment and that's the piece that - I think it was kind of post-Thanksgiving, you've gotten everybody back home. That should really be non-recurring almost going forward?

So that's a good question. Part of that is non-recurring, Todd. So the cost associated with those drivers flying back and forth every weekend, [indiscernible] cost, their hotel bills, certainly we won't have that anymore. That was about $0.02 of the $0.06. And the other costs are, for example, higher repair costs. And so, that's one of the initiatives that Mark talked about in his prepared remarks that we're trying to bring down. We don't have a good handle yet on what the normalized costs are going to be for repairs. So we're not sure where that - we think that number is going to come down, we're just not sure how much.

Okay. So we still have some of that in the guidance then for 2015?

Correct.

Okay. Good. Thanks a lot for all the help tonight.

And your next question comes from John Larkin [Stifel Nicolaus].

Good evening, Dave, Mark and Terri. Thanks of taking my questions. You said you had good visibility over both rail and dray pricing for 2015. Could you give us any more clarity on that? Is the rail mentality currently to perhaps back off a little bit on really aggressive price increases to IMCs, given the weak caliber of service that they've been providing or are they continuing to put the pedal to the metal, so to speak?

I think it's mostly the latter, John. No, I think the rails continue to be aggressive. They feel as though this is a very good market for pricing and to take price increases, and so they are continuing to be aggressive with it, which, candidly, we believe that the market can support it. We still have a substantial variance between over-the-road costs as well as versus Intermodal. So we think that there's a lot of room there. And I would add on the drayage part that we are talking to a variety of our carriers and looking to optimize the amount of business we outsource versus handle within Hub on HGT. So the sourcing events, we’re undergoing some of the - our first experience in the Los Angeles market now and we're going to continue on to other markets. Again, looking to optimize our dray spend, whether it's HGT or outside vendors.

Okay. Thanks for that. And then maybe as an additional question, it seems like a lot of people are confident that the rail service will return to, let's call it first half 2013, 2012 levels, which was much more of a truckload-like service quality. But my understanding is with these outsized capital expenditure programs and a lot of that work gets done during the summer months. And as a part and parcel to that heavy construction activity, some of the existing capacity has to be taken out of service, et cetera, which just creates more disruption. Is that the way you understand it or is there something else that's driving this return to normalcy midyear?

Yes, I mean there certainly will be, to the extent that the expenditures do involve significant align work and those kinds of things that that can have an impact. If they're going to do it, though, I'd certainly rather see them do it in the summer than in the fall. And they've generally been able to do it in ways that are not minimally disruptive but not significantly disruptive. We also think that there's significant gains just in adding more crews and getting the network adjusted to deal with what are some really different flows, whether it's oil or coal or those kinds of things. They have to go out and hire new crews and new locations and do things like that and those things do tend to take time, but we think that effort is well underway. And when you combine the capital expenditure work with the things that they're doing from a hiring perspective, those two things together should produce a better rail service outcome.

And maybe just one quick one here, on Chicago, itself, the railroads have talked a lot about cooperation and collaboration to try and increase the fluidity of Chicago itself. Have you actually witnessed that in some of the improving numbers that you've seen the last couple of months?

Chicago is still very messy. It's probably the messiest market that we deal with other than obviously what's happened recently in LA. But Chicago I think still has a long way to go. We have seen some improvements and a better level of cooperation among the rails, but I would say it’s still a significant weak point in the Intermodal chain right now.

Okay. That's great. Thank you very much.

And our next question comes from Scott Group [Wolfe Trahan]. Please go ahead.

Hi, thanks, afternoon guys. Hopefully can you hear me, sorry about my voice. So the $0.15 is combined rail service and volume and drayage costs. Can you walk us through how you're thinking about that $0.15 each of the quarters of 2015? Meaning is it a $0.15 headwind in first quarter and something less in second quarter? And does it turn into a year-over-year positive in third and fourth? Just how you're thinking about that within the guidance?

For the volume, we think - we didn't grow our volume this year at the Hub segment, so we think we will be up slightly in the first half of the year from a volume perspective in 2015. And then at the last half of 2015, we think it will be mid to high single digits. So for the whole year, we think the volume will be up between 3% and 7% according to our projections. And so we think we'll have more improvement in the back end than we do in the front end, only because we have the results of our bids that come in on the backend, which turns the volume around, plus we have more normalized rail service. In terms of the rail service issues, we think that rail service will continue to get better throughout the first half of 2015, but it won't be to normalized levels till, say, July. And so we're not planning on any utilization improvement until the second half of the year. And so you could say half of that, we get back in 2015 and that was up $0.05 in the quarter. And then for the dray issues, some of that is nonrecurring because it's the guys that we flew in from other markets to California and they stayed in hotels and we paid them for their travel and we paid them for their meals and entertainment and all that. So there's about $0.02 of that $0.06 that goes away completely. And the rest of it we're still analyzing. We're not sure where our repairs and maintenance are going to shake out because we’re looking at some of the equipment to see if we can maybe replace it with better equipment that doesn’t cost as much from a repair perspective. And then the other two-pronged approach in California, really, we’re increasing our driver base this plan, but we’re also having our sourcing event. And so we should have the results of that and we don’t have those yet now. But we’re encouraged by the results that we see so far. And so that would bring the rest of that $0.04 down by some amount. We’re just not sure how much is.

So if I’m hearing you, there’s less costs in 2015 than 2014, but still some net cost pressures that would hopefully go away entirely in 2016?

Right.

Okay. And then just last question, you guys have been really good on the operating expense side and it’s been in this low mid-60s range for going on three years now. What’s the change with the step up to 73 to 76?

Yes. That’s a good question. And I would tell you the biggest driver is our bonus we didn’t earn any EPS based bonus this year and very little of the bonus associated with personal goals. So that’s the biggest number in the guidance. It could be up $11 million just for bonuses for the whole year. And then on top of that, we are projecting that commission expense because their margin’s growing will also go up maybe $2.5 million that this at the Hub segment, of course. Agency fees and commissions will go up maybe $6 million to $7 million in total because Mode’s gross margin is projected to increase. And finally, we have our annual increases and head count additions and promotions and that could range between $5 million and $6 million for the whole year. So the other bucket is insurance, that’s probably going up a couple million dollars for the whole year.

Okay. All right. Thank you, guys.

And our next question comes from Bill Greene [Morgan Stanley]. Please go ahead.

Yes. Hi, Dave good evening. I was wondering if you could share with us a little bit about how a conversation goes with a shipper when we’re trying to get price now because my sense is we sort of struggled with the rail service, as everyone knows. Fuel’s a lot lower, although I get the markets are still pretty tight. But what do you come to them and say, Look, this is your value proposition; this is why you should shift a lot more to Intermodal? How does that pitch go? It feels to me like it’s actually a very tough environment to get price. Though as you’ve said you’ve been successful in that regard, so maybe some of that’s culling freight, maybe some of that’s new business, but can you talk a little bit about how that conversation goes?

Sure, Bill. This is Mark. It’s never an easy conversation to have with a customer about an increase. For the most part, most of our shippers at this point have detached fuel from the rate. Right? And so that is sort of a separate discussion most of our business moves under shipper fuel-surcharge programs and so that’s something that they’ve determined in advance. And we make a calculation whether we need to adjust the rate accordingly one way or another. I think the conversation with the shipper pretty much is about the fact that despite the service challenges Intermodal that’s present a tremendous value proposition for the shipper. It’s an opportunity for the shipper to save significant amounts 10% to 30%, versus using an over-the-road provider. We think that a strong case can be made that spread is likely to increase, because even with fuel going down, there’s a lot of other expenses with the trucking world that we’re all aware of that are going to raise costs over the long-term. And that if the shipper is trying to develop a long-term supply chain strategy, Intermodal needs to be a critical component of it. The other part that we need to talk about with our shippers is the fact that our costs are going up and that we need to be able to make adequate returns to invest in the products and offer the service that we are offering them. So we think it’s a great value proposition. We think we take care of our customers. Despite all of our challenges, we were delivering in the 90%-plus range for these customers. So that’s important to remember. Three of four of our loads were not arriving and available when they were supposed to be and yet we were able to engineer around that and still hit that customer’s on-time performance requirement. We can’t do that for free. And so we need to be compensated and that means, from time to time, we need increases. Like I said, not an easy conversation, but it’s one that we feel we have to have and that the environment’s right to have that discussion with our shippers.

That’s very helpful. When you think about the 2015 numbers you sort of talked about, whether it’s volume or price or whatnot, and what your internal targets are, how much of that can be driven by existing versus a new customer?

Well, most of what we look at is, is existing customers and developing those customer relationships. Most of our top 25 customers have been with us for multiple years. Certainly we want to bring on more business. We’ve got some plans in place to bring on more business and we’ve modified our sales compensation program to reward new business additions because we don’t think we’ve done quite enough of that. But the vast majority of the bottom line projections that we’re providing are based on business with existing relationships.

Right. Is the market rational enough to get new business without having to discount for it?

We think so. I mean, we do think, we’ve had, like I said, we’re pretty early in the bit season right now, in the negotiating season, but we’ve had some nice wins. We have brought on some new business at rates that we think are fair. And so, yes, we are, I think, seeing - still way too early to tell, but we are seeing an environment in which most carriers recognize that this is a time to try to get some increases and to try to improve their returns. In many cases, particularly with over-the-road sector, they don’t a choice. They need to raise rates in order to cover their costs. And so I think what we’re seeing is a fairly rational pricing environment, thus far.

Okay.

I think I would add that one of the things that Hub Group does bring is we do bring capacity.

Yes.

And we do also, as Mark had said earlier, and just last week we were at 95% on-time performance with our service sensitive clients. We were 90% overall in the fourth quarter. So we do have a very recognized service product. And so I think that definitely contributes to our ability to do that.

Great. Thanks for the time and insights.

And we have question from Justin Long [Stephens]. Please go ahead.

Thanks, good afternoon guys. Going back historically, I think the beginning of the bid season and the year is typically a pretty competitive time. I know it’s early, but could you give some more color on the trends you’re seeing in some of the initial bids out there? Are you starting to see a more disciplined approach from some of the other IMCs?

Yes. I think it’s fair to say that. If you’ll recall last year at this time, we took some pretty heavy losses in some business, particularly in the local East markets, particularly in consumer product and it’s like I said, still too early, but we’re encouraged by the initial results of what we’re seeing. We don’t want to fill up our fleet, though, with cheap business, right. We don’t want to do that. We want to stay selective. But at the same time, I think that what we are seeing is these bids are not - we are not seeing a whole lot activity where carriers are rolling price, where they are agreeing to take business on without increases. For the most part, what we’re seeing is business is being brought on board at more fair, more compensatory levels than it was at this time last year. But, like I said, we’re still less than 10% through the repricing cycle.

Yes.

So it’s too early to make that call.

Right. That makes sense, but that’s good color. And Mark, I think you mentioned on the Intermodal volumes that they improved over the course of the quarter. Do you have what those monthly Intermodal volumes were in fourth quarter and then anything on January as well?

We can give it to you on a same-business-day basis. I think Terri’s got that number. It was down below - by the time we got through this number if we would below 1% right.

Yes October was down 6%. November was down 4%. And December was down less than 1%.

Okay and then…

That’s on a per-day basis.

Yes. And then…

Sorry, go ahead I was going to say was there additional improvement in January as well?

Yes. Why the additional improvement in January. Now keep in mind, we had some storms last year so it’s a little difficult to dissect exactly what the impact of that would have been. We didn’t have the weather events last year - this year in January that we had last year but we do think that volume is moving in the right direction.

Great. And last one, on the 2015 guidance, any EPS impact from the change in fuel prices or is that a complete pass-through neutral impact to the bottom line?

So our goal is to pass it through the cost due to our customers and so that’s our plan. As the price of fuel comes down our revenue does come down though, so the margin should not be impacted.

Okay. Great. I’ll leave it at that. I appreciate the time.

And there is a question from Matt Brooklier [Longbow Research]. Please go ahead.

Hi, thanks good evening. Your 2015 guide, can you talk about your expectations for Mode margins? And then maybe also talk about the top-line, what could Mode grow at during 2015?

Sure. We think our projection is for Mode to grow high single-digits in revenue for the year and then in terms of margins - gross margin as a percent of sales, pretty similar to the quarters in 2014, Matt. And overall pretty similar margin for the year.

Okay. I mean, from an EBITDA gross perspective, the gross op margin percentage, I think you guys have talked in the past of certain numbers or something you have in mind for 2015?

Yes. For the whole year of 2014…

Yes.

It was 2.6. So our goal is for it to be a touch higher than that.

Got you. And then I think Mark talked to - or maybe it was Dave talked to doing some more work within the drayage operations and optimizing what you have and getting more efficient. Is part of that exercise, does that include looking at the model from an owner-operator versus Company tractor perspective? Is the thought process that during 2015 we may have to make some tweaks, some adjustments, in terms of what we look like in certain markets and potentially get a little bit heavier in terms of company-owned equipment or is that not part of what you guys talked about earlier?

Yes, we’ve done that analysis. And at this point in time, we don’t think that’s the case. We still have a majority of owner-operators in our network. I think we’re 62% owner-operator 38% Company.

62%.

It needed to be done in southern and northern California because of the shifting legal landscape, but we don’t think that’s going to be necessary in other markets. We are looking at how we’re outsourcing drayage, certainly. And we have conducted a sourcing event, as we talked about a little bit, in Southern California and we’re very encouraged with the initial results there. And that indicates, really, that we are probably better off not necessarily getting to some of the internal thresholds that we had originally assumed were optimal. So we are rethinking that a bit, but we want to continue to grow our dray operation. We want to continue to improve, certainly execution, on the street. But I would anticipate that what you’ll see us trying to do is adding both company and owner-operators. Now in all honesty, it’s been more difficult to recruit owner-operators as of late. So we’re having more success recruiting Company drivers. If that continues to be the case, you’ll probably see us adding more aggressively on the Company-driver side than the owner-operator side, but it won’t necessarily be driven by the same considerations that drove our decisions in California.

Got you. And then just a quick follow-up, last question, the improvement in terms of the ability to recruit drivers on the Company side? Is that something that is specifically being driven by your efforts? Do you think that maybe the market for drayage drivers has generally improved or do you think it’s a mix of both?

The market is still very competitive for recruiting dray drivers, either owner ops or Company drivers. But what we are seeing I think is that there’s more reluctance for people to go out and invest in a tractor that can [indiscernible] now cost goes to $200,000 a unit and begin operating as an owner-operator. They’re more likely to be in the business as a Company driver. It makes their life less complicated, generally speaking. So we just think that the supply of Company drivers is much larger than the supply of owner-operators, generally. But it’s still tough on both sides.

Got you. Appreciate the time.

And we have questions from Brandon Oglenski [Barclays Capital]. Please go ahead.

Hi, good afternoon everyone and thanks for taking the question. I know we’re over an hour in the call here, so I’ll just ask one of you, Mark. You went through a whole laundry list of things that you’re looking at improving this year. On the operational side, on the efficiency side, and a bunch of targets on the marketing side too. I mean, what’s the biggest opportunity for you to drive margin and earnings improvement for the Company as you see it right now? Where’s the real focus of the organization today?

The two that I’m most excited about right now, I’m excited about all of these, honestly. I think that there is great potential payback for every one of these efforts. But I think the two that that bring the biggest potential benefit for us are the pricing optimization application that were bringing on board. And that’s helping us and will continue to help us make better decisions throughout this coming bid cycle. And then I’m also very excited about the sourcing event with outside dray. I think that there’s a tremendous opportunity for us to get closer with the number of outside draymen, give them better business and save money at the same time. So those two, I think, can yield very immediate results that can move the needle.

And I said only one, but I guess I do have a follow-up. I mean, Terri, you’ve talked about in the past how there was a number of contracts that were below your price thresholds. And I know you wanted to address them throughout the bid season last year, but can you talk to the level of business that may be doesn’t fit your network? I know you’ve talked about a simplified network plan or just business that isn’t meeting the price threshold as you see it today, and how big is that opportunity for you?

Yes, we look at the business that doesn’t need our price threshold every day. There’s a small group that needs since as though [ph] we didn’t do so well on these loads yesterday, so what we’re going to do about it? Are we going to go for an increase? Are we going to try to do something different operationally so that we can save money? And it’s something that we’re constantly looking at. But I would say that we have a much better base of business now than we had a year ago because we went through bid season. And we have a much stronger, less price driven, I would say, base of customers where the only thing they don’t care about is price. They care about service and they care that we do a good job operationally, as well as the price. And that’s why our volume is down, because we got rid of some of those terribly price-sensitive customers that we weren't making money on.

Well appreciate the insight. Thank you.

And we have a question from Kevin Sterling [BBandT Capital Markets]. Please go ahead.

Thank you, good evening. Given all the West Coast port congestion and all that drama, are you seeing any of your customers looking to kind of just throwing up their hands and maybe shifting and finding other ports to play?

I think Kevin that’s a pretty common trend right now where we're seeing a lot more activity in Canada as well as through the canals of the East Coast ports. So, yes I don’t think there is any question that - because it’s so congested right now. And I think that the amount of vessels that are at anchor is a many year high. So it is creating a lot of disruption to people supply chain.

Do you think that could be permanent because it seems like we go through this every few years out West. Maybe customers are realizing like, okay, this might be a permanent solution, so we can avoid this in the future. Are you working with your customers to kind of help them facilitate that?

We’re certainly seeing a lot more transload activity in the ports of Savannah as well as in the New Jersey ports. So I think that's a partial change to the overall market. But the port of Los Angeles, it's so well located and it's the first stop for so many vessels. And with the price of these vessels and the amount of cost operating per day, I think you'll still continue - we'll get through this disruption, I'm sure, and things will go back to some normalcy. But I do think that a lot of people will look at least to have some diversion of traffic away from the ports of Los Angeles.

Okay. Last question here. There's been 100% tariff, plus a 10% surcharge on the cost of new dry containers from China to - I think to prevent the Chinese, the Chinese have been dumping containers here in the U.S. What does this do to the cost of a new container? And what does it mean for freight rates?

Well, Kevin, the first thing I would say is that Sutton brought this suit forward. And in all candor, they had a really crappy product and they got upset. They went to the Commerce Commission and were granted this. The foreign producers have not been dumping. What they have is they have economies to scale. The 53-foot container market is a very small market. It's really double sale just in the U.S. And so you might see 20,000, 30,000 a year that are purchased versus what they're doing in China is they're making 0.5 million; they're constructing 0.5 million or more TEUs per year. So they have an awful lot of economies to scale, which we were benefiting on. Ultimately what this will do is it's going to force us just to pay the extra tariff, so the cost of a container basically doubles to $20,000. But certainly with the condition of all the Sutton containers that we've seen, we wouldn't buy them because they basically appear to be poorly constructed.

Got you. Okay, Dave, thank you so much for that clarification. I appreciate it. Thanks for your time this evening.

We have a question from Matt Young [Morningstar]. Please, go ahead.

Good afternoon, guys. Thanks for setting me in. If I could, I just wanted to follow up briefly on the Hub Brokerage segments. In terms of the lower gross profit margins as a percent, I guess, I would have thought that your pricing power at this point would be stronger relative to the rising cost of higher - higher capacity rates, particularly given the tight capacity environment and the value proposition of the brokerage model at this point. I guess I just wanted to clarify if this was a competitive dynamic in the industry with a lot of competitive pricing or would you really kind of boil it down to a function of your contractual, highly committed business versus spot at this point?

It's really more because of our contractually committed business versus spot. We're just not able to capitalize on that market like our competitors are.

Would you expect - could you give any color on how you think that would trend - how your gross margin might trend on a year-over-year basis as we go through 2015 for Hub Brokerage?

We think, because of a change in the mix of our business in truck brokerage, that it will be - the gross margin as a percentage of sales will be lower in 2015 than it was in 2014.

Okay.

Like Mark said in his prepared remarks, we’re still going to try and capitalize on the spot market. We have a team dedicated to doing that, but it's a new tem and we hope we get some traction there, so something we're working on.

So there are opportunities for transactional business for you guys to take share?

Sure.

Okay. All right, thanks.

Thanks.

And I show no further questions at this time. I will now turn it over to Dave Yeager for closing remarks.

Thank you again for joining us on our fourth-quarter earnings call. Obviously, as always, if you have any questions for Terri, Mark or I, please feel free to contact us.