Hello, welcome to the Hub Group second quarter 2020 earnings conference call. David Yeager, Hub's CEO; Phillip Yeager, Hub's President and Chief Operating Officer, and Geoff DeMartino, Hub's CFO, are joining me on the call. 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 inquiries to one primary and one follow-up question. Any forward-looking statements made during the course of the call or contained in the release represent the company's best 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," and variations of these words. Please review the cautionary statements in the release.
In addition, you should refer to the disclosures in the company's Form 10-K and other SEC filings regarding factors that could cause actual results to differ materially from those projected in these 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. Thank you for participating in Hub Group's second quarter earnings call. I'm joined today by Phil Yeager, Hub's President and Chief Operating Officer, and Geoff DeMartino, Hub's Chief Financial Officer. I'd like to begin the call by recognizing Hub's employees who have performed masterfully for our clients during this pandemic. Our office staff continues to operate effectively while our drivers continue to be on the front lines, delivering essential goods in support of our valued customers. We continue to support our drivers and staff with necessary PPE supplies, as well as training to ensure that they remain safe during the pandemic. As anticipated, the second quarter proved to be very challenging as revenue decreased by 15% year-over-year. All of our business lines declined in revenue due to soft demand coupled with pricing pressures.
We did, however, see our intermodal volumes improve sequentially, with July exhibiting strong demand in certain regions as businesses replenished depleted inventories. With that, I will turn the call over to Phil to review our business lines.
Thank you, Dave. I would like to start by echoing Dave's remarks and thank our entire Hub Group team for their unwavering commitment to our customers, communities, and each other. We've seen an improving demand environment since April, and we are maintaining focus on our key priorities of a differentiated service and an improved cost structure, which will drive long-term growth. In April, we reviewed our top 100 customers, which accounted for 80% of 2019 revenue, and determined that over 20% were either closed or significantly impacted by the pandemic. Today, over 90% of our customer base has reopened, with the remainder still somewhat impacted as their facilities continue to ramp back up to full production or are serving end markets that are still impacted by closures. I will now discuss our business unit performance.
Intermodal volume declined 8%, and gross margin as a percentage of sales compressed 220 basis points in the quarter as our improved street performance could not offset a competitive pricing environment, lower volumes, and rail cost increases. Local West volumes declined 3%, Transcon volumes were down 7%, and Local East declined 11% as we participated in a competitive truckload and intermodal environment, which was amplified by the pandemic. Volume improved throughout the quarter and was up 5% in June. We've seen an improvement in demand to start the third quarter and have performed very well in bid season. Due to our execution during bid season, we plan to grow our fleet by 3,500 containers and over 200 tractors. The continued strength in rail service and our enhanced Drayage operations are positioning us well to provide superior service to our customers as demand returns.
Logistics revenue declined 15%, while gross margin as a percentage of sales improved 190 basis points year-over-year. We had strong margin enhancement and also saw growth in CaseStack, but we had several customers that were significantly impacted by the pandemic, which drove our decline in revenue. We have had several new wins and onboardings during the quarter, and this was partially offset by a small number of losses with customers that were negatively impacted by the pandemic. We are focused on profitable growth and have an excellent pipeline. Our team is becoming more productive through our new structure and technology investments, which is positioning us to grow while we provide excellent service to our customers. Brokerage volume declined 12% for the quarter, while gross margin as a percentage of sales improved 100 basis points year-over-year. We had lower spot volumes in LTL and truckload.
Volumes improved sequentially throughout the quarter. This trend has extended into July, and we are having success in selling new contractual awards. We have successfully improved our productivity through our new operating structure and technology while providing superior service levels. Dedicated revenue for the quarter declined 12%, and gross margin as a percentage of sales improved 200 basis points year-over-year. We have supported a surge of demand from several of our retail and consumer product customers and successfully onboarded several new profitable wins. These wins helped offset our focused effort on shedding unprofitable business. We are seeing the impact of our focus on improving profitability while maintaining our great service. We still have ample opportunity for improvement, but we are pleased with our progress. I will now hand it over to Geoff to discuss our financial performance.
Thank you, Phil, and hello everyone. Our business performed very well in the quarter despite unprecedented macroeconomic conditions. We saw revenue improve throughout the quarter and gross margin as a percent of revenue expanded for all four service lines compared to Q1. Q2 gross margin was 13.8% of revenue, up from 12.5% in Q1. Our results demonstrated the resilience of our operating model as we generated over $70 million of net cash from operating activities and over $52 million of EBITDA during the quarter. We continue to exhibit strong cost control. Our non-driver headcount is down 14% over the last 12 months, and we are on track to achieve the benefits of our profit improvement initiatives. We are improving our trucking operations, driving higher utilization and lower costs, and reducing our operating expenses.
Salaries and benefits expenses for the quarter were down by over $11 million as compared to the prior year, driven by lower headcount and bonus expense. During the quarter, we incurred $5.7 million of expense for donations of refrigerated trailers to COVID-19 emergency responders. We also spent $2.6 million on consultants who worked with our team to drive improvement in our trucking operations. This engagement is now complete. G&A costs were up $4.9 million year-over-year. Excluding the donation and consulting expense, these costs were down by $3.4 million as we reduced our spending in several areas, including travel and IT implementation costs. Hub Group's diluted earnings per share for the quarter were $0.39. This includes $0.21 of costs related to donations, consulting, and severance. This compares to $0.87 of diluted EPS in the second quarter of 2019.
The decrease in earnings per share was driven by the soft freight market, including the impact of COVID-19 and competition within intermodal and truckload, partially offset by the savings from our profit improvement initiatives. During the quarter, we repaid the $100 million we had borrowed on our revolving credit facility in March, and we ended the quarter with over $200 million of cash. We continue to have solid liquidity and low levels of net debt. For the remainder of the year, we expect to spend between $65 million-$75 million on capital expenditures, primarily to support growth in the business. We are purchasing 3,500 intermodal containers and over 200 tractors to refresh and grow our fleet. Dave, back to you for closing remarks.
Thank you, Geoff. We are encouraged that we are beginning to see the economy come back, with the demand for logistics services growing as businesses restock their inventories; we expect the second half of the year will reflect improved volumes. With that, we'll open up the line to questions.
Thank you. We'll now begin the question and answer session. If you have a question, please press star, then one, on your touch-tone phone. To be removed from the queue, please press the pound sign or the hash key. Our first question comes from Justin Long from Stephens. Your line is open.
Thanks. Good afternoon, and congrats on the quarter.
Thank you.
Thank you.
You mentioned that volumes in June on the intermodal side were up 5%. I was wondering if you could give us monthly volumes throughout 2Q, maybe what you're seeing in July, and then after you do that, we would love to get your thoughts on bids that you've won or market share you've won during bid season and how much of that is reflected in this pickup we've seen in June and July.
Sure. This is Geoff, Justin. By month, April was down 15%; May was down 13%; June was up 5%; and then to date in July, we're up 8%, and we expect high single digits for the rest of the year in intermodal volume.
Great. Justin, this is Phil. Just from a bid perspective, it was somewhat aggressive during the peak of the pandemic from a pricing perspective. We did perform very well, though, with some of our larger customers in their intermodal renewals. Those customers are performing extremely well through the pandemic, actually seeing surges in demand, and that's what gives us that confidence in continuing to invest in and grow the fleet. It is still somewhat competitive out there; we are seeing signs of tightness and hope that that will continue. That'll set us up for a very strong 2021 bid season. We are 71% completed on our bids at this point. Still have some larger ones to complete, feeling very good about the results that we've been able to generate.
Okay. Great. As you think about that volume forecast for the back half, are there any thoughts around intermodal gross margins and the progression sequentially that we could see in the third and fourth quarters?
Sure. For the business as a whole, we do expect margins will come down sequentially, closer to that Q1 number. We are going to see the impact of our repricing start to hit the numbers more fully as more of that business is online. We do have some rail cost increase in the second half of the year. We are going to work to offset that with our profit improvement initiative, both in the gross margin line and also in the cost and expenses line. We do expect our gross margins will be lower in the second half.
Just to add on to that, Justin, we are continuing to see improvement in our cost per load and productivity on the drayage side, and feeling very good with those results as well. We're going to continue to push that forward to help offset those costs.
Okay, great. I'll leave it at those two. I appreciate the time.
Thanks.
Your next question comes from Benjamin Hartford from Baird. Your line is open.
Hey. Good evening, guys. Maybe just to close the loop on some of these cost elements, do you have any sense or direction where salary and benefits and G&A, some of the operating -type expenses, will trend in the back half of the year as well?
Sure. If you use the Q2 number as a starting point and back out the specific items we called out, which is the donation, the severance, and the consulting expense, all of which we don't expect going forward, I think that's a pretty good number to use.
Okay. That's helpful. Thanks. Dave, just interested in your perspective on what's going on right now in the West Coast in particular. I've asked this a couple different times elsewhere, seems unusual how tight it is. Already starting to see some transactional surcharges put into place. A variety of reasons for that. As you experience that today, in your mind, what does that set up for Peak, and how concerned are you as it relates to service, rail service in particular, as we move into the back half of the year?
Well, thus far, rail service continues to be very good. Our rail partners have been, I think, an awful lot of the work they did with the PSR, I think, really did help quite a bit. The service we're very confident in right now. There's no question we're seeing surges off the West Coast, very strong, some of the quickest acceleration I've seen. From the customers that we've spoken with, they do believe that this is going to go through a peak, that we're going to have these elevated levels of business going through the West Coast. A lot of it is just inventory replenishment. Again, I think that a lot of it's been sitting in warehouses, apparently on the West Coast, and is now being shipped en masse. We'll see this through August and, I would hope, maybe through November, maybe beyond.
It seems as though the restocking is definitely going to take some time as inventory levels are quite depleted.
Yeah. Ben, I would just add to that; I think one of the things that we've been most pleased with from a rail perspective is the reaction times and how much more nimble our rail partners are than when we have seen these kinds of spikes in the past. Even though there can be challenges, the response times, and the fixes that we're putting into place with our rail partners to support our customers are very fast and very fluid. We think that sets us up well to serve our clients during peak.
Okay. That's good. That's helpful. Thanks. Then, Phil, maybe just to complete your thought on Dedicated. Can you provide us an update on where that stands operationally? It looks like a little bit of momentum there, as you talked about in the press release. When do you think you can get back to positive growth from a revenue standpoint, given what the pipeline looks like and just a status on where that unit sits operationally?
Sure. Yeah, we are making progress. We are certainly not where we want to be long -term; you can see it in the numbers that we are making progress. We still have some work to do operationally and on the technology front; once again, we are making strides. We are through the majority of the loss of unprofitable business; that will start to show up in the second half of the third quarter. We feel very good about that. The wins that we're bringing on, obviously, there will be some startup costs; long -term, we think it will be a very strong business for us. My hope is, in 2021, we're getting to a positive growth trajectory in that business with strong margins and returns.
Okay. Thank you. I'll turn it over to somebody else.
Your next question comes from Scott Group for Wolfe Research.
Hey, thanks. Afternoon, guys.
Hey, Scott.
Good afternoon.
I apologize if I missed it, but did you give the gross margin trends by business in the quarter?
We didn't. I can give those to you now. Let me just pull it up here. On a year-over-year basis, Intermodal was down by about 220 basis points. Brokerage was up 100, Logistics up 190, and Dedicated up 200.
Okay. When you talk about mid-single- or high-single-digit volume growth in Intermodal, do you think that's a function of market share gains through bid season, or is that your view of the market?
I would say a combination. We certainly did have some strong showings in bids with some of our larger customers who have the ability to drive share shifts. We think we did perform well there, and we're focused on really hitting the mark for them and meeting the commitments that we've set. I also think with some of the tightness that we're seeing in the market right now, there will be some additional share shift from truckload. We're seeing a lot of customers come to us now focusing on peak plans and peak support. We are focusing on supporting the clients who have stuck with us, and we're going to continue to support them. That's really a big part of why we're expanding the fleet.
Okay. Phil, it sounds like the volumes are accelerating, but the gross margins get worse because maybe the pricing is getting a little bit worse. Is this a shift of refocusing a little bit more on growth and less on yield? How quickly can you turn that yield lever back on in a tightening market?
Sure. We do want to focus on growth. We are going to continue to focus on growth. We need to get back to a strong growth trajectory in intermodal. That is a focus of ours. We do believe that if the tightness continues in the market that we're seeing right now, that sets us up extremely well for the 2021 bid season and an ability to grow and get profitability back up.
Okay. Just one last question real quick. The increase in CapEx, is this a pull forward from what next year was going to be, or is this sort of a new run rate to think about continuing into next year as well?
No, it's not a pull forward. It's just responsive and supportive of growth that we see out there, particularly in intermodal. That's for the containers. On the tractors we're purchasing, there's really the opportunity to generate a strong return by refreshing some older, higher -cost models.
I would just add that within the Drayage side of our intermodal business, we need to make sure that we're maintaining our share of our Intermodal Drayage so that our Hub Group trucking fleet is managing a significant portion of that, even as we grow. We will need to continue to invest in that to maintain that share.
Okay. Thank you, guys.
Thanks Scott.
Your next question comes from David Ross from Stifel. Your line is open.
Yes, just to follow up on the drayage comment there, what percentage is company dray at this point, and what's the target?
Sure. Right now, in Q2, we did 60% on our own assets. That was up from 54% last year. Over time, we'd like to get that up closer to 80%.
I would add to that, Geoff, that if you look at just where we have terminal locations, that is actually 74% of our overall business.
Okay. That's helpful. Are there any constraints right now in the driver market to getting that? It seems like you've got the balance sheet and the capital, so if you wanted to just buy the trucks, it's a matter of seeding the trucks with the drivers. How are you thinking about the timeline on getting that up?
Yeah. We've invested a lot of time and effort in improving the productivity of our drivers. That was really step one. We also have improved our retention. At this point, we feel very good about being more aggressive in the market, going after drivers. It is getting somewhat more competitive as we're seeing some of that tightness in the market. Some drivers tend to flock towards getting their own certs or really moving to an independent model during that time. We feel very good about the value proposition that we bring to drivers. They're home every night. We help them make a very strong living and support them. I think we're going to be able to add drivers. We have to stay competitive with wages and make sure that the drivers we have are staying happy and supported as well.
Well, that sounds good. Just one last question on the consultants you've mentioned, bringing them in to tell you what to do with trucking. What were the key takeaways from their time there, or what were the points of focus?
Yeah. It's been a great investment for us. I think we recognized a lot of opportunities for the organization, and we've executed on a lot of those. I would highlight a few areas. First, driver productivity and retention. I mentioned those earlier, and I think we've made significant strides there, and that's what's really reducing our cost per load in the drayage network. Our maintenance program was also another huge focus area for that, and that's really a big part of the investments we're making in the tractor fleet and in our own maintenance network. We think we have a huge runway to improve in our maintenance organization. The other big area was in our procurement and how we purchase everything in our asset fleet, whether it goes to fuel or our tractors or our containers.
We had opportunities to drive down our purchase expenses, and we are taking really a big swing at that and continuing to make a lot of progress there. A lot of really good stuff that they help support.
I would just add that the trucking improvements, both at drayage and dedicated, were a big component of the $40 million of profit improvement initiatives we've been talking about for the last few years. We are certainly executing on that part of it.
Excellent. Thank you very much.
Thanks.
The next question comes from Todd Fowler from KeyBanc. Your line is open.
Great. Thanks, and good evening, everyone. Phil, I'm assuming that you're almost all the way through the bid season at this point. Can you share where contract pricing for 2020 shook out? As you look to the second half of the year, I'm assuming there's going to be some initial bids maybe late in the fourth quarter. Is the market now to a point where contract pricing intermodal should flip to being positive just based on the tightness and what you're seeing in the truck market?
Sure. Yeah, great question. We are 71% done and awarded. We still have some sizable ones that are out there, but we're still feeling very good about how we've executed through that. If the tightness in the market continues at the rate that it is, I think it sets up for a very solid 2021 bid renewal season. We may see some customers try to move bids out, but we've made commitments on 12-month rates, and we plan to continue to support those. If people start pushing them out, we will take actions to make sure that our pricing is in a competitive place. We need the tightness to continue, though, for a little bit of a longer period, I think, before I could say that intermodal pricing is moving on a contract basis really in a good direction.
The signs are out there that we're moving in the right direction.
Yeah. Okay. That makes sense. Do you care to put a range around where the 70% came in at?
Oh, sure.
Is it fair to say low single digits, or do you want to share a number around that?
Yeah, it would be low single digits.
Great. Okay. Just on the cost side, I guess, Geoff, I'm curious about the $40 million that you targeted for this year; how much do you see that's already in the numbers right now? What can we expect going forward? I think the next big bucket that you laid out was $20 million, and I think that that was a 2022 number. Is that still a number that's out there on the horizon? Is there anything that would move that forward or push it out a little bit further?
Sure. Yeah, the $40 million; what we've said on that is we expect to be at a run rate once we've got all the initiatives in place. We're very close, I think, to having those initiatives largely in place. So we're starting to recognize that now. For the full calendar year of 2020, we'll recognize about half of that in-year, so about $20 million.
Okay.
Of course, we're still recognizing the $60 million that we executed on in the latter part of last year. As for the $20 million going forward, that's really a function. A lot of that's driven by our continued implementation of our Elevate IT initiative. The timing of that $20 million will be dependent on those IT projects coming into place, but that's something we're looking at for next year.
Okay, got it. Just the last one for me. I guess maybe two parts. First, the 200 tractors that you're buying this year, where are those going to be split? Are those dedicated? Are those intermodal? Do you have some kind of parameters for dedicated revenue growth in the back half of the year as you start to lap the lost business and are they based on some of the awards that you saw in the first part of the year? Thanks.
Sure, yeah. The tractors, the vast majority of those are going to be in drayage. There are a few dedicated as well. Dedicated revenue growth for the back half of the year. We are still cycling through some of the site exits that happened late last year and early this year. We are winning new business, and that is starting to come on, but we do expect revenue will be down before those new sites can really start to contribute.
Great. Okay. Thanks so much for the time tonight.
Thanks.
Thank you.
Our next question comes from Jason Seidl from Cowen. Your line is open.
Thank you, operator. Hey, everyone. Getting back to the intermodal pricing side, if we're getting sort of this low single -digit number now, as we look out to 2021, if we can anticipate that this tightness continues in the marketplace, should we be looking at something more towards the mid-single -digit range?
Sure. I would be hopeful of that, but obviously, the tightness does need to continue. We need to see demand continue. We're certainly hopeful that the economy gets back moving in a positive direction and that the pandemic does not drive any further disruptions. All of that being equal, yes, I would think, given the dynamics that we're seeing in the market right now, we would anticipate a strong pricing environment.
Okay. Follow-up: just you guys talked about some of your initiatives. I was wondering what type of technology initiatives you might have, whether it be on the intermodal side, the drayage side, or even the dedicated side, that could drive some cost savings going forward, and if you could just give us some more details on those.
Sure. We are in the process of moving to our single platform for the organization, really retiring legacy systems. One of the biggest benefits of what we are implementing is our driver optimization tools. We have seen significant improvements in the test sites that we've done in both loaded miles and productivity for our drivers, as well as the productivity of our associates. They are able to pre-plan a day and spend their time on really more value-added things for our clients. It will be both a productivity headcount enhancement, but also the larger bucket of dollars is going to be in making our drivers more productive, having to put in less capital, getting more out of the expense that we're putting in.
When's that going to be 100% rolled out?
That'll be a 2021 rollout.
Okay. Appreciate the time as always.
Thank you.
Your next question comes from Bascome Majors from Susquehanna. Your line is open.
Yeah, thanks for taking my questions. I wanted to follow up on the CapEx adjustment. If I recall, the initial range that you guys gave in February before you reduced it was pretty similar to what you raised it to today. You had delayed the expansion of your headquarters building, which I think was $30 million or $40 million. Could you unpack the nature of that spend today, even though it's similar in dollar terms, how it might be different in the uses, and an opine on whether or not you plan to renew that headquarters expansion in 2021 or beyond? Thanks.
Sure. This is Dave. We have put it on hold. There was some expense in this quarter as we did have to complete the HVAC and the fire protection, but it's sitting idle at this point in time. We are waiting to see several things. Number one, we are a relatively densely populated headquarters building. We're not sure if, in fact, we may be able to if the government may put regulations in place which would allow us to have fewer people in the building. That's one thing we're waiting for. We're also looking very closely at how many functions can work from home.
Is it possibly that they are working from home four days a week or one? We're going through that process now, and ultimately, when you have the combination of the two, we can determine if, in fact, we're going to finish the building, rent it, sell it, or inhabit it because we need the space overall. There are a lot of unknowns, but it's sitting idle right now. It is fully up to code and could be finished, I would say, probably within six months if we chose to do so.
Yeah. This is Geoff.
Okay.
I could give you the breakdown. You are correct. Our original guidance back in February was $115 million-$120 million of CapEx. Included in that was about $35 million for the building. If you take the $49 million we spent in the first half, the outlook for the second half is $65 million-$75 million. We are back to that kind of $120 million range, approximately. About $20 million of that full year is on the building, a little over $40 million on containers, and kind of $30 million-$40 million on tractors and trailers; the rest is going to be IT.
Thank you for that. That's really all I had. Thank you.
Great. Thanks, guys.
Our next question comes from Brian Ossenbeck from JP Morgan.
Hey, good afternoon. Thanks for taking the question.
Sure.
I wanted to ask one about it; you mentioned rail service, but we're also seeing some new additions. A couple that was announced earlier this week. Your partner out west had some market share gains that they were talking about. I just wanted to see how that was flowing down to your business and if that had any implications for deciding to grow the container fleet, I guess, in the near term, and then long term, maybe you can just offer some thoughts on just the pace of growth. Do you expect these sorts of things to continue, or is it a little too early to expect that at this point?
Yeah. Great. Thank you, Brian. We're always looking and pushing our rail partners to add additional services. We're excited that they are. During PSR, we lost some lanes that were servicing large clients, and some of it is reopening those, which is great and allows us to get back business that went to trucks. We're very excited about that and the opportunity to go back after those bid seasons reopen and truck capacity hopefully tightens. Certainly, we think that that stance from our rail partners is fantastic. We hope that it continues, and we're going to continue to work with them to find new opportunities to drive growth.
Okay. It sounds like the container fleet was separate from all that because some of these are still pretty new. I guess the other question is when do you expect to get those containers, and how much of that's replacement versus incremental growth?
It'll be incremental, and we'll be getting those throughout really the peak shipping season from August till really November, start of November. We can make sure we get some turns on those for this year. Yeah, I would say we really made that decision independent of the new offerings. If we are successful in continuing to grow in those new corridors, then we would obviously want to continue to invest in the fleet.
Okay. Just one more. If you can give us an update on CaseStack. It has, I think, outperformed your expectations since you bought it. Do you have anything new to share there in terms of growing the footprint or how that's performing? I would think it's probably doing pretty well now with the restocking of those in the volume of the type of customers that it serves. What do you see from a growth perspective? Again, with, I guess, one of the bigger competitors going over to a larger logistics company, have you seen anything change in the market from that perspective as well?
Right. This is Dave. When we acquired CaseStack, we did think that they were, and still believe that they are, the premier company in their space. You are absolutely correct. They've surpassed their forecasts very consistently. They, of course, are serving CPG customers going into essential retailers. That market has been very, very strong. The management team has done a really, really good job in handling the growth and candidly also the impacts of the COVID virus. Nothing but kudos to the team. They've added a lot of value to Hub overall as an organization.
I would just add that the footprint that we have is the national footprint. We feel very good about the locations that we have, but we may or we will continue to expand in our existing markets as we continue to add business. That has really been the playbook that we've been running. The other piece that I would highlight is that we are winning larger awards with really legacy Hub customers, which is driving a good amount of growth. That was one of the pieces of the deal: we would really be able to cross-sell. The other part that I would highlight is that we're also adding new retail programs, and we're really pleased that that has also come to fruition. We plan to continue to grow that. Another great win that we've gotten through that acquisition.
All right. Great. Thank you for the time.
Thanks.
Just as a reminder, to enter the queue and ask a question, please press star then one on your touch-tone phone. To remove yourself from the queue, please press the pound sign or the hash key. Again, to enter the queue, star one. Our next question comes from Tom Wadewitz from UBS.
Yeah, good afternoon. I apologize if I missed this; I don't think you've commented on brokerage as you look to the second half. It seems like you had good gross margin performance in the quarter; obviously, the market's tightened up. I don't know if you have any thoughts on how your brokerage business would perform in the third quarter and, if there's pressure, maybe how quickly you can get through some of the gross margin pressure if you do have a strong peak season.
Sure. This is Phil. As you're probably aware, our brokerage is primarily contractual business. The majority of that business is with committed carriers, and those committed carriers are living up to the awards and commitments that we've set with our clients and continuing to support us and our customers. We feel very good about that. Where we are seeing some compression is when it is a committed lane from a customer that we were sourcing transactionally really prior to the tightness. That is where we're going to see some compression. We are working with our customers on ensuring that they understand the compression that we're seeing and also working to get higher -margin spot volume into the business. The spot market tightened from a capacity perspective prior to the demand side from a rate perspective.
We do believe now that the spot market load board activity is increasing; spot opportunities are increasing. We feel as though we're going to be able to really keep our gross margins at a good level, but we'll see some pressure in the back half. The only other piece I'd highlight is we do have some high -profitability project business that we typically run that has slowed down given the pandemic. That will be somewhat of an offset as well. I think we're doing a very good job in our procurement methodology. We're supporting our carriers. We're continuing to work with our customers very well. We're focused on growth and really continuing to buy well in the market.
Now I'll just add that the process changes and technology we've put in place have made our carrier reps much more efficient than they used to be, going back a year and a half or two years ago. We're seeing that benefit on the bottom line as well.
Great. Okay. With respect to the new business you're bringing in intermodal, is it skewed to be the west, the east, or transcontinental? Just wanted to see if there's some color on the type of business that it is that you've been winning.
Sure. A lot of our wins were Local West and Transcon. It's still very competitive in the east, both with truckload and with other intermodal competitors. The majority of those wins were really kind of western and Transcon -based.
Right. Okay, great. Thank you for the time.
Thank you.
Our next question comes from Benjamin Hartford from Baird. Your line is open.
Yeah, thanks for the quick follow-up. Geoff, if you said this, I missed it. Did you tell us which line items specifically the various called-out expenses from the donations, consulting, severance, et cetera, were located?
Sure. Yeah. Severance is in salaries and benefits, and then the donation and consulting expenses were both in G&A.
Okay. Then an update on where you guys sit as it relates to evaluating acquisitions in this environment. Can you provide us an update there?
Absolutely, yeah. We want to continue to do M&A. We want to get larger and expand our suite of services, looking to have more of those opportunities to cross-sell new lines of service to our intermodal customers, where we've had pretty good success in the acquisitions we've done. We are targeting really the value-added 3PL type businesses, non-asset-based businesses, where we can add new lines of service, expand our freight under management, and/or get into new customer verticals. We've been looking all year. At one point, I thought we would get a deal done this year. I think we're still hopeful we can. Obviously, things had to kind of go on hold in the March through June timeframe, but we are back at it, evaluating opportunities, and hopeful to get one done here.
In the meantime, your mindset as it relates to potential share repurchases, where does that sit in the hierarchy?
Sure. I mean, we've been pretty conservative, obviously taking down $100 million on the revolver early this year. We do always evaluate share repurchases at our quarterly board meetings. Got one of those coming up, and I'm sure it'll be a topic of discussion.
Lastly, you provided some parameters to think about modeling some of the operating expenses beneath the gross margin line . Incentive comp in the back half of the year, and as you kind of even think about 2021, can you talk a little bit about what may or may not have been included in 2Q and how that might feather in as we move through the year?
Sure, yeah. Very little incentive comp in Q2. Obviously, I think our earnings are going to be down year-over-year, and our incentive compensation program is not designed to pay when that happens.
Okay. That's helpful. Thank you. Appreciate the time.
Our next question comes from Bascome Majors , Susquehanna. Your line is open.
Sorry. Thanks for the follow-up there. I just wanted to follow up on Ben's follow-up. Is a special dividend a possibility? Is that something you guys could even do if you wanted to, assuming that M&A doesn't come through as quickly as you hope to? Because certainly the cash balance is rising, and it looks like if all goes well, you should be in a net cash position again next year. Thank you.
Yeah, I mean, it's not something that's off the table, but again, our priorities for excess cash continue to be reinvesting in the business, both through CapEx and through acquisitions. I think those are two areas that we are either actively or looking to invest in as a priority.
Thank you.
Thanks, Bascome.
That concludes today's question and answer session. I'll turn the call over to David Yeager for final remarks.
Great. Well, again, thank you for joining us this afternoon. As always, if you have any further questions, Phil, Goeff, and I are available to talk at any time. Thank you again. Have a good day.
Thank you.
Thank you, ladies and gentlemen. This concludes today's conference call. Thank you for participating. You may now disconnect.