Hello, and welcome to the Hub Group second quarter 2022 earnings conference call. Dave Yeager, Hub's CEO, Phil Yeager, Hub's President and Chief Operating Officer, and Geoff DeMartino, Hub's CFO, are joining me on this 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.
Sorry for the inconvenience there, that temporary slowdown. This is Dave. Good afternoon, and thank you for participating in Hub Group's second quarter earnings call. Joining me today are Phil Yeager, Hub's President and Chief Operating Officer, and Geoff DeMartino, Hub's Chief Financial Officer. I would like to first of all start by congratulating the Hub team for the hard work and focus on delivering excellent service to our customers while achieving record quarterly revenue and earnings per share. Our intermodal revenue continues to be strong with our non-asset-based logistics businesses also showing revenue strength and earnings growth. Over the last five years, Hub has been focused on a strategy of diversification. Today, nearly half of Hub's revenue is now provided by our non-intermodal businesses.
In addition to the synergies created through the acquisition of non-asset-based logistics services, the diversification allows Hub to be more resilient during economic downturns and helps to mitigate the cyclical nature of the transportation market. Intermodal continues to be the core business of Hub Group. This year, intermodal has experienced some service issues, but we're now seeing incremental improvements and have begun to lower our transit estimates to our clients. Intermodal has significant cost and environmental benefits versus truck, and as service improves, we anticipate significant conversion opportunities. Lastly, we will continue to invest in our intermodal assets as well as in information technology for all of our businesses while maintaining solid internal cost controls. With that, I'll turn it over to Phil to review our performance.
Thank you, Dave. I wanted to also thank our entire team for their constant effort as well as their commitment to supporting our customers and each other. I will now discuss our service line performance. ITS revenue increased 41%, driven by a 1% increase in intermodal volume and 44% increase in intermodal revenue per unit, as well as a return to growth in dedicated trucking. Intermodal volumes increased 10% in the Local West, 2% in Transcon, and declined 14% in the Local East. We performed very well in bid season and continue to anticipate strong demand despite increased competition in shorter haul segments. Gross margin as a percentage of sales increased 710 basis points year-over-year, driven by a 790 basis point improvement in intermodal along with growth in dedicated.
We've seen the labor market loosen, and we have enhanced our driver hiring throughout the quarter, delivering a year-over-year improvement in our percentage of in-house drivers while enhancing our street dwell and service to our customers. Despite these operational improvements, our container utilization deteriorated both year over year and sequentially, driven by continued challenges in rail service and longer customer dwell. We're focused on delivering for our clients during the upcoming peak season and are collaborating with our rail partners and customers to enhance fluidity.
We will continue to invest in the business to deliver a superior service product that helps bring cost savings and sustainability to our customers, which in turn we believe will drive long-term growth. Logistics revenue increased 18% in the quarter, with growth in all of our offerings as we continue to deepen our value to our customers through our integrated approach to supporting their supply chain needs. Gross margin as a percentage of sales increased 380 basis points as we maintained our focus on operational discipline, yield management, and continuous improvement. We have a great pipeline of new onboardings and are continuing to see strong demand for our solutions due to our focus on delivering supply chain savings, visibility, and continuous improvement through our best-in-class team and technology platform.
Brokerage revenue increased 90% year-over-year, driven by the acquisition of Choptank, which along with organic growth in our LTL and dry offerings, helped us deliver a 52% increase in volume and 25% increase in revenue per load. Gross margin as a percentage of sales increased 30 basis points year-over-year as we improved our purchase transportation costs, which was offset by a slowdown in higher margin spot market activity. Transactional moves represented 58% of our volumes, but declined as a percentage throughout the quarter. While the spot market has slowed, we have executed on our cross-selling synergies and performed well in bid season. We are well positioned to continue our growth through our integrated approach to our customers, high service levels, and expertise in our capacity types, including temperature controlled, LTL, and drop trailer.
With that, I will hand it over to Geoff to discuss our financial performance.
Thank you, Phil. Once again, our quarterly results featured record levels of revenue and profitability. Revenue grew 43% with strong growth across all lines of business. Our yield management, cost recovery efforts, and focus on operating efficiency led to gross margin of 17.6% of revenue and operating income margin of 9.8%. We continue to leverage our gross margin performance against our operating expenses, which were equal to 7.8% of revenue, down from 8.5% last year. Operating expense dollars increased from last year due to the Choptank acquisition, higher legal and outside services spend, and higher compensation expense, offset by gains from the sale of transportation equipment. Our diluted earnings per share for the quarter was $3.03, which is nearly four times the prior year.
We generated $174 million of EBITDA in the quarter. We had cash of nearly $300 million at quarter end and no net debt, providing for substantial flexibility to invest in the business through capital expenditures and strategic acquisitions. We also continue to evaluate options for returning capital to our shareholders, including through the use of the $250 million remaining on our share repurchase authorization. We are expecting a strong finish to 2022 with diluted EPS of between $10 and $10.50 per share. We expect to grow revenue to over $5.6 billion, putting us well on our way to achieve our goal of $5.5 billion-$6.5 billion of revenue by 2025. We expect intermodal volumes will grow low single digits in 2022, supported by our container deliveries and improving rail service.
We forecast gross margin as a percent of revenue of 15.8%-16.0% for the year as rate increases, surcharges, and accessorial revenues offset higher costs for rail transportation, third-party drayage, and driver wages. For the year, we expect costs and expenses of $415 million-$430 million. We performed well during bid season and will have a tailwind of strong pricing, which will be offset in the second half by rising transportation costs and softer volumes as compared to the first half. I wanted to take a moment to address the future beyond 2022. While we acknowledge the potential for a softening economy, we believe Hub Group is positioned for success in a variety of market conditions. We've taken several important steps to improve our resiliency in a down market.
With our recent acquisitions and organic growth, our non-asset businesses represent a growing part of our overall results. Within Intermodal, our agreements with our rail partners allow for flexible, market-based pricing arrangements. Through our asset efficiency initiatives, we've already begun to insource a higher percentage of our drayage, which has a substantial cost advantage relative to third-party carriers. Our profitability will benefit from the variable nature of our incentive compensation, as well as our relentless focus on operating efficiency. Finally, our entire business is supported by our pristine balance sheet and strong free cash flow generation. In 2021, we introduced our long-term revenue and margin targets. Our recent acquisitions and our purchases of intermodal equipment are illustrative of the types of strategic investments we will make in our business, adding scale while also introducing new service offerings with strong cross-sell potential.
With that, I'll turn it back to the operator to open the line for questions.
At this time, I would like to remind everyone, in order to ask a question, press star then the number one on your telephone keypad. Your first question comes from the line of Todd Fowler from KeyBanc Capital Markets.
Hey, great, thanks, and good evening. Maybe just, Geoff, just to follow up on your comments on the sustainability of trends into 2023. You know, if I look at the gross margin guidance for the year, it implies a deceleration in the, you know, the back half, which I think you had anticipated based on the timing of rail rate increases. You know, do you think that, you know, somewhere within the, you know, fifteen percent type range for gross margins for 2023, is that a level that can be considered achievable or normalized? Are you still, you know, kind of above what normalized range would be as you exit 2022?
No, I think that's a good benchmark to use for next year. You know, we have not done our budget, obviously, for next year. We need to go through peak season and you know, the strength of that part of the year will be a key determinant for next year. I think that's a good assumption at this point.
Okay, go ahead.
Yeah. We have heard from our customers, you know, that are anticipating, you know, a strong, peak season. We are preparing for that, which, you know, we also are through the majority of bid season at this point. We think we performed really well, and those rates, you know, will be locked in for another year from this point. You know, still feel very strongly that there's a lot of tailwinds in the business.
That's helpful. Phil, maybe just to follow up on that. You know, is there a way you can help us think about the 44% increase in revenue per load here in the second quarter? You know, what can you share with us about kind of where core pricing is versus some things on top of that, just to give us an idea of kind of where pricing is running on a you know, kind of a same store sales or comparable basis?
Yeah. Pricing is really strong, and has continued to be. I think you've seen with us our focus has been on longer lengths of haul, and we think we achieved a more sustainable and higher margin per load day on that business. We'll continue to stay focused on that. You know, I think when we think about core pricing, you know, full year, we're still at a high single, low double digit, kind of fully realized price. You know, although we're overlapping kind of the highest prices from last year, those were still positive. I think those are all important factors to take into account. Don't want to give you anything, you know, too specific around that, but hope that can kind of set the framework for you.
Yeah. Understood. Maybe just my last one, and I'll turn it over. You know, with the cash balance at around $300 million, again, you know, no debt, and really with where the stock's at from a valuation perspective, I know how you prioritize reinvesting in the business and M&A opportunities. You know, how do you think about, you know, kind of the credit that you're getting for the sustainability of these earnings, you know, versus, you know, kind of your financial position right now?
Yeah. I mean, the short answer is we don't think we're getting credit, frankly. You know, our priorities for investing our excess capital are to put it back, first and foremost, into the business through CapEx and through acquisitions. We do have a very good pipeline of M&A opportunities. We've had good success with the deals we've done. Our third priority is to return capital to shareholders. You know, at these trading levels, it is a pretty compelling opportunity. We do have $75 million remaining on our share repurchase authorization, and our intention is to put that to work.
Okay, great. Thanks for the time tonight.
Thanks, Todd Fowler.
Thank you.
Your next question comes from the line of Scott Group from Wolfe Research. Your line is open.
Hey, thanks. Good afternoon, guys. Some similar questions there. When I look at the gross margin guidance, second half, how much of the sequential drop that you're assuming is intermodal versus the rest of the business? And then what is the sort of assumption for that gross revenue per load in intermodal and volumes and rail service? And how do you get to the guidance you guys are talking about? Thank you.
Sure. Yeah. From a forecast perspective, the primary drivers could be intermodal, which, you know, it's 60+% of the business. That's a key driver. We're seeing good success with yield improvements in our other lines of business. We're encouraged by our performance in bid season. Intermodal is just. We now have, you know, throughout the year. This is the time of year where we start to take the rail cost. That is the primary driver of the deceleration in earnings in the second half. For the year, we are expecting low single-digit intermodal volume growth. We're expecting a flat year-over-year growth in the second half.
The rev per load outlook for the back half?
It will come down. As we have more and more of our increases now, you know, in place, the year-over-year improvement will flow, but will be, as Phil mentioned, high single to low double realized for the year.
Okay. Should I think about when you talk about the way the rail contracts are structured, there's clearly still some you know degree of volatility in your gross margin, and maybe it's that your pricing lags, and then the rail costs lag a little bit. There could be periods where you're benefiting, and then maybe when at some point your pricing drops, maybe you'll get squeezed for a period of time. Is your ultimate point that wherever the margin should settle out at a higher place than what we're used to seeing from them?
Yeah.
years back?
Yeah. No, I think that's right. You hit the nail on the head there. That's pretty much the mechanics. We will see it move a little quicker going forward. The period of a change in profitability would be, you know, much shorter than it would have been in the past. I think that's a positive. You know, I think, but we are starting at a much higher baseline, and we've been able to continue to improve our operations. Yes, we would indicate that the margin profile through a full cycle will be much improved from what we've seen in the past.
Just to add on, Scott, you know, Phil is addressing, you know, the most salient of the levers we have to address profitability, but we also have other levers. We have the ability to in-source more dray than we've done in the past. We've already started to move on that. That does have a cost advantage as well. And then in the other lines of business, I would say generally, if you're looking at, you know, where Hub was maybe four or five years ago, if you look at 2018-2019 as a benchmark, you know, we do have a higher percent of our revenue comes from the non-asset businesses. I think overall, we have a higher focus on operating efficiency than we have in the past.
You've seen that in the numbers in the last two or three years, and we would expect that trend would continue in a soft environment as well.
I'd just add, I think, you know, our free cash generation in a down cycle would still be significant. Our ability to continue to return capital or follow through on accretive acquisitions and investment in the business, we don't feel would be hindered during that time frame as well. You know, feeling strongly that we're gonna be in a good position and a higher improved margin profile as well.
Okay. Just so I understand, you're saying that whenever the next upcycle in pricing is, don't expect the same huge jump up in gross margin, but the starting point, whenever that upcycle starts, should be higher than where we started this cycle?
I would say we would still expect, you know, strong improvement in another upcycle, but the floor would be much lower in a coming down cycle. Yeah. Just through a cycle, a much improved sort of profile. I think we were able to garner a lot of the low-hanging fruit through this cycle, which has driven a lot of the improvements, but we still have a ways to go on just our own internal improvements that we can drive as well. I think we have the right disciplines in place and, you know, but generally, I think we feel, you know, we'll have a lower or a much higher floor and a strong ceiling as well in the next upcycle, which would be higher than that.
Okay. Very helpful. Thank you, guys.
Thank you.
Your next question comes from the line of Thomas Wadewitz from UBS. Your line is open.
Yeah. Good afternoon. Wanted to get your thoughts on just freight activity and how you're thinking about the cycle. I guess you know, you could argue that, I mean, the Local East volumes were pretty weak for you in the quarter. But I guess you could argue that broader shippers may have interest, and maybe it's more the long-haul lanes, in doing more intermodal versus truck with, I know fuel prices have come down but are still elevated and, you know, ESG considerations, other things. I guess, how do you think about, you know, how cautious are you on freight, as you look to second half? And how much is intermodal share gain versus truck, you know, a consideration that could drive some upside, in that volume outlook?
Yeah. I'll start with the Local East question, if that's okay. I think, you know, what we saw there was a more aggressive spot truck market, you know, and some aggression in intermodal. I think if you've seen our growth, where it's been focused the last several quarters and years, and that's really driven by our network model, which focuses on maximizing our margin per load day. That's why you see us really focus on sustainable pricing in some of those longer lengths of haul, where you don't see the conversion back and forth between truck and intermodal. We don't feel as though it's necessarily the right thing long term, given the contract nature of our business to chase the spot truck market. So perhaps we're just staying a little bit more disciplined there.
From a demand perspective, you know, we did really well in bid season. You know, the discussions we're having with our customers are about peak and peak preparation. You know, that's the focus that we have right now, and we do think there will be a peak. If we think more medium term, you know, I think inventories have improved, but they're still at pretty historically low levels, and a lot of that product is the incorrect product. You know, I think even if inventories do improve, intermodal could be a benefit as the supply chains can absorb a couple more days of transit. You know, we're still providing really strong cost savings, in particular in those longer lengths of haul lanes. When you take into account higher fuel prices, that's even more exacerbated.
If you take in what Dave suggested at the front end of, you know, that we're tightening our transits, and we're seeing sequential improvement in rail service and all the investment that's going on there, as well as smaller carriers exiting the market, I think, you know, it's a good backdrop in the medium term for demand for intermodal as well. I think all of that is a pretty good formula, and so that's why we're continuing to invest and add containers and tractors.
W- Uh, uh.
Go ahead.
Okay. Yeah. Thank you for that perspective. What, I guess for a follow-up or a second question, what's your position with respect to owner-operators? I'm assuming you're kind of well prepared for whatever AB5 not being rejected or however or taken up by the Supreme Court. Just maybe, can you kind of review what your position is for drayage in California and whether you bear any risk around potential kind of evolution of that market?
Yeah. We had transitioned to a full company driver model several years ago. We've maintained that and have actually grown quite a bit as an organization there in our trucking operations. We have not and don't anticipate really any challenges to continuing to grow in the market and provide the great levels of service and flexibility that we have in the past. We feel really prepared and have been preparing for this eventuality for several years. We are watching other markets, you know, to ensure that we're putting those same preparations in place and mitigating any potential future risks that we may have if in fact similar regulations are put in other states. We feel really good.
We still do have independent contractors in the fold with Hub, that's about a third of our drayage drivers, maybe less than a third at this point. We have really engaged and focused on growing our company driver fleet, but you know, also wanna continue to support our independent contractors as well. You know, we feel really well prepared. Honestly, it's been since the announcement, actually an increase in our pipeline in dedicated trucking, as I think a lot of folks are looking to lock in capacity, and we are a very heavily weighted carrier in our dedicated model towards the California market, which represents about two-thirds of our drivers in dedicated. Probably more of a driver of business than potential detractor.
Okay. Yeah, great. Thanks for the perspective. Appreciate it.
Your next question comes from the line of Brian Ossenbeck from JP Morgan. Your line is open.
Hey, afternoon. Thanks for taking the question. Just wanted to ask more broadly with Union Pacific getting ready to welcome some other ones shifting previous already this year, but UP also investing. Can you just give us a sense as to how well it's playing out from your perspective? I believe that UP is making some OD pair switches here in the next month or so. I don't know if that has any impact on you as well. Maybe an update on that and how it's progressing would be helpful.
Yeah, this is Dave. We've obviously, from a competitive standpoint, the two new entrants on the UP we competed with for years, so it's really nothing new. I would suggest that the Union Pacific is right now investing about $600 million into the intermodal product. Their service thus far has been under where, in fact, their on-time performance under where we would want and more certainly where they would want. They certainly are making a lot of investments in personnel, adding on locomotives. We are hopeful that the transition will be smooth, and they certainly are working very diligently towards it.
From our standpoint, we're also trying to enhance our service levels and also our operations, having less time on the street for containers when they're empty, that type of thing, which helps with the flow of chassis, et cetera. We're the Union Pacific's largest customer, and we have a great relationship with them, and they're a very good operating railroad. We're looking forward to continuing to grow on UP and Norfolk Southern.
When it comes to expanding your dray driver capacity in-house, can you just talk about where that percentage is now, maybe versus the last couple of quarters and what those markets look like, given just the overall driver market, but you know, again, others trying to rearrange the network. I don't know if that has any overlapping impact in some of the areas you're looking to add people, and is equipment a problem still?
No, we haven't had an issue with delivery of equipment. We have seen some delays in some of our containers coming over, but the commitments that our OEMs made to us on tractors have continued to be filled, so we feel, you know, very, very good about that. You know, from a driver hiring and percentage of dray perspective, we have seen an increase in our ability to bring on new drivers. Part of that is actions we've taken around wages, but also, you know, I think we are much better at marketing and recruiting to get new drivers as well. Our percentage increase of in-house dray about 400 basis points sequentially, quarter- to- quarter. So we feel really good about the progress we're making there.
Actually, we've seen an increase thus far in the third quarter as well, sequentially from that 400 basis points improvement. You know, all positive there.
Maybe just one clarification for Geoff. It looks like in the other line where I believe you have the gain on sale, which was up a bit sequentially, it looks like that was also went up a pretty decent amount. I don't know if you have an accrual or something in there. If you could just clarify that. Thank you.
Yeah. We did have higher legal and outside services spend this quarter. The implied guide for the rest of the year has that coming down slightly. Those were the drivers.
Okay. I appreciate the time.
Thank you.
Your next question comes from the line of Jonathan Chappell from Evercore. Your line is open.
Thank you. Good afternoon. Phil, I think you'd mentioned a couple of times customers looking to lock in capacity. Kind of a two-parter there. Is that having any impact on your average contract duration? Are you getting more extended contract periods as you know, customers look for more security? The part B to that would also be, you know, we're obviously hearing a lot about economic slowing, et cetera, and I think you've already addressed that in a question earlier. Are you seeing any recent scaling back in that kind of rush to secure capacity over periods of time?
Sure. Our contract terms generally are one year with our customers, I would say generally, you know, in intermodal. We have with a few key clients, where, you know, those contracts really have some teeth. We have elongated some of those commitments, especially in kinda core network lanes, for us. We've gone as high as five years with some customers on locking those in with, you know, kinda market-driven price escalators or declines. That is, I think something we like to do, but we like to do it with, you know, the right customers and partners that, you know, will have mutual commitment to that over the long haul. As we think about scaling back, we haven't seen that yet.
I still think, and you know, we've done really well in bids. I still think there's a lot of feeling from our customers in the discussions that I have with them that we're gonna have a strong peak and that it will be tight. You know, while I think some folks have tried to take advantage of the spot market more aggressively, most are trying to live up to the contracts and ensure that they have capacity during this upcoming peak season and going into next year. You know, it really hasn't become all that clear. I don't think to anybody, you know, if we're heading into more of a down cycle or it's about to tighten again.
I think, we'll certainly see that over the next, you know, couple of months as peak season really plays out.
Okay. Thanks for that. For my follow-up on truck brokerage, you've been in this period of really elevated top-line growth, obviously some driven through acquisition. I think you still have a quarter, maybe plus of acquisition comps that'll keep that revenue up. You turn positive there on the gross margin side, 30 basis points, but still the first positive, I think, since the second quarter of 2020. Are we starting to get to the point where truck brokerage ex acquisition, where, you know, that volume growth starts to slow a little bit, but some of those levers that you spoke about, whether it's cross-selling or whether it's, you know, efficiencies within the business, you start to see continued positive gross margin momentum there?
Yeah. What I would tell you is when we acquired Choptank, we had a much lower gross margin profile than the rest of our truck brokerage. With some of the changes that we've made in the pricing and yield management strategy, we've actually seen a massive improvement there and plan to continue that. I think as you look out, you will see improvements in yield as this sort of acquisition as it settles into the numbers. I think you'll see year-over-year improvements there, and that's what we're seeing in the core business that was there before. If that makes sense.
Okay. Thank you, Phil. Yep, thank you.
Thank you.
Your next question comes from the line of Bascome Majors from Susquehanna Financial Group. Your line is open.
As a housekeeping question, can you share where you're coming out in your model, the new forecast on EBITDA and free cash flow?
Sure. EBITDA would be just over $600 million. I'll give you the components there too. $600 million of EBITDA. Cash taxes probably around $110 million. $10 million or so of interest. Our CapEx guide is $240 million-$250 million. Now, we do end up financing 90% or so of the CapEx going forward.
Thank you for that. You know, in that light, with the buyback discussion from earlier, I think the quote was, at these levels, it's a pretty compelling opportunity. We can run the numbers on the cash generation power of the business. You've got a net cash position slightly. The stock's traded as low this year as 6x your recently updated EPS guidance. You know, rather than talk about, you know, what the plan is specifically going forward, I was hoping we could back it up and think high level about the philosophy behind how the buyback looks to you guys as a capital deployment opportunity. You know, has this changed?
Do you have enough where you can do both, still diversify the business and buy back a needle moving amount of stock going forward given how successful the business is today? Thank you.
Yeah, it's a great question. It's something we think about a lot. We talk about that with our board. You know, our priority is to grow and diversify, invest in containers, do more drayage in-house, which requires some level of tractor investment. We've had really good success with our acquisitions in the last couple of years. The cross-sell potential, which is core to our thesis around M&A is real. We've proven that time and time again. We've proven we've been able to take out cost and drive up yields, and we want to continue to do that. We think that's a really good financial return. It also has the benefit of diversifying the revenue over time as well.
We've seen that now with our non-intermodal revenue comprising close to half of our total revenue by the end of the year. To your point, the return of capital on share repurchases, you know, it's a double-digit free cash flow yield, and it's pretty compelling. It's something we'll continue to address with our board. We do have the authorization that we intend to execute on, and we are considering additional levers that we have in that regard.
In the path forward for that, is that a decision that you think would be made quickly or something that'll take time throughout the year?
I don't have an answer for that yet. It's something we will evaluate. If there's a compelling case to be made and we have the support to do that, it's not something we would wait on.
I would tell you, we have a strong alignment with the board that will, you know, likely be a ongoing portion of our capital allocation strategy. You know, we've especially at these levels, it is to Geoff's point, a very compelling investment.
That's great to hear, and thank you for the candid responses.
Thank you.
Your next question comes from Justin Long from Stephens. Your line is open.
Thanks for taking my questions. I was wondering if you could share what the monthly intermodal volumes look like through the second quarter. Any update on July as well?
I think, Geoff, you mentioned back half expectation is for intermodal volumes to be relatively flat on a year-over-year basis. I was a bit surprised by that, just given you'll be taking delivery of additional containers, and it sounds like your expectation is rail service should get a little bit better. Curious if you could share what might be offsetting those tailwinds.
Sure. For the quarter, April was down 1% year-over-year, May was up 5%. June was flat, which led us to up 1% for the quarter. July on a business day adjusted basis is down about 4%.
I would just highlight, I think in the last two weeks of July, we saw sequential improvements, and that has played out through the first few days of August here as well. We are anticipating sequential improvement to offset that July decline. On the container side and the utilization, you know, I think where we're coming from on the flat volume is we saw a deterioration quarter-over-quarter of 4%. Year-over-year, we were down 8%. As we have in the past kind of bet on improving rail service and improving customer as well, and that hasn't necessarily come to fruition.
Maybe it's conservatism, but at the same time, we haven't seen enough sustained improvement in fluidity to really adjust up the volume guide, if that makes sense.
Understood. Any update on the number of containers you're expecting to take delivery of in both the third and fourth quarter?
Sure. It's around 6,000 for the year, which will give us a growth year-over-year of 13%. About, like 25% of those have come in to date, and the rest will be here by the first week of November.
I had referenced this earlier, but we pushed out the remainder of the order that we had talked about on our prior call, mainly due to delivery date. We weren't gonna be able to get them prior to Thanksgiving and get them into the network, you know, really prior to that end of the year. Felt as though that was the appropriate move.
Got it. Last quick one on the guidance. Geoff, on EPS in the back half of the year, are you expecting the cadence to be relatively similar looking at the third quarter versus the fourth quarter, or do you think one quarter looks better than the other? Then on the buyback, is that $75 million getting factored into the guidance?
Sure. The 75 is not in the guidance, so there would be accretion further to that. In terms of the cadence, we do have a big rail cost increase on 9/1, so Q4 will obviously have a full quarter's worth of that. That would be the delta.
Okay. Very helpful. Thanks for the time.
You're welcome. Thank you.
Your next question comes from the line of Bruce Chan from Stifel. Your line is open.
Hey, this is Matt Milask going for Bruce. Congratulations on the extremely strong first half of the year, and thanks for taking the question.
Thank you.
Thank you.
All right. Could you provide a little bit more color on Choptank and perhaps how the integration is progressing and how you think the business might perform moving into a potentially slowing economic environment? Lastly, if you could also offer any commentary on what you're seeing across the M&A landscape at the moment and how you think the opportunity set there will sort of evolve over the next, you know, say, 6- 12 months. Thanks.
I'll start with Choptank, and I'll let Geoff discuss the M&A pipeline. You know, I think we've found a really great cultural fit there with Choptank. The integration has gone extremely well, both from a systems, cultural, operational, customer perspective. They have a great focus on refrigerated, but are a very good general dry truckload broker as well. I do think that refrigerated piece is a differentiation that we did not have before that we could bring to our customers that is a very tight capacity type. It is a high capital expenditure to get into that business. We've had a lot of success in cross-selling that to customers.
They have a phenomenal inside sales team that is really helping us grow with our core Hub customers that we had not necessarily been successful in cross-selling brokerage to in the past. We continue to find each week new customers to bring on board. You know, I think we have seen the margin profile improve significantly since we purchased the business, which I think is sustainable in a downturn and will allow us to continue to generate you know, significant free cash and continue to grow. We feel great about the acquisition.
I think it was, you know, a big win for both teams because they're getting, you know, a ton of access to, you know, the large shippers that we have that they not necessarily would have been able to get in with before. It's all beneficial to both teams. Yeah.
Yeah. In terms of the market environment, you know, where we've found success in the acquisitions we've done have really been on one-off negotiations where, you know, we reach out to the owner, we create a relationship. You know, sometimes it takes six months or a couple years to come to fruition. But, you know, cultural fit is important to us, so investing that time upfront is important. The reason I say that is, you know, most of the commentary you're gonna hear around the market really has more to do with, you know, sale processes, kind of broad-based auctions where, you know, we'll look at those opportunities, but that's really not core to what we do. I think those will probably slow just based upon a rising interest rate environment.
With our, you know, in our industry, so much of the M&A activity is driven by private equity. You know, rising rate environment probably will put a chill on some of that activity, but that's not really the part of the market we're playing in.
That, no, that's really helpful. Thanks, guys.
Thank you.
Again, if you would like to ask a question, press star then the number one on your telephone keypad. Your next question comes from the line of David Zazula from Barclays. Your line is open.
Hey, thanks for taking my question. Maybe you did specify it earlier, but the top-end guide of CapEx coming down for 2022, was that totally driven by you moving containers into next year, or was there something else to that?
No, it was primarily the containers that we pushed to next year.
Okay. Then I guess with you and others bringing containers on the market, with the rails kind of, you know, bringing the capitals to bear hopefully, and, you know, with turnaround times hopefully improving, just are you concerned broadly that we would go from a capacity short market to a market that's more awash in capacity? Maybe give a little more color, you know, to the extent you believe that is a concern at all to your answer to Scott's question about how your, you know, cost and pricing model would set you up for success if the environment changes.
You know, we don't see that at this time. You know, I think we're in a very good, you know, position to continue to grow with our customers. There's a lot of demand out there. You know, I do think that there's a ceiling on OEM you know manufacturing as well. Trailer adds in the truckload market are gonna be somewhat constrained as well as new tractors. You know, we think intermodal, as supply chains normalize, will be a good option and as our service improves as well. No, we don't see that at this time, and you know still feel very confident in our ability to continue to grow in the intermodal space.
Great. Thanks. Just as a cleanup, could you give the employee count for the quarter?
Sure. It's 2025.
Cool. Thanks very much.
There are no further questions at this time. Mr. Dave Yeager, I turn the call back over to you.
Okay, great. Well, again, thank you for joining us on our second quarter call. As always, if you have any further questions, Geoff, Phil, and I are always available. Again, thank you very much and have a good evening.
This concludes today's conference call. You may now disconnect.