Hub Group - Q1 2015
April 23, 2015
Transcript
Operator (participant)
Hello, and welcome to the Hub Group Inc. first quarter 2015 earnings conference call. I am joined on the call by Dave Yeager, Hub 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 inquiries to one primary and one follow-up question. Any forward-looking statements made during the course of the call represent our 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. Actual results could 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.
Dave Yeager (CEO)
Thank you. Good afternoon, and thank you for joining Hub Group's first quarter earnings call. The quarter started out very slowly, with the port strike negatively impacting our volume as well as creating network imbalances. As the quarter progressed and the port strike ended, we saw improvement in both volumes as well as our network becoming more fluid. The pricing environment is as strong as we've seen in many years. While we have only completed about 30% of our customer bids, we are confident in our ability to secure increases in the market and are encouraged by the results. The first quarter of last year was the best service quarter for the rails in 2014. Rail service for the first quarter of 2015 declined year-over-year, although it did improve somewhat sequentially.
We do believe that we'll see marginal improvement in rail performance in the second quarter and more normalized service by the second half of this year. Despite the ongoing rail service issues, Hub's on-time performance to our customers did see sequential improvement in the first quarter as we continue to focus on meeting our customers' requirements. With that, I'll turn the call over to Mark to fill you in on the details.
Mark Yeager (President and COO)
Thank you, David, and good afternoon, everyone. While this quarter presented many challenges, I'm pleased to report that we came through it with modest volume growth, positive pricing momentum, and stabilizing costs. Consolidated big box intermodal volumes grew 2% in the first quarter of 2015. Hub segment volume was up 1% for the quarter. Local West volume was up 3%, and Local East volume grew 1%, a substantial turnaround from the 10% and 8% declines we saw in the third and fourth quarter of 2014. Transcon volume was down 6%. From a regional perspective, our biggest intermodal grower was freight in and out of Mexico, which grew a healthy 38%. Mode intermodal volume was strong once again, up 19% for the quarter. Rail service continues to be a challenge.
While there was sequential improvement in on-time performance, it remains below last year and deteriorated as the quarter progressed. The number of containers left on the ground, what we call LOGs, followed a similar pattern. LOGs were lower than Q4, which is positive, but higher than last year. Like on-time performance, LOGs got worse as the quarter progressed. We remain bullish on the long-term prospects for intermodal and supportive of our rail partners' efforts to improve service. At this time, based on current trends, we don't anticipate seeing significant rail service improvement until the back half of the year. Despite service challenges, we were able to continue to improve our own on-time performance for our customers, hitting the mid-nineties and inching closer to acceptable levels. This improvement has not gone unnoticed.
This quarter, we received the Intermodal Carrier of the Year and Platinum Service Awards for Lowe's for achieving their highest service standards. Utilization was 15.6 days for the quarter, 1.8 days worse than the first quarter of 2014. Rail service and the West Coast port disruption were the primary drivers behind this deterioration. Our current fleet size is 28,335 containers. This year, we will be adding 1,000 new containers to the fleet. We anticipate these containers will arrive in time for this year's peak season. We are also continuing to make progress with satellite tracking. We currently have over 3,000 containers equipped with the devices. They are performing well, and we are on track to have the majority of the fleet outfitted by the end of 2015.
The remainder will be installed by early 2016. As more devices come online and our systems are configured to take advantage of the more precise and timely data, we will be able to optimize container movements, accelerate utilization, and improve visibility. Hub Group Trucking moved 64% of Hub drays during the quarter, compared to 70% last year. We ended the quarter with 2,740 drivers, a net loss of 82 drivers over last quarter. While turnover improved sequentially, we slowed the hiring of new drivers in several markets as we reassessed our driver model and our drayage outsourcing strategy. This produced fewer driver ads and a negative net number for the quarter. This process is now complete, and we are actively recruiting drivers in all markets, streamlining our onboarding practices and launching a multimedia marketing campaign to reverse this trend.
We have also successfully conducted and implemented outside dray sourcing events in two markets. We are in the process of deploying this sourcing model in other strategic markets to ensure that we have enough committed and cost-effective dray capacity to meet our customers' needs. On a positive note, loaded miles improved as the quarter progressed, as did HGT financial performance. Many of you are undoubtedly curious about the pricing environment. We continue to see healthy pricing trends in the domestic intermodal market. We are having success acquiring new business at acceptable pricing levels and retaining existing business while increasing price. We rationalized non-compensatory business last year through targeted pricing actions, making room in our network for higher return business. We are experiencing renewed strength in the local East market and continue to have success in the West.
Our price optimization tool is fully implemented and guiding us toward better pricing decisions. The newly introduced sales compensation program is also driving new business growth and an organizational focus on margin enhancement. Our brokerage division reported solid growth, despite the less-than-ideal market conditions. Volume +3% for the quarter and improved sequentially as the quarter progressed. Our strategy of focusing on target accounts and developing more committed carrier relationships is beginning to pay dividends. Unyson Logistics posted a decline of 1% in revenue, as one of our larger accounts opted to insource a portion of their transportation spend. While we anticipate some continued onboardings, and we have a number of opportunities in the pipeline, we anticipate decelerating revenue, but solid bottom-line contribution from Unyson for the remainder of the year. Mode Transportation grew revenue by 2% for the quarter and operating income by 11%.
This marks the 13th consecutive quarter of revenue and margin growth for Mode. As previously mentioned, intermodal was once again the key driver of this success, with 19% volume growth for the quarter. Mode also continued to expand its use of the Hub fleet in Hub Group Trucking. During the quarter, Mode onboarded one new independent business owner and five new sales agents. Existing IBOs also continued to expand, adding 21 salespeople to their organizations. This unique model continues to generate new business. In total, Mode added over 169 new customers in the quarter. With that, I'm going to pass the call on to Terri for financial highlights.
Terri Pizzuto (CFO)
Thank you, Mark, and hello, everyone. As usual, I would like to highlight three points. First, Mode continues its solid performance with an 11% increase in operating income. Second, despite the West Coast port disruption and rail service issues, which hurt Hub's financial performance and muted our intermodal volume growth, Hub Group's gross margin as a percentage of sales improved 20 basis points, and gross margin increased $400,000. Third, Hub truck brokerage had a strong quarter, with growth in volume, revenue, and margin. Here are the key numbers for the first quarter. Hub Group's revenue -1.5% to $836 million. Hub Group's diluted earnings per share was $0.28 this year, compared to $0.33 last year.
This year's $0.28 includes $1.4 million of Canadian currency translation loss and $900,000 of severance. The impact of these two items is $0.04 a share. Now I'll discuss details for the quarter, starting with the financial performance of the Hub segment. The Hub segment generated revenue of $643 million, which is a 1.5% decrease compared to last year. Let's take a closer look at Hub's business lines. Intermodal revenue -3%. The reason for the decline is lower fuel. Intermodal volume was up 1%. Price and mix were also up. The good news is that the price increase this quarter was the best we've seen in three years.
Loads from durable goods customers were up 12%, while loads from consumer products customers were down 10%, due mostly to pricing actions we took to improve freight mix. West Coast port issues contributed to the 2% decline in loads from retail customers. Truck brokerage revenue was up 6%. Truck brokerage handled 3% more loads, and price, fuel, and mix combined were up 3%. The average length of haul for a truck brokerage shipment increased 9% to 707 miles. Logistics revenue -1%. The decrease is primarily due to one customer bringing a portion of their business in-house. Hub's gross margin decreased by $1.3 million. Gross margin as a percentage of sales was 9.8%, or 10 basis points lower than the first quarter of 2014.
Intermodal gross margin declined because of increased operational costs associated with the West Coast port slowdown, rail service issues, and our driver model change in California. The West Coast port situation caused network imbalances and operational inefficiencies. Further complicating the situation, rail service deteriorated as the quarter progressed. As a result, utilization was 1.8 days worse than the first quarter of last year, which cost us about $2.5 million. Storage costs increased $1.2 million. Loaded miles deteriorated 80 basis points, costing us $600,000. Offsetting a portion of the decline in margin was an increase in price and more favorable mix. Intermodal gross margin as a percentage of sales was down 80 basis points because of these increased operational costs. Truck brokerage gross margin increased because of growth with targeted customer accounts, including some seasonal business.
Truck brokerage gross margin as a percentage of sales was up 90 basis points due to more value-added services, price increases, and better purchasing. Logistics gross margin increased due to growth with existing customers and purchasing more cost-effectively. Logistics gross margin as a percentage of sales was up 150 basis points. The Hub segment gross margin as a percentage of sales increased 80 basis points sequentially. All three of our service lines were better. Intermodal gross margin improved 60 basis points. Truck brokerage yield improved 130 basis points, and logistics was up 110 basis points. Hub's costs and expenses increased $900,000 to $49.5 million in 2015, compared to $48.6 million in 2014.
The increase relates to a $2.3 million increase in salaries and benefits, partly offset by a $1.5 million decrease in general and administrative expense. Salaries and benefits are higher because of annual employee raises and $900,000 of severance in connection with consolidating our Los Angeles customer service office. We expect to enhance operational efficiency and provide a better customer experience with the changes we made. General and administrative costs are down because of lower professional services expense. Finally, operating margin for the Hub segment was 2.1%, which was 30 basis points lower than last year's 2.4%. Now I'll discuss results for our Mode segment. Mode had a solid quarter, with revenue up $214 million, which is up 2% over last year.
The revenue breaks down as $111 million in intermodal, which was up 10%, $74 million in truck brokerage, which was down 5%, and $29 million in logistics, which was down 5%. Mode's gross margin increased $1.7 million year-over-year due to growth in intermodal gross margin. Gross margin as a percentage of sales was 12.2%, compared to 11.6% last year, due mostly to 180 basis point improvement in intermodal yields. Mode's total costs and expenses increased $1.2 million compared to last year because of an increase in agent commission. Operating margin for Mode was 2.4%, compared to 2.2% last year. Turning now to headcount for Hub Group.
We had 1,555 employees, excluding drivers, at the end of March. That is up 50 people from the end of the year. Now I'll discuss what we expect for this year. We believe that our 2015 diluted earnings per share will range from $1.85-$2. We think we'll have 36,150,000 weighted average diluted shares outstanding. Our goal is to improve gross margin as a percentage of sales from the 10.4% that we had in 2014. Headwinds include the driver model change in California and continuing rail service issues. Because rail service is not expected to improve until the second half of the year, we've assumed utilization will not improve until the second half of the year.
We expect gross margin as a percentage of sales in the first half of the year will range between 10.5% and 11%, which is up from the 10% margin we had in the last half of 2014. We expect gross margin as a percentage of sales for the second half of this year to be between 11% and 11.6%. The main drivers for improvement in the second half of the year are better rail service, customer price increases, savings from the initiatives that we've discussed, and truck brokerage growth. We think that our costs and expenses will range between $73 million and $76 million a quarter for the remainder of the year. Turning now to our balance sheet and how we used our cash.
We ended the quarter with $129 million in cash and $116 million in debt, including capitalized leases. We spent $15 million on capital expenditures this quarter. This includes $11 million that we spent on containers and tractors, which was funded with debt. We expect our capital expenditures to range between $85 million and $95 million in 2015. We've committed to purchase at least 300 tractors for $43 million. We have an option to purchase another 75 tractors. We're purchasing 1,000 containers and investing in technology projects, including the satellite tracking. We intend to fund these 2015 tractor and container purchases with debt. During the quarter, we paid $13.4 million to purchase 341,020 shares of stock.
We have $43.6 million remaining on our current share buyback authorization. To wrap it up on a positive note, we saw 70 basis points of sequential improvement in gross margin as a percentage of sales from the last half of 2014, and our bottom line increased as the quarter progressed. Dave, over to you for closing remarks.
Dave Yeager (CEO)
Great. Thank you, Terri. As I said in our year-end call, Hub's management team was very pleased to see 2014 in the rearview mirror. The first quarter of 2015 had some challenges, but we believe overall that it was a good step forward. We are encouraged by these results and optimistic about 2015 for numerous reasons. First, the pricing environment appears to be moving in the right direction. In addition, demand is outstripping capacity in numerous markets, while intermodal and highway volumes are showing signs of improvement. Lastly, we believe that we will begin to see incremental service improvement by our rail partners, particularly in the back half of this year. So at this point, we'll open up the line for any questions.
Operator (participant)
Thank you. We will now begin the question-and-answer session. If you have a question, please press star, then one on your touch-tone phone. If you wish to be removed from the queue, please press the pound sign or the hash key. If you are using a speakerphone, you may need to pick up the handset first before pressing the numbers. And once again, if you have a question, please press star, then one on your touch-tone phone. And our first question comes from John Barnes of RBC Capital Markets.
John Barnes (Managing Director and Senior Research Analyst)
Hey, good morning, guys, or good afternoon. Hey, real quick on the pricing commentary. Can you just elaborate a little bit, you know, with, you know, the truckers are still getting some price, but, say, you know, on contractual rates, but spot rates have maybe been under a little bit of pressure recently. Can you just elaborate a little bit as to, you know, is that, is that impeding your ability at all? Has it slowed, you know, the initial pricing environment down at all? Or, you know, is it as strong as, as it kind of looked out of Hub's or I'm sorry, Hunt's results?
Mark Yeager (President and COO)
Hey, John, this is Mark. You know, certainly, I think when you look at intermodal pricing, it's much more tied to contractual pricing as opposed to the spot market, and particularly in Hub's case, you know, the vast majority of our business is contractual in nature. So we're much closer tied to pricing developments in that segment of the truck market, which we think is still pretty positive. We're certainly not seeing carriers back down on contractual pricing at this point in time. That's clearly an easier dialogue to have than with the customer as you're negotiating, you know, contractual pricing going forward. We don't want people to get carried away, to be euphoric.
You know, we still do business with a lot of very large customers who are good purchasers of transportation, so they are by no means giving away the store. You know, at the same time, you know, we talked for quite some time, last quarter about positive trends that we were seeing, and nothing that we've seen since then leads us to believe that this cycle is winding down. You know, we're getting increases, we're competing in bids at compensatory price levels, receiving our share of awards, and thus far, it's translating into real volume. So we feel good about the pricing environment at this point in time. But once again, it's still early, and we certainly don't want people to get too carried away with their enthusiasm in that regard.
John Barnes (Managing Director and Senior Research Analyst)
Yep. John, thanks for it.
Dave Yeager (CEO)
John, I would just add to that a little bit, and that's that, I think our customers do realize that in fact, we do have costs going up, certainly, driver wages, certainly rail increases on a regular basis. So, we do believe we'll cover those, and then some, but, there's no question that it's a very competitive environment, and, we will have some cost also.
John Barnes (Managing Director and Senior Research Analyst)
Good. Thanks for that color. And then my follow-up is, you know, just some of the data points recently have maybe suggested a little bit of sluggishness, whether some of the industrial economic data points, some of the freight-specific stuff. Have you seen, you know, any weakness in a particular vertical, in a geographic region that you can point to that might be influencing that, or, you know, anything that's, you know, kind of causing you some concern?
Mark Yeager (President and COO)
Yeah, I mean, not that we could point to specifically. You know, a lot of times our volume story is sort of more Hub-specific than general economic conditions specific. As you could see, we did well in durables.
Terri Pizzuto (CFO)
We were up 12% in durables, and down 10% in consumer products, but that was mostly due to pricing actions we took.
Mark Yeager (President and COO)
Right. And then, you know, we were a little slow in the retail sector, probably more attributable to the West Coast port disruption than anything else. So I can't see we're seeing any type of particular slowdown, and we're not getting a message from our customers that they're, you know, pulling back the reins at this point. You always would like to see more freight in the, you know, in the system. We would have liked to have seen a bigger surge, I think, off the West Coast when the port situation did get corrected. But at the same time, I would say that right now, we're not seeing any real signs of economic deceleration.
John Barnes (Managing Director and Senior Research Analyst)
All right. Thanks for your time, guys. I appreciate it.
Operator (participant)
Our next question comes from Ben Hartford, with Baird.
Ben Hartford (Senior Equity Research Analyst)
Hey, good afternoon, everyone. Mark and Dave, could you provide a little bit of perspective on balance? You talked about utilization and your expectations for utilization to gradually improve in the back half of the year. But how do you feel about network balance at the moment, and does it set you up, or does it hurt you or kind of limit your ability to take advantage of some of the disruptions right now that might have developed from the West Coast port situation? I understand that pricing westbound is very healthy right now, maybe a little soft off the coast. So if you could maybe talk about where you are from a network balance standpoint, how long is it going to take for you to get into balance?
Is there an opportunity to take advantage of some of the irregularities as it might relate to some of the bids and flows at the moment?
Dave Yeager (CEO)
Yeah, Ben, this is Dave. I would say there's no question that the port strike definitely had a major impact on our network. And while we have, in fact, we've seen it improve with some of the balance, we still do have an excess of capacity on the West Coast. But we have been able to get a lot more boxes back in the East, back in the Midwest. So we are seeing, in fact, some improvement with that. Certainly through February, it was a little bit quirky and just unusual with the flows. But no, I think that it's getting back in balance. It's probably going to, you know, take another 30, 60 days, I'd say, to really get there.
It certainly is moving in the right direction, and we have had some tightness of capacity in certain markets in the gateways in the Southeast. For the most part, we're being able to supply our customer requirements at this point.
Ben Hartford (Senior Equity Research Analyst)
Okay, that's helpful. And then, you know, we hear you on the pricing front here in 2015. Obviously, crude is in a different spot today than it was a year ago, but it is up from the lows. So I wanted to get your take on, you know, where intermodal sits from an all-in load price perspective relative to truck here at current levels of crude, and kind of put 2015 aside, if you could kind of think through 2016. I'm looking for any sort of perspective you might have from shippers.
How are shippers looking at intermodal in the context of some of the service disruptions that we have seen, and with crude down, let's say, 40% from a year ago, and any appetite to convert over the road on the margin as we look beyond 2015? Can you provide some perspective there?
Mark Yeager (President and COO)
Sure, absolutely, Ben. You know, I think that most of our shippers are convinced that over the long term, intermodal has a sustainable and significant cost advantage over the road. No doubt that the price of crude, you know, coming down, has narrowed that gap somewhat, particularly in some short-haul lanes. But by and large, there's still a fairly significant savings associated with using intermodal. The real question is, can they live with the service? And right now, you know, with the service issues that we're seeing, it's probably preventing some people from converting business from over the road to intermodal. But almost anytime we've seen a conversion back from intermodal to over the road, it's been much more service driven than price driven.
I think if you look at domestic intermodal in 2014, when we had some pretty significant service challenges, the industry still grew by 6%. And if it could grow and take share in that service environment at those crude prices, I think there's reason to believe that as we move forward, as truck costs go up, sort of irrespective of the price of crude, it's likely that that gap, if anything, widens. And I think most shippers believe that the sustainable advantage that intermodal has makes it worthwhile exploring all the opportunities to use the product where they can.
Ben Hartford (Senior Equity Research Analyst)
Okay. That's helpful. And then if I could get one maybe from Terri. The mix of intermodal business, East, West, and transcon, I don't know if we've gotten that breakdown in a little while. Is that something that you can share, what it was in 1Q 2015, and then maybe compare it to what it was a year ago?
Terri Pizzuto (CFO)
Sure. Local East was 32.5% in both first quarter of 2015 and the first quarter of 2014. Local West was 38.7% in the first quarter of 2015, and it was 37.8% in the first quarter of 2014. Transcon was 18.5% in the first quarter of 2015, and 19.9% in the first quarter of 2014. Then other, which is, you know, Mexico and Canada, was 10.3% in the first quarter of 2015 and 9.7% in the first quarter of 2014.
Ben Hartford (Senior Equity Research Analyst)
Okay. That's helpful. Thank you. Appreciate the time.
Terri Pizzuto (CFO)
Mm-hmm.
Operator (participant)
Our next question comes from Todd Fowler of KeyBanc Capital Markets. Please go ahead.
Todd Fowler (Managing Director)
Great. Thanks, and good afternoon, everyone. I guess just starting with the guidance, Terri, the ranges that you gave for the gross margins, the updated ranges are a little bit above where they were for the fourth quarter for both the first half and the second half. The earnings per share guidance hasn't changed. Is the higher gross margin expectation, does that reflect something maybe on the fuel side and some of the, you know, impact of fuel going through on the revenue side? Or is there something else that is restricting the, you know, higher gross margins from kind of dropping down to the bottom line?
Terri Pizzuto (CFO)
Part of it is fuel, but that is really hard to measure because that's, you know, kind of included in our rate sometimes. And we've got customers that have all different fuel schedule programs, which is generally tied to mileage, whereas on the, you know, cost side, it's tied. Our fuel costs vary with as a percentage of the cost. So it's kind of disconnected there. But it's really, you know, for this quarter, you're right, it was higher than we projected. That was because of the fact that truck brokerage growth margins were higher than we thought that they would be. We were happy with that. And then going forward, you know, we know what kind of price increases we're getting.
We know what kind of cost increases we're getting, and we're building in that better rail service, like Dave talked about in his remarks. So, you know, that, that goes a long way.
and helping to make us more efficient, we've assumed for our guidance that utilization improves 0.6 days in the third quarter and 1.3 days in the fourth quarter.
Todd Fowler (Managing Director)
Okay. So then, I guess, is the message more at a high level, you do feel better about the gross margins and the pricing, and as far as keeping kind of the full year guidance the same, it's acknowledging some of the moving parts and some of the risks that are still out there with regards to rail service and some of the other things that can impact the numbers on a full year basis?
Terri Pizzuto (CFO)
Yeah, that's a good summary. Mm-hmm.
Todd Fowler (Managing Director)
Okay. And then just for the follow-up, Mark or Dave, can you talk a little bit about there were some comments in the prepared remarks about the truck strategy and, you know, some changes in the percent of dray that you're handling yourself and, you know, looking at using more third parties. I guess if maybe you can kind of give us an update on, you know, what the strategy is, you know, going into 2015, kind of what's changed and what's behind that?
Mark Yeager (President and COO)
Sure. Absolutely. Yeah, you know, you've heard a lot of emphasis from us in the past about upping the percentage of dray that we wanted to perform on our own. And I think what we saw was, as we got into the numbers, particularly with this California dray situation, was that we may have had the wrong emphasis organizationally.
Todd Fowler (Managing Director)
Mm-hmm.
Mark Yeager (President and COO)
It shouldn't really be about handling more of our own dray. It should be about creating the best mix of business, the most efficient dray mix, the lowest cost dray mix for our customers, so that we can compete more effectively. Many times that involves using HGT. But what we found was it also can involve a more thoughtful approach to how we purchase drayage on the outside, and in certain circumstances, actually increase the amount of drayage that we want to purchase on the outside. So in some markets, we may want to, you know, be handling a substantially smaller portion of our own dray and working closely with a few selected partners and creating an intelligent mix of drayage going forward. We've conducted, sourcing events now in two pretty significant markets.
We're in the middle of conducting the event in the third market, and we're very encouraged with the results. I think at the end of the day, what we end up with is a lower dray cost, right? In some markets, more of our own dray being handled and the need to hire more drivers, and in some markets, less of our own dray being handled than we had initially assumed. So it's a little bit of a different philosophy on how we manage dray. It's an evolving philosophy, and until we've really gone out to all the markets, we don't know exactly what the net result will be. But we do, you know, we do know that the goal shouldn't be as simplistic as trying to get to 85% of our own dray.
We gotta try to optimize our dray spend better, and that's what this effort's all about.
Todd Fowler (Managing Director)
Got it. Okay, that makes a lot of sense. So don't be so focused if it's, you know, 64% of internal dray or 70%, there's, you know, some evaluation of that going on internally.
Mark Yeager (President and COO)
That's right. It's really about cost.
Todd Fowler (Managing Director)
Got it.
Mark Yeager (President and COO)
Are we spending, you know, how do we lower that dray cost? What's the best solution?
Todd Fowler (Managing Director)
Okay, good. Thanks for the help tonight.
Operator (participant)
Our next question comes from John Larkin with Stifel. Please go ahead.
John Larkin (Managing Director)
Yeah, thanks for taking the questions this afternoon. Dave, as I think back to the fourth quarter earnings call, you, in a fair amount of detail, described the progression of rail service, and I think you said that it had bottomed out in November, but was looking relatively encouraging in December, January, maybe even into early February. Then, evidently, something happened and service got worse as the weather was getting better, which is a little counterintuitive. Yet, we're still thinking that in the second half of the year, service is gonna be approaching normal. Did the downturn in the second half of the first quarter give you pause in terms of how you put your guidance together with respect to service getting better in the second half?
Dave Yeager (CEO)
Yes, John, I think that there is no question that we did start to see some normalization and improvement in December through November. But then, it did begin to deteriorate somewhat as we reached through December, and then unfortunately, sequentially, did get worse. We are seeing a little bit of improvement in April, but again, most of the- a lot of this is from our discussions with the rails on some of the improvements they're making. They're beginning to see within their own network some incremental improvements, which they're saying we will begin to see more and more of as the quarter progresses. And again, we check with them on a regular basis, and they.
It's not going to be normalized service in the second half of the year, but I do think it'll be better service than we've received in the second half of the year. It's probably an old hander. I don't really even have an idea of the exact timing for when we'll be back to what we would call normalized, but it certainly is gonna be in twenty- I would think, no earlier than 2016.
John Larkin (Managing Director)
What was it, the return to normal at the ports on the West Coast that more or less caused the deterioration in service in the second half of the first quarter, do you think, or was this something else out there?
Dave Yeager (CEO)
John, that's a good question. I don't believe it was the port strike, because it wasn't strictly the Western carriers that suddenly got buried or it was across the board, both both of our partner railroads. So no, I think that certainly port strike created a lot of havoc within all networks. It certainly did within ours, and it certainly did within the rail networks themselves, just displacing where boxes should be. And it does take a little bit of time to get your footing back on that and have your networks a little bit more normalized. As I had indicated in the earlier question, we really, even today, yet, it's not our our balance, our flows are not normalized. We're working towards that end, but it's gonna take a little bit more time.
John Larkin (Managing Director)
And then maybe just one for Mark, to wrap up my questions. You talked a little bit about the container tracking program and the technology that you're very excited about. Could you give us just a rough feel for the cost benefit of that? Are there significant enhancements in box turn times that you're anticipating, maybe lower empty miles, perhaps improvements in service levels that would support higher pricing that you're thinking might be possible in 2016 and beyond, once the whole fleet has been installed with this technology?
Mark Yeager (President and COO)
Yeah, sure, John. I mean, I think the most concrete and the most immediate benefit is in the utilization side. You know, a day for us is about $6 million-
Terri Pizzuto (CFO)
A year.
Mark Yeager (President and COO)
in terms of annualized benefit. And we know for a fact that there is right around a 24-hour lag between the container being emptied by our customers and our being notified of that fact. So we believe that that segment alone carries a potential, you know, days benefit. And there's also a number of other things that having better visibility into the location of equipment will enable us to do, among them, reducing our empty miles, you know, for our drivers. So there is a number of potential very concrete benefits that, you know, we have estimated publicly, I think, at around $6 million on an annualized basis.
Once the entire fleet is up and running, I think we've said it's something like $1 million-$1.5 million this year that we're likely to see in terms of mostly utilization benefits. We also think there's a marketing advantage, especially for customers that are very concerned about the integrity of their load and very concerned about visibility. Having these devices on all of our containers will enable a customer, particularly, say, a food customer, who is concerned about the load integrity, will have full visibility and will have a complete history of that load. So every time the door opens on that container, that shipper will know about it, and that shipper will always know exactly where that container is.
So if you're very concerned about being able to trace the history of a particular shipment and know exactly where it is at any given time, we think it brings a real benefit for those types of customers. Can we get a higher rate for that? I'm not quite sure, but I think it brings a lot more value, especially to those kinds of service-sensitive, load condition-sensitive customers. And as we're talking about conversion freight, those are the kinds of folks that we have to be able to go after.
Dave Yeager (CEO)
I'd like just to add one other item, and that's for our drivers, it'll be a great benefit because they'll be able to, with an app, identify where a container is in a yard. And John, you've been to enough railyards, they can be pretty vast, and they can waste a lot of time looking for a single container.
John Larkin (Managing Director)
Right.
Dave Yeager (CEO)
So, we think there's some real advantage in, as far as keeping our truckers happy as well.
John Larkin (Managing Director)
Got it. Thanks very much.
Operator (participant)
Our next question comes from Bill Greene with Morgan Stanley.
Alex Vecchio (VP)
Good evening, guys. It's Alex Vecchio, in for Bill. Hey, Dave or Mark, would you be able to provide us with how the Hub intermodal volume growth rates had trended through the quarter sequentially, and then maybe how April is looking so far?
Mark Yeager (President and COO)
Sure. Volumes actually trended kind of not completely sequentially positively, right? Because we did see a drop-off in volume in February as a result, mostly of the port strike. Clearly, a lot of things were disrupted during that time period. But we finished the month or the quarter very strong. So we started off slightly negatively and had a little dip in February, and then March was very strong. So we feel like we've got a lot of positive volume momentum. And through April, so far, our volumes are running well as well. So we feel that that's kind of moving in the right direction.
Based on the awards that we've seen in the bids thus far, we feel like we're on target to hit our, you know, forecasts of 3%-7% volume growth for the year.
Alex Vecchio (VP)
Okay, yeah. So you do feel good about the 3%-7% as well? That was my follow-up there. Even, I guess, in light of... It sounds like pricing is strong, but it's not too strong, such that you're maybe pushing some volume off the network at this point. I guess maybe can you talk a little bit more about the general customer reception of the pricing? Are you getting a lot of pushback on that, or fairly kind of, you know, they're taking the increases as it comes along?
Mark Yeager (President and COO)
Well, I think you always get a lot of, a lot of pushback from your customers about price increases. Many of them aren't used to having that discussion any longer. But I think the reality is that we've been pretty disciplined. The customers are certainly having that conversation with their over-the-road carriers. They understand that our costs are going up and that there is a need for us to get increases, you know, to create a reasonable return for us. And I think that the customers can see and have concerns about long-term the capacity environment, and they want their freight to have some value. So while it's never a comfortable or easy conversation with the customers, we think they've been more receptive this year than maybe they have in years past.
Alex Vecchio (VP)
Yeah, that makes sense. Okay, and then a little bit of a housekeeping item here. I think last time you guys had mentioned you'd expected Mode gross revenues to be up in the high single digits for 2015. Is that still kind of what you'd be expecting, or maybe a little bit more modest now, just given the lower growth in the first quarter?
Terri Pizzuto (CFO)
Yeah, Alex, we're thinking mid to high single digits now.
Alex Vecchio (VP)
Okay, that's helpful. Hey, Terri, can we talk a little bit about the balance sheet and just the leverage? You know, you're fairly conservatively levered. What would you say is a good target leverage ratio? You guys have either, you know, debt to EBITDA or debt to cap, and do you see kind of an opportunity to maybe use a little bit more of the balance sheet and maybe increase the buybacks?
Terri Pizzuto (CFO)
Yeah, we would lever up to 2x EBITDA, that's if we found the right acquisition. You're right, we don't have a lot of debt. We are gonna fund our container and tractor purchases this year with debt, so that'll bring it up, you know, to $22 million for the containers and $43 million for the tractors, assuming we only buy 300. So in, in terms of buybacks, you know, we're gonna buy back opportunistically. We've got $129 million in cash, so likely we'd use our cash for buyback.
Alex Vecchio (VP)
Okay, that makes sense. And then just one last small housekeeping. I think the Unyson revenue growth decelerated a little bit here, and you talked about that one customer. I just wanted to clarify, by decelerating revenue growth through the rest of the year, could Unyson actually be down for the full year in terms of revenue? Or how should we be thinking about full year revenue growth at Unyson?
Terri Pizzuto (CFO)
We do think, it could be down slightly, yes.
Alex Vecchio (VP)
Okay, great. Thanks very much for the time, guys.
Operator (participant)
Our next question comes from Matt Brooklier with Longbow. Please go ahead.
Matt Brooklier (Senior Equity Research Analyst)
Hey, thanks, and good afternoon. So we talked, we talked about the West Coast ports being a headwind in the first quarter. Just curious to hear how, how much impact it had on, I guess, one, volume growth, and then, secondly, on, on your consolidated margin.
Terri Pizzuto (CFO)
Yeah. Well, on the volume growth, I think we think the biggest impact would be in the retail sector. Our loads with retail customers were down 2%. We did some high-level math -
Matt Brooklier (Senior Equity Research Analyst)
Okay
Terri Pizzuto (CFO)
and came out with the fact that, you know, if the West Coast port situation didn't exist, maybe we'd be up 3% instead of up 1%. So it hurt us a little bit on that end.
Dave Yeager (CEO)
I think we were a little bit disappointed there wasn't more of a surge once it was resolved, where there's no question our business did pick up. But I think that a lot of clients, because their goods had been delayed so much in coming from overseas, that they tried to get expedited to truck wherever. I think we saw maybe even some more intact shipments as those were getting priority initially to move. So that was a little bit disappointing, but again, we did see an increase in volumes, and it's become what I think would be more normalized now.
Terri Pizzuto (CFO)
I guess another, you know, issue we had, we had too many boxes in Southern California, and as a result, we ended up repositioning over 500 shipments from the West Coast to the gateways, where we were short containers for our customers, and those repos are pretty costly. You know, we, you know, how much that is, we're not gonna disclose, but that was costly, and it goofs up our network more than anything. It's operational inefficiencies that resulted from the disruption, so.
Matt Brooklier (Senior Equity Research Analyst)
Okay, that's helpful.
Terri Pizzuto (CFO)
Okay. Yeah.
Matt Brooklier (Senior Equity Research Analyst)
Okay. And any sense in terms of the margin in the quarter, the net revenue margin?
Terri Pizzuto (CFO)
We didn't really quantify that. There's so many moving parts with the rail service, and the rail service was impacted by the port situation that we didn't try and pull it apart.
Matt Brooklier (Senior Equity Research Analyst)
Okay. And then, I guess the second part of my question here, you've talked in the past about going after empty miles within your drayage operations. I'm just curious to hear kind of maybe what's baked into the guidance in terms of improving, you know, the empty mile percentage at drayage, and then maybe remind us of the sensitivity in terms of achieving, you know, those goals as the year progresses.
Terri Pizzuto (CFO)
Yeah, we assumed that we would get 2 percentage points better in empty miles by the end of the year, which was the goal that we have for one of our initiatives. And we measure that every week, and for every 1 percentage point change in empty miles, it's $3 million annually.
Mark Yeager (President and COO)
Right. And we did see improvement throughout the quarter in empty miles, and by the end of March, those numbers had come very close to 2014, pre-rail service numbers, and actually a little bit better than 2013. So we think empty miles are heading in the right direction, and the changes we've made to the processes, you know, have helped us start to bring those numbers down. And also, our dray sourcing event has helped us to bring empty miles down as well. And as we bring that out to more markets, we think that the 2%'s achievable.
Matt Brooklier (Senior Equity Research Analyst)
Okay. Appreciate the time. Thanks.
Operator (participant)
Our next question comes from Scott Group with Wolfe Research.
Scott Group (Managing Director and Senior Analyst)
Hey, thanks. Afternoon, guys.
Terri Pizzuto (CFO)
Hello.
Scott Group (Managing Director and Senior Analyst)
So, I'm wondering, can you help us think about the timing of rail cost increases this year relative to the timing of the bids getting implemented? And if anything was different this year than a normal year to get the pricing from your customers earlier? I don't know if anything has changed, but if anything has, I'm curious.
Mark Yeager (President and COO)
Yeah, no, the increase timing is very similar to what we have seen historically. We have an agreement with our rail partners as to what that's gonna be, so we have good visibility into that. We had a good sense of the range going into the pricing season, going into the bid season. So, we understood what our target needed to be, and you know, it's a mid-year price increase like it normally is.
Terri Pizzuto (CFO)
With our Western partner-
Mark Yeager (President and COO)
Yeah.
Terri Pizzuto (CFO)
And with our Eastern partner, we saw part of the price increase go in at the later part of the quarter.
Mark Yeager (President and COO)
Right. And then, yeah, there's a further adjustment in the back half of the year.
Terri Pizzuto (CFO)
Mm-hmm.
Mark Yeager (President and COO)
But very similar timing mechanism to what we've seen historically.
Scott Group (Managing Director and Senior Analyst)
Okay. And so when you talk about the best pricing you've seen in a few years from your customers, is there any way to think about that on a net basis? I mean, your pricing relative to your rail cost increases, would you still say that's the best in years, or is that not necessarily the case?
Dave Yeager (CEO)
Scott, I think that at this point in time, it's with the customer receptivity towards increases as they're understanding the cost increases. I do think that this has been one of the better years where we're not getting as... you always get pushback. It's always a knife fight whenever you have price negotiations. But I think that it's been very public. They're seeing it from their trucking companies that they deal with, price increases. They understand the cost increases with drivers and certainly understand it with rail. So I would say that while it's never easy, it's certainly this year we think is moving in the right direction.
Scott Group (Managing Director and Senior Analyst)
So, I don't know if I missed this or not. I know you gave kind of consolidated gross margin guidance for the year, but do you think intermodal gross margins will be flat, up, down for the full year?
Terri Pizzuto (CFO)
For the full year, probably flat with last year.
Scott Group (Managing Director and Senior Analyst)
Okay. So down 80 in the first quarter. So you think at some point, back half of the year, you would expect them to turn positive, given the pricing you're getting?
Terri Pizzuto (CFO)
Yeah, given the pricing and the rail service, correct.
Scott Group (Managing Director and Senior Analyst)
Okay, great. And then just last question. We've talked about this a little bit before, but now that you've kind of seen what's happened to the rails over the past year, are there any thoughts of going to a more diversified rail strategy so you can kind of pick and choose based on where service is best?
Dave Yeager (CEO)
You know, as you know, Scott, that's where we came from, you know, one of our goals when we were a much smaller entity, was to try to be the largest IMC on all railroads. We really think that with the size of our fleet, with the coordination efforts, with our drivers, that the best strategy is what we're currently deploying, and that's partnering with a major Western line and partnering with a major Eastern line. So we really have not looked at that. And candidly, I don't think that any of the rails are that there's a tremendous difference in service from what our partners are providing currently.
Scott Group (Managing Director and Senior Analyst)
Okay. All right. Thank you, guys.
Operator (participant)
Our next question comes from Matthew Frankel with Macquarie. Please go ahead.
Matthew Frankel (Senior Associate Equity Research Analyst)
Hi, guys. Thank you for taking my question. The first thing I wanted to touch on was the brokerage business. You had mentioned, what I thought was interesting in the last quarter, you guys mentioned that you had a team that you were putting together to focus on more spot opportunities, just given what the current market environment was like. And Terri, you mentioned earlier, that you actually saw brokerage margins a bit better than you had expected this quarter. And so I'm curious if that's related to that, and if so, you know, if you will continue to pursue that strategy. Or if it's just simply really good pricing and, you know, something else?
Terri Pizzuto (CFO)
It was, we are focused on spot opportunities. You're right. But that wasn't a big contributor to the-
Matthew Frankel (Senior Associate Equity Research Analyst)
Okay
Terri Pizzuto (CFO)
increase in the gross margin as a percentage of sales for truck brokerage. It was more from the value-added services, the customer rate increases, and better purchasing. But we continue to focus on those spot opportunities, and we do have resources dedicated to it.
Matthew Frankel (Senior Associate Equity Research Analyst)
Okay. And the other thing I wanted to ask you was about M&A. You know, are there types of businesses that you're eager to grow faster than others? You know, the acquisition, are there things you're looking at? Obviously, we saw the other day a big brokerage transaction, truck brokerage transaction. So I'm just curious what your thoughts are there.
Dave Yeager (CEO)
You know, we continue to certainly a large truck broker would be attractive. As you saw from that transaction, this is, it's a very frothy market, and I guess our conservative nature precludes us from entering some of these. But I would certainly a truck broker that would bring technology in particular to us, we think, could help us in the future. Certainly, the dedicated space is very attractive to us at this point in time. There could even be some IMCs that could be interesting if they have enough scale and more of a diversified business base than we do. So those would be the primary areas. Naturally, the cross-border business is also very interesting, whether it be Mexico or Canada.
Somebody that might have a lot of strength in that area would be quite interesting as well.
Matthew Frankel (Senior Associate Equity Research Analyst)
Okay. Thank you very much.
Operator (participant)
Our next question comes from Brandon Oglenski with Barclays.
Brandon Oglenski (Director and Senior Equity Analyst)
Well, good afternoon, everyone, and thanks for taking my question. You know, I guess, Dave or Mark, how do you think about long-term margins in the intermodal business? I mean, it's not that you generate a terrible return today, so should we be thinking that, you know, even with the price uptake that you're getting this year and some of the cost pressure, I mean, Terri just said intermodal gross margin is probably flat for the year, maybe up a little bit in the back half. But would you like to grow the business at this level, or would you rather see some uptake in margins before you really push the growth ambition?
Mark Yeager (President and COO)
Well, I think we'd certainly like to get margins back to their historic levels, right? And that has been a challenge in this environment. You know, we typically have been able to experience margin improvement in intermodal when prices are going up, even though our costs were going up. You know, when prices are going up, when the market is supporting price increases, that typically is good for our intermodal margins. So we do, you know, hope to see the current conditions, you know, continue and hope to see what many people have pointed to as a constrained capacity market in the over-the-road sector. We think that would be very favorable for our ability to get margins back.
You know, we still generate good returns even at these margin levels, but there's no question that it's a challenging margin industry. We do think that there's room for margin expansion. It's going to take pricing discipline on our part, there's no question, and we're also going to have to do a very good job of managing not just our rail costs, but also our dray costs. And that's why we're taking the steps we are with our dray strategy. We have to be managing all aspects of the intermodal transaction effectively in order to expand our margins.
But we do think the opportunity is there, particularly as we resume to more historic service levels, you know, for us to get back to the kind of margins that we experienced in 2007, 2008, and prior to that.
Brandon Oglenski (Director and Senior Equity Analyst)
Well, I appreciate that response. You know, doing the postmortem on the back half of last year, because it sounds kind of similar, where we thought pricing was going to be up quite a bit and get a little bit of margin traction. You know, I know you had your cost issues, but just on the gross margin side for intermodal last year, I mean, you did get a little bit of price traction, but we didn't see the expansion. So what's changed in the confidence this year that it will be better in the back half of 2015?
Mark Yeager (President and COO)
Well, I think what we're seeing, you know, the key driver for us is price, right? And our ability to get price in the marketplace, and our willingness to be selective in the opportunities that we're bringing on. If we're going to take on a low-margin business, we're going to have a low-margin business, you know, profile. You know, last year, we saw some modest increase in prices, but with the rail disruption, it took our costs up dramatically, and we had to deal with a lot of network inefficiencies that there's no way we could capture from the marketplace. So, I think that what we've seen is hopefully service being, as you know, as bad as it's likely to get.
So an improving service environment and an improving pricing environment, you know, should certainly come to the bottom line.
Dave Yeager (CEO)
I think that coupled with some of our dray initiatives, California had a major impact on us last year.
Terri Pizzuto (CFO)
Right.
Dave Yeager (CEO)
That was something that was temporary. It was an issue. It's an issue that can be fixed, and it's not totally resolved as of yet, but we continue to work towards it, and we've made a lot of, lot of steps forward and a lot of improvement in that.
Brandon Oglenski (Director and Senior Equity Analyst)
Okay. And, I know we're already at an hour on the call, but if I can just get one more in. What's the long-term outlook on CapEx levels for this business?
Terri Pizzuto (CFO)
It really depends on how many containers we buy and how many tractors we buy. That's what we're using most of our money for. And you know, we're only buying 1,000 containers this year. We don't see big container adds in the future. And in terms of tractors, we'll have a pretty new fleet by the time we get these, you know, 300 tractors that we're getting this year. And then we'll be on a program where we replace them every three or four years. So, we don't see it, you know, being any different probably than, you know, $50 million-$60 million as a guess.
Brandon Oglenski (Director and Senior Equity Analyst)
Okay, so we're running $40 million-$50 million above a normal run rate this year in CapEx?
Terri Pizzuto (CFO)
Yeah, because we're buying 300 tractors.
Brandon Oglenski (Director and Senior Equity Analyst)
Right.
Terri Pizzuto (CFO)
We don't know what the price is going to be of the containers either. That all will fluctuate depending on what gets resolved with the anti-dumping case.
Brandon Oglenski (Director and Senior Equity Analyst)
Well, that's a lot of fun, but appreciate it, Terri. I don't want to get involved in politics on this call. Thank you, though.
Operator (participant)
Our next question comes from Justin Long with Stephens.
Justin Long (Managing Director of Equity Research)
Thanks, and good evening, guys. I actually wanted to follow up on that last question on capacity. Could you provide an update on the industry container adds you're expecting for 2015? And on that anti-dumping litigation, do you still think that's something that could limit the capacity adds this year?
Dave Yeager (CEO)
I'll answer the latter while Terri's working on the fleet adds that we're aware of. There was a hearing last week in front of the International Trade Commission. We feel as though it went well. We feel as though the case that's been made, that this is dumping, is completely improper. But nonetheless, it initially was initially imposed the duty. As I understand it, about 40% of the initial rulings do get overturned, and so we'll just have to see what the outcome. I thought we had the industry a very compelling case, and I think that the people that were levying the charges did not. But again, it's we'll just have to wait and see.
I believe that we'll know the outcome of it on either May 15th or May 17th. The duties overall that were imposed, if they hold, are quite significant. I mean, it's 120%+, correct, Terri?
Terri Pizzuto (CFO)
Mm-hmm. Yeah. It makes the price of a container basically double from $11,000-$22,000.
Dave Yeager (CEO)
Right. So, you know, that's not, that, that, that's not really a barrier to entry necessarily, but it certainly would make an asset-based trucker look very closely as to how much involvement he wanted to get in intermodal at those kind of prices. But, so that's kind of the status of where it is. So for the second quarter earnings call, we'll certainly know exactly where we stand and how we'll be moving forward.
Terri Pizzuto (CFO)
Then to answer your other question, looks like the industry's adding about 12,000 containers, so that would bring the total count up to 248,000 containers by the end of this year.
Justin Long (Managing Director of Equity Research)
Okay, great. That's helpful. I know it's been a long call, but wanted to clarify one other thing. You mentioned a pickup in volumes, intermodal volumes in March and April, but I was curious if you could give something on the order of magnitude. Did you see a pickup that was in that 3%-7% increase range that's kinda in line with your guidance for the full year?
Terri Pizzuto (CFO)
We did in March, yes. Mm-hmm.
Justin Long (Managing Director of Equity Research)
Okay. Thanks so much for the time. Appreciate it.
Operator (participant)
Our next question comes from Scott Group with Wolfe Research.
Scott Group (Managing Director and Senior Analyst)
Hey, guys. Thanks for the follow-up. It was just one quick thing. So just on the operating expenses, it came in a nice little bit better than the guidance, I think, for the first quarter. What's going up from here to bring it back up a few million, or is that potentially room for some conservatism?
Terri Pizzuto (CFO)
Right, I guess you kinda have two questions embedded in there, Scott. So you're right, we had cost and expense guidance between $73 million and $76 million, and we came in at $70 million this quarter. There's three reasons for that. First, we projected about $1 million more in agent commissions at Mode. Second, we projected about $700,000 of higher consultant expense. And then some of that is timing, however. And then third, we projected about $1 million of higher salaries and commissions. We expected salaries and commissions would be higher because we thought we'd have more overlap in employees while we transitioned our Los Angeles customer service to Oak Brook. And then, as you know, Mark mentioned, we have the change in our commission program.
We thought that our commission expense was going to be higher than it was with the new sales comp program. Then how we get, you know, your second question, which is how we get from cost and expense in Q1 of, you know, $70 million to the $70 million-$73 million. You know, the biggest driver of that increase relates to higher agency commissions for Mode, which fluctuates with Mode's gross margin. Historically, if you look at it, Mode's commission has been much higher in the second through fourth quarter than it was in the first quarter. Last year, you can see it was between $2 million and $3 million higher in Q2 to Q4 than it was in Q1. Another driver is higher IT expense than we had in the first quarter.
IT expense is projected to be about $600,000 to $1 million higher in the second through fourth quarters than it was in the first quarter. That's because we're making investments in technology, including new services and upgrades that allow us to process more efficiently. We finally did add the 50 people in the quarter. Some of those people, a good chunk of them actually came in at the tail end of the quarter, and we'll have costs associated with those people for the entire quarter. Prospectively, we estimate that could be, you know, $700,000. Then finally, because of our change in commission plan and because our growth is back-loaded, we think the commission expense could be about $350,000 higher in Q2 to Q4 than it was in Q1.
Dave Yeager (CEO)
Do you need more details on that, Scott?
Scott Group (Managing Director and Senior Analyst)
Sounds like you were prepared for that question. All right. Thanks a lot. Appreciate it.
Terri Pizzuto (CFO)
I thought you may ask that.
Operator (participant)
I show no further questions at this time. I will now turn the call back to Dave Yeager for closing remarks.
Dave Yeager (CEO)
Okay, well, great. Well, again, thank you for joining us for the conference call. As always, Terri, Mark, and I are available for any further questions or discussion.
Operator (participant)
Thank you, ladies and gentlemen. This concludes today's conference. Thank you for participating. You may now disconnect.
