Operator: We have the next question coming from the line of Bascome Majors from Susquehanna. Your line is now open.
Bascome Majors: Jim, thinking about your hypothetical 20% revenue decline downside scenario, one thing you’ve really been good at over the years is outgrowing the market and a volume perspective and protecting not all of that, but a lot of that in downturns. Can you talk a little bit about if a scenario were to present itself where revenues were fall 20% or close to that? Like where would you have to really break the model? Is it volumes would have to do something that they really haven’t done, or is it just a rate reversion that’s more commensurate with the rate inflation? Can you just walk us through where you would be most surprised if we did print a 20% revenue decline for 2023? Thanks.
Jim Gattoni: Surprised, if we had a 20% revenue decline. Well, our revenue decline in the first quarter is above that. So, I mean, what we build into the year. First off, let me say that, we look at what the street has us at for revenue. And if you look at what the street has and what we’re putting out as the first quarter, clearly, we have to improve off of the first quarter and we have to see that seasonal norm. And when I think about what that means is we’re going to see pricing strength coming into the back half and then the volumes trending off the first quarter, pretty normal seasonally. I — the unpredictable piece of our model typically as you know is the spot pricing and how that moves month-to-month and quarter-to-quarter.
Never really surprising maybe sometimes to the degree I see it move, but we do expect and kind of project that out a little bit in the short term and the long term. I wouldn’t be surprised if it moved up or down 10% from now until the end of the year. It’s just very difficult. The volume size is the one that surprises us more than anything, because we do see consistency as you said year-over-year and month-to-month, there’s a lot of consistency. So, if we were more than the 20% down and it was a volume-driven thing, I think we’d be looking at ourselves trying to figure out what happened and what — do a deeper dive. Typically, when we see that drop though, you look at industry rates and we’re not dropping more than the industry is. So, if we saw volumes down more than what the industry was down, I’d be surprised and concerned.
Bascome Majors: Thanks for walking through that. And just one more clarification. You talked a lot about rates earlier. If I look at peak-to-peak for revenue per truck, it looks like it’s up 25% from 2018 on a full year basis. Your net revenue per load is up exactly the same. Should we just look at — thinking about conceptually about the model, is there anything that would force the net revenue per load tranche is obviously pretty important indicator for the bottom line of your business? Is there anything unique that would drive that to really diverge from rate, or is that really going to be a function of the rate on the way down as well? Thank you.
Jim Gattoni : Well, there’s a mix in there right? It’s BCO or broker. One of the things we’ve been — one of the reasons if you’re looking at that — if you’re looking at combined on a truckload and you’re not looking separate BCO versus broker, the one thing we’ve been struggling with over the last probably three quarters is BCO utilization they’re not driving as much and that would actually drive — that mix would actually drive that variable contribution per load down, because that’s a higher variable contribution per load, because clearly we have — as it relates to the BCOs where they’re under our — we cover their losses on insurance so there’s other costs below the line. So there’s mix there based on who’s hauling a load in the percent of BCO versus broker as it relates to revenue.
The other thing clearly is the spread — the typical market spread between a tight market and a soft market as it relates to third-party trucks all in our freight. Right now we’re clearly in the expansion mode as it relates to variable contribution per load and we expect that probably continues at least in the first half as capacity stays loose. So those are the things that drive it. But the thing about our model it doesn’t necessarily move as much as you’d see in the pure broker play, because as you know like 40% of our business is on a fixed margin. So if revenue per load goes down on the BCO, our VC per load goes down by the same amount, right? So that also would drive that margin down. Our expectation for 2023 is that we’re going to be sitting on a VC margin that’s probably 60 basis points, 50 to 70 bps above where we were in 2022 just based on the market dynamics right now of having more available capacity.
Bascome Majors: Thank you for the time.
Operator: Thank you. We have the next question coming from Stephanie Moore of Jefferies. Your line is now open.
Stephanie Moore: Hi. Good morning. Thank you.
Jim Gattoni : Yes.
Stephanie Moore: Jim I really appreciate the additional color on just kind of your thoughts on the cycle and I think very clear and you can see it in the trends just peak activity in February of 2022. And to your point that based on normal cycle timing that puts us in a bit of a recovery or a normal period in the second half of this year. I’m just curious if you just look at what has transpired with the kind of deceleration since February. How much of that do you think is just kind of an unwind normal cycle from what was a very abnormal two years with COVID? And how you think about what happened if the US macroeconomic environment deteriorates at some point here more so than we’re at right now and how that kind of fits into somewhat of an improvement here in the back half? Just would love to give your general thoughts on how the freight cycle and economic cycles can kind of intersect together? Thank you.
Jim Gattoni : Yes. I’ve been reading a lot about economic — I’m not an economist and that’s a hard word to say by the way. When you read about the economists you’ve got some that dire there’s going to be a huge recession and others are talking about soft landing. So I’m not going to go with what anything the economists say, because they’re all over the map right now. But look clearly if the economy was going to soften from this point forward more than we anticipated, we’re going to struggle with hitting even what the street has out there today as a revenue number, because what — if you take our first quarter $1.4 billion to $1.45 billion that generally in the normal year is about 22% of annual revenue. And if you believe that then the back half contributes to the next 78% which should get us to that $6.2 billion, $6.4 billion in revenue.
Now that’s in a normal environment where your seasonality where the economy kind of grows a little bit out of the first quarter. But if it doesn’t do that I think there’s more pressure on us to hit those numbers. I don’t think there’s any question. So trying to predict what’s going to happen is hard. But if that did happen I would say that it’s — those numbers would be a little tougher on the top line. I don’t think there’s any question.
Stephanie Moore: Right. No, that’s really helpful. And then as you kind of go back and I know thinking over what has happened the last really let’s call it February. Do you feel like the commentary that you were carrying from your end markets your customers particularly on the consumer side will make it seem like it was a bit more of an economic slowdown in there end like they were already in the resection, or was this just again kind of come down from a weird COVID environment? I’d just love to hear what your customers were saying and how they were feeling about the environment?
Jim Gattoni: Well, I think a lot of customers got it wrong and overstock, right? I think they anticipate the fact that that was going to eventually slow down and we were going to see normal business cycles. So I think a bunch of our customers got caught and stuck with inventory and then they see that coming out of the end of 2021, right? And they’re still dealing with inventory issues moving stuff around. And I think that’s when things started to drop off. They started pulling back on spending trying to worried about inventory levels. And that’s kind of what brought us down. I would say that the customers might have been — not all of them but some of the customers buy a little late to the game on slowing down their inventory production. And once that happens, I think we’ve been reading about inventory since early summer. But I think it might have been a little sooner than that they were having problems and they just started to admit it.
Stephanie Moore: Great. Absolutely. Well, I’ll leave it that. Thank you much.
