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J.B. Hunt Transport Services (NASDAQ:JBHT)
Q2 2019 Earnings Call
Jul 15, 2019, 5:00 p.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


David Mee

Good afternoon everyone, and thank you for joining us. I have with me this afternoon John Roberts, our CEO; Terry Matthews, the president of Intermodal; Nick Hobbs, the president of DCS; Shelley Simpson, the chief commercial officer and president of highway services; John Kuhlow, our chief accounting officer; and the worst kept secret in the investor relations community, Brad Delco, our vice president of investor relations. As far as call goes, same ground rules as before. Let me start with a two to three minute synopsis of our view of the quarter, and then we'll open up the lines for questions.

If you don't mind, please limit yourself to one question and one follow-up so we can get through this with everybody getting an opportunity to ask a question if they'd like. Appreciate it. Overall, we felt like there was some positives in an otherwise weak freight environment. We saw our cost inflation becoming more normalized, and the bid season pricing is performing largely as we expected, though the range of pricing from beginning to end is wider than what we had originally anticipated.

We expect asset-based pricing in trucking and intermodal to be positive, though the year-over-year increases are ending the season in the low single-digits. In private fleet outsourcing, interest has not subsided because dedicated pipeline remains very, very strong. Specifically in intermodal, we were disappointed with the loads counts for the quarter, but we saw visible signs that the seasonality of freight flows has not completely disappeared as our loads per workday improved throughout the quarter. Our Eastern network loads were down 11%, but we knew we could start off in the whole 9% due to the lane closures alone.

Customer award compliance remained around 7%, which is about 10 to 15 percentage points below historical levels. However, our load count increased sequentially from Q1, and that additional throughput did allow us to see a modest improvement in our profitability. DCS had a strong quarter, plain and siple. The base business, which we define as anything non-Final Mile operated as expected, both from a revenue and profitability perspective.

The Final Mile business continues to improve its profitability, excluding the charge for the action and settlement. And it continues to meet its EBITDA targets and did for the quarter. In ICS, while the print for the quarter was disappointing, we were encouraged with the top-line results. We lost or eliminated some LTL business compared to a year ago, but we're able to offset some of the effect with growth in the dry land sector.

And we continue to see conversion to and adoption of the use of the marketplace for J.B. Hunt 360. The new technology though does not come without some hiccups. There's a year-over-year $4.8-million increase in spending, and that's to further develop and harden the platform.

And that puts pressure on operating margins, but we expected that. However, with the new technology, we found some bugs in the new applications and missed some internal processes to manage those new features. And that put even further pressure on the gross margins late in the quarter specifically. We believe we've added or we've addressed these issues with both technology fixes and human interaction to be better prepared as we continue to increase the scope and functionality of the platform overtime.

Lastly, in truck, the mixed fleet of company trucks and independent contractors yielded the expected result in a sluggish freight environment. While revenues down from prior year in spite of higher customer rates per mile, the flexibility of the total fleet size and the planned efforts to control overhead allowed truck to improve its margins both sequentially and year over year. That pretty much concludes our prepared remarks. Viju, you can go ahead and open up the lines and we'll start taking and answering questions to the best of our ability.

Questions & Answers:


Operator

[Operator instructions] We have a few questions caught up in here. First caller, your line is being unmuted.

Jason Seidl -- Cowen and Company -- Analyst

Hey guys, it's Jason Seidl from Cowen. Wanted to talk a little bit about the pricing that you mentioned. You said asset-based trucking. Can you differentiate between your over-the-road fleet and your dedicated fleet in terms of what you're getting on contract?

John Roberts -- Chief Executive Officer

Go ahead, Nick. Since you're the differentiation, go ahead.

Nick Hobbs -- President, DCS

I would just say that in our business and dedicated, 68% to 70% of our revenue has some type of index or built-in rate increases in the contract, and it just happens automatically. And so we're not in the quasi-dedicated business and so ours are kind of separate. And so we're anywhere from 2% to 4%, but its consistent year in and year out. If you follow us historically, you'll understand how those indexes work.

The other 30% is typically it's at the anniversary date. We're working on rates and it's just very based on the demand and what driver pay and so forth is doing. But like I say, 70% of ours is already contractually scheduled in the contract.

Shelley Simpson -- Chief Commercial Officer and President of Highway Services

And truckload business started off the year much higher as we did discuss earlier that it was in the mid to outdoor single-digits. And as we progressed through the season, that did lower to I would say flat to up.

Jason Seidl -- Cowen and Company -- Analyst

And I guess as a follow up, are you expecting upbid going forward for the remainder of the year based on what you're seeing so far with demand?

Shelley Simpson -- Chief Commercial Officer and President of Highway Services

I would say specifically truck load assets, parts of the business were lapping on top of historically higher prices on published business. So we don't expect rates to accelerate much from here. We think those will be for the full year and second half of the year in the flat to up 2% to 3%.

Operator

OK, and moving to our next question, caller your line is unmuted.

Chris Wetherbee -- Citi -- Analyst

Hey, hey, it's Chris Wetherbee from Citi. Thanks for taking the question. I guess I wanted to talk a little bit about the comment on seasonality and freight return. And if you could talk maybe a bit about intermodal load growth progression through the quarter and maybe what you've been seeing so far in July, that'd be helpful.

Terrence Matthews -- Executive Vice President

Sure, Chris. Historically, what I've given everybody was just the change by month, and I'll start with that, and then tell you about workdays because that's really where we dig into the details and where our comment came from. So monthly, in April, we were down 9%. In May, we were down 8%.

And in June, we were down 5%. Now on a workday basis, so in April we saw 7,300 ops, 7,300 loads per work days. In May, we saw 7,450 loads per workday. And in June, we saw 7,800 loads per workday.

Chris Wetherbee -- Citi -- Analyst

OK, that's helpful. And does that progression, does that type of progress carryover into 3Q or early 3Q?

Terrence Matthews -- Executive Vice President

Well, I mean it was 4th of July week or what, yes, I don't have enough data to make that assessment yet. I would say that customers have not run away. So they haven't gone hidden anywhere.

Chris Wetherbee -- Citi -- Analyst

OK, fair enough. I appreciate that. And then just from a dedicated side, some significant improvement in profitability, excluding the charge that you had there. Can you talk a little bit about sort of what the pipeline looks for the back half of the year in terms of potential fleet growth and then if you expect that type of productivity and an operating leverage to continue on as you move forward through the year?

John Roberts -- Chief Executive Officer

Yes, we're coming out of a big truck add last year, and so you're seeing what we call the wave of they're up and profitable and running and stable. And so you're starting to see the results of that. We had good truck adds in Q2, and we continue to think we'll have the same level of truck adds in Q3. And so when we look at our top line all the way from beginning stages, we have six or seven different stages, it's just as robust as it has ever been.

The only thing that is a little tepid I would say is just the last couple of months, same amount of deals but close rate is taking just a little bit longer. Seems like everybody's trying to figure out what's going on with the economy. But we're still on our target plan for this year, feel very good about that. And the demand is still very high for pure dedicated business.

Operator

And moving to our next caller. Caller, your line is being unmuted.

Tom Wadewitz -- UBS -- Analyst

Yes, good afternoon. It's Tom Wadewitz from UBS. Wanted to see if you could give a bit of perspective on the, I guess just the intermodal margin outlook and how you would think about second half, whether it's kind of I guess similar level of year-over-year pressure or if there's a reason why things might ease? It seems like maybe volume gets a little bit favorable, but not clear where the pricing helps you or hurts you in the second half. So any thoughts on second-half intermodal margin.

And thanks.

Terrence Matthews -- Executive Vice President

Yes, I think the intermodal margins for the second half, because we think our volumes will pick up going into the third and fourth quarter, should improve from where they are today. And of course, our long-term outlook is between 11% and a 13% margin. We're just north of that, I believe, for the quarter. And I think if you take the five-year history, adding years up [Inaudible] stay in that 13% to 11% margin and it should get a little better here the second half.

Tom Wadewitz -- UBS -- Analyst

So you're saying sequential improvement in the OR? Or you're saying improved, I mean you're not saying year-on-year improvement, you're saying sequentially some improvement. Is that the right way to understand it?

Terrence Matthews -- Executive Vice President

Yes, that's correct.

Operator

In case the caller was unable to hear that response, he said that is correct. Moving to our next caller, your line is being unmuted.

Jordan Alliger -- Goldman Sachs -- Analyst

Yes, hi, it's Jordan Alliger at Goldman Sachs. Here's a question for you. You mentioned that you're looking for second-half volumes to pick up on the intermodal front. I'm just curious what the basis for that is primarily rooted in.

Is it rail service getting better? Is it an expectation on inventories coming down and pent up demand for shipping as we move into the third and fourth quarter? Any color would be great.

Terrence Matthews -- Executive Vice President

Well, as we went through the bid cycle and we looked and saw what the awards were in our bids in the last two or three months, we believe that our volumes will increase via those bids. And as we look at the third quarter, there's probably a month or two that should get us into the positive comp territory. And then by the fourth quarter, the quarter should be positive as a whole with regards to fourth quarter last year versus fourth quarter this year.

Jordan Alliger -- Goldman Sachs -- Analyst

And then just as a quick follow up, I think last quarter you did mention that warehouses were pretty slow and we continue to hear anecdotally at least that that's the case. I mean, are you starting to see or hear about work down of any of that? Or is the trade issue still sort of impacting the port situation and warehouse situation?

David Mee

Yes, I'll answer that a little bit and then I'll have Shelley follow up on that. From what I've heard from our customers, it's a little mixed. Some customers say some of the inventory has bled off. Other customers say they still have a month or two where they're going to try to bleed off inventory.

So it's kind of a mixed message from my perspective.

Shelley Simpson -- Chief Commercial Officer and President of Highway Services

And I would say from a demand perspective, our customers are optimistic. They did recognize the level of inventory that they brought in incremental to avoid really what was happening around tariffs. But they are starting to work through that inventory and feel better about the back half of the year.

Operator

And moving to our next caller, your line is being unmuted.

Bascome Majors -- Susquehanna International Group -- Analyst

Thanks, Bascome Majors from Susquehanna here. In April, you said that the bid compliance from your intermodal awards was tracking below normal. Can you guys size up what's "normal compliance" based on, or maybe blended across the book there and how that progressed sequentially during 2Q from first quarter into July? Do you have more visibility now or are things tracking normally? Just anything you could share on that front would be helpful. Thanks.

Terrence Matthews -- Executive Vice President

Yes, the normal bid compliance is usually 80% to 85% of the state of the award. We think we mentioned that we were around 68%, 70% in the first quarter, and that did not change as we went through the second quarter. But I think we'll have a little bit of an uptick going into July, August and September with regards to our compliance.

Bascome Majors -- Susquehanna International Group -- Analyst

I mean, does the trend stabilization even at a below normal, I mean does that give you the ability to manage the cost side of the intermodal business and the capacity side tighter in the second half? Or you still need to keep that extra capacity in case the volume starts to tick up? Thanks.

Terrence Matthews -- Executive Vice President

Well, we anticipate the volumes to increase because we're going to hit positive territory in the months ahead. So that will help better utilize the assets from a container standpoint, as well as a dray standpoint moving forward.

Operator

Moving to our next caller, caller, your line is being unmuted.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Great, thanks, good evening. It's Todd Fowler with KeyBanc. I guess maybe you can help us out a little bit with ICS. It sounds like there were quite a few puts and takes in the quarter.

And I guess what I'm just trying to understand with the slight loss here, is the expectation that you can return to profitability in the third quarter. And then maybe help us to understand how much of the cost was unusual related to J.B. Hunt 360 versus the lost LTL business.

Shelley Simpson -- Chief Commercial Officer and President of Highway Services

Yes. So Todd, we further accelerated our investment and marketplace in Q2, and we'll continue that acceleration moving into Q3. We do have a good list of projects that we want to try to complete here this year, but we do anticipate, continue our accelerated investment as we've been talking to our customers and what they are asking for and really our long range to eliminate the inefficient [Inaudible] and to get to a better way to move goods. That's really our focus of where we're at.

And when we're making a little investments that we have inside our technology and our people, there's been room for any error inside that that space. So part of what happened inside Q2 happened mostly in the month of June as traffic gets tightened in the month of June. But also, our acceleration, we've had a very successful bid season. Our acceleration of bids implementing through the quarter yielded lower margins in total as we were onboarding new business we were using from our data in the platform and really trying to come through our start-up, along with spot volumes really falling significantly in the month of June.

Put that on top of some of the new systems that we've put in place we had a few issues with, and so we backed those out as we ended the month of June. We do feel like there's a repair here in July. However, we are experiencing more growth from the publish side of the business. So the bid season customers, we're continuing to onboard that business as we weigh them into here in Q3, and we are operating off the smaller margins and really plan to operate that way.

And then our LTL volume, we are very committed to making sure we can exceed our customers' expectations. As we are transitioning off the mainframe and into a cloud-based system. And also, on the marketplace, there were a few key pieces in the LTL space that no longer could be supported. And so we intentionally exited that business, wanting to make promises to our customers that we could keep.

We worked with our customers closely, made sure that really we had a good plan for our customers, and really finishing that out here by the end of the year with some of those gaps that were inside on the IP space.

Todd Fowler -- KeyBanc Capital Markets -- Analyst

OK, Shelley. All of that's helpful, but just to kind of follow up on the profitability piece of that, you talked about intermodal improving in the back half of the year. Can we expect improvement in profitability that in ICS will kind of all those moving parts for the second half?

Shelley Simpson -- Chief Commercial Officer and President of Highway Services

Yes, we would expect from the second quarter, is that your question? I think it is. From the second quarter, we would expect the second half of the year to improve. Certainly, we want to operate in a profit-based scenario, and that's what we're marching toward.

John Roberts -- Chief Executive Officer

But our expectations, I'm going to add on to this, Shelley, the expectation was that ICS would still be below its historical operating income margins, simply because of the tech spend that we knew we were going to have on this. So while we did expect, we would expect a recovery in the back half of the year, we would not expect it to be in that normal 4% to 6% range, or get to the 4% to 6%.

Operator

Moving to our next question. Caller, your line is unmuted.

Ben Hartford -- Robert W. Baird and Company -- Analyst

Ben Hartford with Baird. Shelley maybe, interested in your perspective on supply capacity. You made a comment I think in June, perhaps a comment about tightening up. Just curious about how supply trended through the quarter and what the outlook is from the back half of the year from an ICS perspective, or even from a JBT point of view as it relates to recruiting.

Where do you think we are in the industry supply correction cycle?

Shelley Simpson -- Chief Commercial Officer and President of Highway Services

So I would say as the quarter progressed in Q2, we did see a tightening in June. Part of that was road check, which was to be expected, but that came right on the hill of really a religious holiday. And the combination of those two things really put pressure, more pressure than expected on margins and tightens more quickly than we expected in this environment. As we move into July, we've seen a seasonal softening, just like has happened every other year.

And we would expect the second half of the year to be, and a more balanced market maybe even on the supply side, more plentiful in supply than it was in the month of June. And then if I could just talk about the truckload side of it, I think you're talking about drivers in general on the truckload side. And I would say drivers are slightly easier to come by on the truckload space but significantly more expensive to onboard. So we really have increased the level of pay for our professional drivers, and we've seen that happen here two years in a row.

So our cost per hire is up, and our W-2 is up with drivers. So although we're seeing a little bit of easing inside that space, I think our W-2 increases that I've heard inside JBT had [Inaudible] attract new people into our business.

Ben Hartford -- Robert W. Baird and Company -- Analyst

OK, and if I could just follow up on that comment, I think you said you expect supply to be more plentiful in the back half of the year than June? Or what do you think the supply growth is coming from? There's obviously been some discussion about small carriers that have failed, and I think owner operator equipment has improved generally among the larger carriers. Where do you think that net supply growth is going to come from? And how long is it going to take or what is it going to take for that to return to a more balanced or even tight type market?

Shelley Simpson -- Chief Commercial Officer and President of Highway Services

Well, I mean I would say second quarter is normally the tightest environment, particularly in June inside the supply side. So I would say it would return to a more normalized second half. The year 2018 was an anomaly. If you look at really any of our trends that have happened, we've had a couple of years here in the last six years that have been unusual on the supply side that we would expect adopting and have seen a softening happen here in July.

Operator

And moving to our next caller. Caller, your line is unmuted.

Allison Landry -- Credit Suisse -- Analyst

Thanks, good afternoon. So I wanted to go back to your intermodal volume outlook comment. I know there's been quite a few questions on this, but if I'm hearing it right, it sounds like you had maybe a couple of significant contract wins that are in the bid season. So I guess, first, could you clarify whether you would expect loads to show better-than-normal seasonality in Q3? And then did you have to trade price for volume more than you originally anticipated in order to get some of these wins? I know that earlier this year you had talked about leaning more toward volume versus rate, but just curious, I'm curious to understand how that tracked relative to your expectations and then what that means for the pricing and revenue per load trends in the back half of the year.

Thank you.

John Roberts -- Chief Executive Officer

Allison, is that you?

Allison Landry -- Credit Suisse -- Analyst

This is me. I'm sorry for asking seven questions in one.

John Roberts -- Chief Executive Officer

Oh, that's fine. You just didn't announce first. That's why I was just double checking that it was you.

Allison Landry -- Credit Suisse -- Analyst

Oh, I'm sorry. Allison Landry from Credit Suisse.

John Roberts -- Chief Executive Officer

No problem.

Allison Landry -- Credit Suisse -- Analyst

Sorry about that.

John Roberts -- Chief Executive Officer

So the volume increases we should see in the second half of the year are from a group of customers, not a foreign individual customer or two customers. It was not a price play, and I think you will see that play out through the next few quarters when you start looking at the revenue per loads. It was more of a service play in terms of the quality of service and the differentiation that we've been able to work with our customers on through a difficult time last year. I think we separated ourselves from that.

And as I stated earlier, if you look at the third quarter, we believe there's a month or two in there that will hit positive comps versus the third quarter last year. And we should hit positive comps in the fourth quarter in general.

Allison Landry -- Credit Suisse -- Analyst

OK, excellent. Thank you guys.

Operator

Moving to our next caller. Caller, your line is being unmuted.

David Vernon -- Bernstein Global Wealth Management -- Analyst

Yes, David Vernon with Bernstein. Dave, could you talk a little bit about how much OPEX did J.B. Hunt...

Operator

We're sorry caller, your connection seems very unstable. If you wouldn't mind, please hang up and dial back in. Moving to our next caller for the time being.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Hi, it's Ken Hoexter from Bank of America Merrill Lynch. Dave, maybe just to step back and bigger picture, is there anything that shifted recently during the conference season? It sounded like you were maybe a bit more pessimistic on the outlook, and here it sounds like the outlook into third quarter, both intermodal, even ICS, maybe turning more positive. Is there something underlying, shifting that we should kind of be taking away from this from your point of view?

David Mee

Well, I think that it's just a matter of the volume starting to appear to show up. Now I'm still cautious, and my point of view, and obviously I'm probably the biggest skeptic in the group, which is one of the reasons I don't likely talk to customers, but I was happy to see the trends throughout the quarter. While they are below expectations, they're at least directionally correct. I think that we can get through July, because I think July is not a good month to gauge anything off.

I mean, from our perspective, the only month worse than July is typically February. So I'd like to see a little bit more in August. But based on sentiment of what I know are the awards and as the volumes are starting to come on, yes, I'm a little more optimistic than I was when we visited in May. Sure.

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

And just to clarify I guess on that particular intermodal thought, you kind of thought, hey, intermodal margins are not likely to hit our target range. I think Terry maybe mentioned earlier that we expect to get right back on that. Am I reading that commentary right in terms of your margin outlook for intermodal?

David Mee

Well, you know, yes. Let's clarify. The question that I got asked I believe at your conference, I interpreted that as for the year. And so my response is no.

And we would not get inside the 11% to 13% for the year of 2019. I stand by that statement today. I think that the first quarter is just something that would be extremely difficult to overcome. Now I understand and I've seen what Terry is looking at and his feel, his projections.

So yes, there's a possibility we get back into 11% for a particular quarter. But I stand by my statement that we would not show an 11% to 13% for the full year of 2019.

Operator

Moving to our next caller. Caller, your line is unmuted.

Matt Brooklier -- Buckingham Research -- Analyst

Hey, thanks. Matt Brooklier at Buckingham Research. So I wanted to circle back to intermodal pricing questions for you. If you could talk of your contract volume, what to date has been priced at the end of second quarter and maybe your expectations for what remains and where potentially contract rates could fall off for that portion of the contract side of your business.

Terrence Matthews -- Executive Vice President

OK, so I think I've mentioned before that the first third of the bids we were in higher single-digits. The middle third was middle single-digits, and the last third were lower single-digits. And we're basically through all of our major bids. For the most part, some we haven't implemented yet, but we know what we're going to be basically looking at.

So I think that'll end us somewhere in the middle single-digits when it's all said and done for this bid cycle.

Matt Brooklier -- Buckingham Research -- Analyst

OK, so it sounds like the contract pricing pretty much in line I think with your expectations, kind of a little bit of a fade into the second half of the year. But I think that's what you guys have been conveying through that. And then the more positive outlook at intermodal in terms of volume, I think you guys mentioned that some of it had to do with your ability to execute the relative service levels that you're providing. Is this partially driven by UMP's PSR efforts, or am I not reading this correctly?

John Roberts -- Chief Executive Officer

Well, the service levels we received, especially from the eastern railroads, are up significantly from last year at this time, not to where their goals are or where our goals would be. The being assessed started off extremely well, then we had a weather issue in February into March starting to rebound. And then we had flooding issues here in the last couple of weeks in June. They're starting to rebound here.

And this week, we're starting to see an uptick on that. So service obviously was helped there. And some of the technology investments that we've made would be able to, to be able to better set appointments that are analyzing rail schedules and predictability of what will happen. It has allowed us to be able to communicate to our customers a better level of service, even though it might be a couple hours slower here and there.

But we've been able to use those tools to what we think has differentiated our product from others.

Operator

Moving to our next question. Caller, your line is unmuted.

Justin Long -- Stephens Inc. -- Analyst

Hi, this is Justin Long with Stephens. Good afternoon. So Dave I think...

David Mee

Finally, [Inaudible] 18. Finally you got the 18 [Inaudible].

Justin Long -- Stephens Inc. -- Analyst

I don't know about that. It only took me about a decade to get coverage of the stock, but the day is finally here. So, Dave, I think you gave a number earlier on the intermodal volume headwind from lane closures in the second quarter. Could you clarify what that percentage was? And then on the loads per workday that you saw monthly in the second quarter, you noted the pickup.

But I'm curious how that acceleration compares to the normal seasonality in that metric that you've seen historically in the second quarter?

David Mee

Yes, the 9% volume decline if you will due to the lane closures is simply the snapshot of the number of loads that we saw disappear that could no longer be serviced. And like I said, that was expected. We understood that going into the end of the quarter. But obviously, our goal was, we said this earlier, that we were going to try to overcome that and we just didn't see the demand to allow that to occur.

As far as the trajectory of the loads per workday, I would say that, Terry, you jump in on this, that looked pretty normal to me as far as the trajectory from month to month to month, even though it's at a lower base.

Terrence Matthews -- Executive Vice President

Right. Yes, the trajectory was good obviously from April through May and ended June, and it should continue into the months and quarters ahead. The other comment I would make is that the floods in May and June cost us about 2,500 loads that we weren't able to handle that had to run truck because of the various floods that we were not able to handle.

Justin Long -- Stephens Inc. -- Analyst

OK. That's helpful. And then circling back on the 11% to 13% margin target in intermodal, Dave, you said it sounds like that won't happen in 2019. But is this something you think is achievable next year if we continue to see a low single-digit pricing environment where we're exiting, like we're exiting this bid season? Or do we need to see an acceleration in the pricing environment from here to get to that target?

David Mee

That would be, I guess, given guidance, for one, and I'm not ready to do that yet, and the second thing is I have to wait and see what their plan for next year looks like and I haven't seen that yet either, Justin, so I don't know the answer to that.

Operator

And moving to our next question. Caller, your line is unmuted.

Brian Ossenbeck -- J.P. Morgan -- Analyst

Hey, good afternoon. It's Brian Ossenbeck from J.P. Morgan. So I wanted to ask another question on ICS in the marketplace.

Shelley, maybe if you can give us a sense what type of benefits you're seeing excluding the extra spending on IT, and maybe even on headcount, getting more of the transactions pushed through the marketplace, maybe up to about two-thirds which continued to climb. But I'm a little surprised to see that the loads per employee are down significantly and headcount is up, and maybe that's a function of adding more IT folks. But maybe you can just give us a sense as to what benefits you're seeing and when you think they'll start to flow through that segment line item?

Shelley Simpson -- Chief Commercial Officer and President of Highway Services

So the mix is that LTL and truckload does change our volumes [Inaudible], but we also did add employees as part of our further investment in marketplace because we're trying to build the marketplace as new systems are coming on board, taking more time, spending more time with those customers and carriers, making sure that their experience is top notch. So as we move into 2020 and start thinking about our automation, that's everything that we're really trying to invest in this year, really reviewing each piece that is now automated and the things that we need to do to move us inside automation. And then lastly, probably the thing that impacts us very much is the level of data and the granularity that we get of the data through the platform. So earlier I spoke of the supply side coming back.

We can see that immediately inside the platform, all from a digital space, what authors are doing, how many carriers are on board, what percent are on board, what lanes are becoming softer or harder. All of those pieces are allowing us to get better at our pricing, better at serving our customers, and we think that we'll see that really push us here toward the end of the year as we come to a better comp. Against LTL, we're seeing fourth quarter moving into next year we'll have market share gains as a result.

Brian Ossenbeck -- J.P. Morgan -- Analyst

OK, thanks for all the detail, Shelley. And Dave, a quick follow up for you. Can you just remind us of the buyback program? It looks like it was pretty active this last quarter. You still got some left on the optimization.

So maybe you can just give us a sense as to why you're so active this last quarter and what you expect to be doing from a capital allocation standpoint throughout the rest of the year.

John Roberts -- Chief Executive Officer

Well, I mean, one of the reasons we were active in the quarter, I mean, we definitely had cash, if you will. We typically use our revolver as cash, or our debt-to-EBITDA ratio as a cash indicator. So we had availability. And frankly, we thought the price was attractive.

So we've always said we would be an opportunistic buyer. I think that we will continue that approach on a go-forward basis. So if we see something happening in the future where we either have additional room on our debt-to-EBITDA ratio or we end up seeing another attractive price and we have the ability, we'll probably participate again in the future.

Operator

Moving to our next question. Caller, your line is unmuted.

Ravi Shankar -- Morgan Stanley -- Analyst

Thanks everyone. Ravi Shankar from Morgan Stanley. Just a couple of questions on DCS. Can you just clarify what drove that big decline in DCS salaries and wages and kind of was that related to the charge? And if you can give us kind of any more details kind of on that charge, was that an in-sourcing decision by a customer?

John Roberts -- Chief Executive Officer

No, it was not an in-sourcing decision by customer. A lot of it was a workers' compensation and insurance policy accrual adjustment that came back in that frankly everybody participated to a certain level. But it showed up more materially inside of DCS simply because they got more people. Just the way the policy works.

So as they got a benefit, it went back to the business units and DCS was just a more material effect.

Ravi Shankar -- Morgan Stanley -- Analyst

Got it. And just a follow up, I know you probably won't comment on the BNSF arbitration, but do your results include any charge or reserve for a potential verdict or result in the future? I mean, you had $44 million I think each of th last three quarters, so are you taking out like $11 million a quarter for that in the kind of results?

John Roberts -- Chief Executive Officer

We haven't commented on that. People have asked that in the past, Ravi. Should they do that inside their models, and frankly my response has been, since I don't have any other additional information to give to them, if they were to do that, there's nothing I could do to argue to say that was an inappropriate conclusion.

Operator

Moving to our next caller. Caller, your line is unmuted.

Amit Mehrotra -- Deutsche Bank -- Analyst

Thanks. Amit Mehrotra here from Deutsche Bank. Thanks for taking the question. And, Brad, congrats on the appointment.

Terry, on the commentary around intermodal volumes, any update on how PSR may impact the outlook for the second half? Union Pacific is taking significant action in Chicago this month I believe, and Berkshire has talked publicly about PSR quite openly over the last few months. So maybe any updated thoughts on how you're thinking about PSR as being a headwind or not on the volumes in the second half. Thank you.

Terrence Matthews -- Executive Vice President

Well, one, we obviously don't use the Union Pacific but I believe that the benefit of PSR is we should get better service, which should give us better turn times. It should give us the ability to be able to move more freight from the highway over. Now we've always talked about sometimes with PSR that if they get into a fixture or derailment, sometimes they're not quite as resilient because they don't have extra crews waiting around to play catch up. So that's [Inaudible] a watch out with regards to PSR.

With regards to the BNSF, we see some of the things that they're doing. I don't think they're public as maybe what the EP is with regards to [Inaudible] what they're doing, but I don't see anything out of the ordinary that should come about in the second half of this year that would be the pause in terms of what we're seeing and what we've been doing in the past and how we should react going forward.

Amit Mehrotra -- Deutsche Bank -- Analyst

OK, thank you for that. And just as a follow up, just sticking with intermodal if I could and on the cadence for pricing. You talked about earlier, I think at the top of this call, kind up of low single-digits pricing, and truck spot rates have obviously been pretty negative for a while and the expectations for truck contract rates have been coming down pretty consistently over the last year. so Just in that context, Terry, what are the risks that you might have positive volume in the back half of the year but that yields turn negative in the back half of the year? If you can talk about the comfort you have around kind of positive yield in the back half of the year, either based on the negotiations you've done to date or the volume outlook just in the context of the trucking environment getting a lot weaker, at least from the contract expectation side.

Terrence Matthews -- Executive Vice President

Yes, I think I'd mentioned in the previous conference calls that we thought that intermodal pricing would stay higher than truck pricing throughout the year, and I think that's going to unfold and be true. As I mentioned, the bid cycle is over with, the results are in, and we know what those results are and we know what our path is moving forward for the next couple of quarters with regards to pricing. And I don't see that moving around, going negative at all.

Operator

Moving to our final question for now. Caller, your line is unmuted.

David Vernon -- Bernstein Global Wealth Management -- Analyst

Hi, hopefully the line's a little bit better. David Vernon from Bernstein. Dave, could you talk a little bit about how much development OPEX for J.B. Hunt 360 is going through the P&L today; and when, over the course of the next several years, you might be able to expect some fall off in that investment into the software?

David Mee

What we said was we got an extra $4.8 million, or we got $4.8 million in the quarter OPEX spend inside of ICS. I'm looking at Shelley.

Shelley Simpson -- Chief Commercial Officer and President of Highway Services

Incremental.

David Mee

It's incremental.

Shelley Simpson -- Chief Commercial Officer and President of Highway Services

Correct.

David Mee

Base is off of a $2-million base, so it's up to $6.8 million.

Shelley Simpson -- Chief Commercial Officer and President of Highway Services

Dropped to.

David Mee

Dropped to $11 million, so it was off of, OK, so you were up $5 million off of $6 million prior. So we're spending $11 million a quarter in ICS primarily for the development of marketplace 360. Now if there's other pieces inside that because you also have to harden the systems to handle the capacity, expand the available capacity, they're also doing further development through the intelligence pieces and stuff. So it's not all just for the marketplace 360 but it is part of the 360 platform.

When do we realize that? When do we realize the revenue side? I mean, you're starting to see a little bit trickle in now. Do we see capitalizing on further development? I think that that probably plays out over the next two to three years. How much more do I have to spend to get it to the point where we're seeing what we would expect to be maximum revenue generation out of this thing? I don't know the answer that yet, David.

David Vernon -- Bernstein Global Wealth Management -- Analyst

All right, thanks for that color. One separate follow up question on the DCS business. I was just wondering if you could give us some qualitative commentary on the impact of Final Mile from a margin perspective in that segment. The results were a lot stronger than we thought, and obviously that seasoning in some of the prior contracts.

So I'm just wondering are you also getting some margin gain on that Final Mile business that you acquired last year.

Nick Hobbs -- President, DCS

So I would just say, as Dave talked about early on, the DCS business minus Final Mile is hitting right in the middle of our target range of where we want to go. So that portion of DCS is doing well. Final Mile, if you take out the one-time adjustment, it's making incremental improvement. The acquisitions are coming along and hitting their EBITDA targets, and we're continuing, our sales pipeline there is very strong.

We're going to hit our expectations on sales there. So it is going well. The integrations are all going very well, so we're very pleased with how that's moving and progressing in the right way.

John Roberts -- Chief Executive Officer

But the margins on Final Mile are not at the level of the margins. So it's actually diluted, David.

Nick Hobbs -- President, DCS

Exactly, because non-asset. Lot of the new stuff coming on is non-asset.

Operator

And we did have a couple more questions come in as well. Caller, your line is unmuted.

Dave Ross -- Stifel Financial Corp. -- Analyst

Yes, good afternoon. Dave Ross here from Stifel. Wanted to dig into the truck segment. Better than expected, given soft 2Q in the overall truckload market, and it looks like you improved the margin due to some internal initiatives.

Could you expand on those comments as to what specifically helped the profitability in the quarter in the truck segment?

Shelley Simpson -- Chief Commercial Officer and President of Highway Services

Well, inside truckload we are continuing our transition to move to more of an asset light model. In total, we did change the number of company-owned trucks as we move some of those trucks into our dedicated contract services group and continued moving forward. And we planned for the rest of this year to increase the percentage of independent contractors inside that space. That mix of business is more of a variable compensation model, and so that did benefit us in total.

And then I think we just talked about some of the cost cutting measures that we have inside that segment. We did a better job in yield management. Just with the trucks that we had and what the [Inaudible] freight that we moved with our customers, the type of freight that you move with our customers, we moved those trucks into more committed relationships, and that helped our quarter as well.

Dave Ross -- Stifel Financial Corp. -- Analyst

And then any change in the used truck markets? What are you seeing going on there right now?

David Mee

We actually had one of our OEMs in last week. Their view of the used truck market was that it's, I'm going to use the term stabilized. I can't remember the exact quote they said. They weren't seeing any increase in used truck prices, nor were they seeing an additional deceleration.

They do expect frankly a change in the value, depending on what does happened with the ultimate delivery of the inventory that they have at the dealers right now. Obviously, it's well-known that the new order bids or new order placements are down considerably, but the backlog is still working its way through the system. I believe that their conversation with more course, they're worried about October is the next month. I'm looking at John Roberts.

You now are talking to him.

John Roberts -- Chief Executive Officer

Yes, I think October was the next date that they were really trying to figure out then what do they do. So in order to stay at this level, do they cut back productivity or not? So I think that they're still in search mode, but the immediate used truck pricing they have not seen any kind of material change one way or the other.

Dave Ross -- Stifel Financial Corp. -- Analyst

Excellent, thank you.

Operator

Moving to our final caller for now, your line is being unmuted.

Scott Group -- Wolfe Research, LLC -- Analyst

Hey thanks. It's Scott Group from Wolfe. How are you?

John Roberts -- Chief Executive Officer

We were just wondering where you were. I was a little worried.

Scott Group -- Wolfe Research, LLC -- Analyst

I think I was hitting the wrong numbers to get in the call.

John Roberts -- Chief Executive Officer

I do that all the time myself, Scott. No problem.

Scott Group -- Wolfe Research, LLC -- Analyst

The monthly loads per day that you gave. Dave, do you have those from a year ago just so we can understand if this is a good or bad progression?

David Mee

A year ago?

Scott Group -- Wolfe Research, LLC -- Analyst

Yes.

David Mee

Yes, you're talking about April 18?

Scott Group -- Wolfe Research, LLC -- Analyst

Yes, so that 7,300 to 7,400... [Inaudible]

David Mee

I know that. I'm horrible with technology, so I have to [Inaudible] stack some paper here. I don't know if I've got that or not. will..

Scott Group -- Wolfe Research, LLC -- Analyst

I'll keep going maybe for [Inaudible] Oh, you got it, OK.

David Mee

No, no. I've got April was 8,000. And May '18 was 8,100. And June was 8,200.

Scott Group -- Wolfe Research, LLC -- Analyst

OK, perfect.

David Mee

So as we've mentioned, like I said, it's at a lower level.

Scott Group -- Wolfe Research, LLC -- Analyst

OK. When we think about that 11% to 13% margin and maybe, maybe not getting there in 2020, what do you think are the bigger swing factors? Is it volume growth or is it the ability to keep pricing positive? Where is the bigger risk to 11% to 13%? On volume or price?

John Roberts -- Chief Executive Officer

I'm going to let Terry answer that question.

Terrence Matthews -- Executive Vice President

Yes, I think the biggest benefits to try to get to volume [Inaudible] pricing is is pretty well locked in for '19. And then cost control.

Scott Group -- Wolfe Research, LLC -- Analyst

I was thinking...[Inaudible]

Operator

My apologies, please go ahead.

Scott Group -- Wolfe Research, LLC -- Analyst

Sorry sir, I was thinking about 2020 and the ability to get to the 11% to 13% next year.

Terrence Matthews -- Executive Vice President

Well obviously, if price falls apart, that would have the biggest impact of any of the above. But at this point in time,we don't see that happening. Haven't seen it happen yet.

Operator

And with that, there are no further questions on the line.

John Roberts -- Chief Executive Officer

Well then, we'll do this as one last call since there is a couple of minutes here. And going once, going twice. Thank you all. Appreciate it.

I'm sure we will catch up. And I'm sure you know where to find Brad.

Operator

We have one question, one question come in from someone who's already asked a question. Would we like to take that?

John Roberts -- Chief Executive Officer

That's fine, go ahead. Let it through.

Operator

Caller, your line is unmuted.

Scott Group -- Wolfe Research, LLC -- Analyst

Hey, it's Scott again. Sorry for this. My other question was on ICS. Can you just talk about what's causing the big drop in the LTL volumes and what's the impact on the gross margins from that?

Shelley Simpson -- Chief Commercial Officer and President of Highway Services

Yes, so I've mentioned this earlier. I'm not sure if you were able to hear it so I apologize if I'm repeating. But as we're moving our system off the mainframe into a cloud-based system, some of the business that we had in LTL we had not completed the development in the new system, and we needed to work with our customers really to exit part of that business. And so we [Inaudible] with our customers.

That was intentional on change. We do have on the roadmap this year to complete some of the work that is needed to really onboard those customers again in 2020.

Scott Group -- Wolfe Research, LLC -- Analyst

And, Shelley, does that explain some of the big drop in gross margin percentages, the big drop in LTL?

Shelley Simpson -- Chief Commercial Officer and President of Highway Services

Well, LTL has a greater percentage of gross margin or gross margin percent. Certainly, it's higher because there's a lower gross margin dollar per load. But the change overall was our mix that happened, the new publish business that came on and accelerated as the quarter progressed. I would say that was more of a material impact in the deal.

Scott Group -- Wolfe Research, LLC -- Analyst

Thank you guys.

Operator

OK. With that, there are no more questions.

John Roberts -- Chief Executive Officer

Well, all right, Viju. Thank you very much. Appreciate it. Thanks everyone.

Duration: 31 minutes

Call participants:

David Mee

Jason Seidl -- Cowen and Company -- Analyst

John Roberts -- Chief Executive Officer

Nick Hobbs -- President, DCS

Shelley Simpson -- Chief Commercial Officer and President of Highway Services

Chris Wetherbee -- Citi -- Analyst

Terrence Matthews -- Executive Vice President

Tom Wadewitz -- UBS -- Analyst

Jordan Alliger -- Goldman Sachs -- Analyst

Bascome Majors -- Susquehanna International Group -- Analyst

Todd Fowler -- KeyBanc Capital Markets -- Analyst

Ben Hartford -- Robert W. Baird and Company -- Analyst

Allison Landry -- Credit Suisse -- Analyst

David Vernon -- Bernstein Global Wealth Management -- Analyst

Ken Hoexter -- Bank of America Merrill Lynch -- Analyst

Matt Brooklier -- Buckingham Research -- Analyst

Justin Long -- Stephens Inc. -- Analyst

Brian Ossenbeck -- J.P. Morgan -- Analyst

Ravi Shankar -- Morgan Stanley -- Analyst

Amit Mehrotra -- Deutsche Bank -- Analyst

Dave Ross -- Stifel Financial Corp. -- Analyst

Scott Group -- Wolfe Research, LLC -- Analyst

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