J.B. Hunt Transport Services, Inc. (JBHT) Earnings Call Transcript & Summary

All right. We're going to go ahead and get started with the next presentation. It is a real pleasure to have J.B. Hunt at our conference this year. J.B. Hunt is an important transportation company, and I think I had great insights across number of different markets. So we have Shelley Simpson, the CFO; Brad Delco, the CFO; and Darren Field, the President of Intermodal. And so we welcome you all, and look forward to the discussion. Maybe just to get things kicked off, I think we're getting updates, different perspectives on the freight market. I wanted to get your kind of take on how things are trending. I guess I'll maybe lay out a couple of data points. We had Werner was here earlier today, they seemed constructive on peak season, maybe seeing a little bit better than they expected. They also said they're reducing fleet count. So working on the capacity side in the one-way business. And so that's one data point. I think some of the LTL tonnage updates have been mixed but not necessarily pointing to strength in November. So it seems like it's still a generally soft freight backdrop, but what are your thoughts? What are you seeing at J.B. Hunt?

As I think about where we're at from an overall freight perspective, we talked about in our third quarter earnings call that we believe we would have a peak season and conversations with our customers. the peak season would materialize and really, it happened about like what we thought. And so not a lot of surprise there. We've seen that kind of across our business, in general, it's not the biggest peak we've seen. It's not the worst peak we've seen. But one good thing, I think, is that our customers have really moved out of that COVID era where they had a hard time forecasting what demand would look like. They're really a lot more on target to that. So feel pretty good from that perspective. The other comments that we've made is that we see a few pockets of tightness in mostly in the brokerage space, but it's not overall. And I don't know what word you used to describe the market, but I would say extremely challenging market. It's just the demand is good, but the inflation side is significant and supply, there's still plenty of supply out there. So it's a challenging freight market.

Right. Okay. What's the customer feedback during peak season? I mean, do you get feedback on kind of Black Friday sales, kind of how the consumer is behaving relative to what some of your big customers might have expected?

Well, we came here yesterday. So I haven't had customer feedback since yesterday, and we just got Black Friday data points. They should generally be a positive I would say, from a replenishment perspective, but I would say too early to really comment on what customers are responding with. Darren, unless you've heard something different?

No. I mean largely, just customers have been as close to being correct about their forecast and their expectations as what we've seen in a very long time. So really, I don't think there have been surprises. So no, I don't think we have feedback that Black Friday sales were significantly going to change the way their transportation demands would work out through the end of the year. So really continue to get feedback from customers that it's kind of steady as she goes and their forecast hasn't changed from what it was before Black Friday. So to me, it's kind of, I guess, I would love to hear that they were going to need more capacity, but at least we're also not hearing that they need less.

And I also think we were a little bit of a standout when we talked about peak during the third quarter call. So I don't know that a lot of people were talking about experiencing or claiming for a peak. So I think we were a little bit different. And so that might be why you're hearing other updates and maybe some surprises there. I think our customers really were pretty much in line with what they told us.

Okay. So you think you were maybe a little more optimistic in your commentary on peak on the 3Q?

I think that quote was from [ Spencer Frazier ] was that we're not expecting Christmas to be canceled. Yes. We think that, that has largely played out as expected.

Okay. Good. What about -- across the businesses? Are there kind of be noticeable differences, something stronger, weaker, dedicated intermodal truck brokerage?

I would say across all five businesses, just from a near-term perspective, everyone's lifting from peak, maybe with the exception of what we're seeing on the big and bulky side in Final Mile. That is still a very challenging market in general, but the rest -- all of our other four business units and even in parts of our Final Mile Services is really seeing somewhat of a lift just to peak.

Tom, when I think you look across our portfolio, and I'm going to maybe try to walk through all of them except for intermodal, I'll let Darren comment. What are we seeing in ICS? I think generally, you're seeing more activity volume-wise in ICS. And you're seeing that come with what you would anticipate in a more peaky environment, which is some margin compression. And we talked about that on our third quarter call. That is a good sign, generally speaking. I mean, supply and demand is -- Shelley said, there's still plenty of supply there is. We've talked about seeing pockets of tightness. We don't think it's tight across the entire network. But to level set those expectations, we should be seeing pockets of tightness. We're in peak season. And so Hunt is always going to be pretty conservative with our messaging, and we think that's a fair way of describing what we're seeing in the market. But that's sort of what is in ICS in JBT. And JBT doesn't get a lot of attention, but we've been growing volumes mid-teens or well healthy double digits the last couple of quarters. While I think overall truck volumes have been under pressure, really focus on operational excellence there. I think they're executing extremely well. But I do think that we are seeing a lot more opportunities come up in mini bids, and that's typically a sign that a customer may not be getting the service or getting capacity in a way or in a manner that they need or accustomed to. And so that's also maybe a small sign that you're seeing some slight shifts or pockets of changes. In Dedicated, I do think the pipeline backlog of opportunities remains healthy. We are seeing newer names come to us and get into the pipeline, and we're seeing I think still a very healthy cadence of us closing deals that is within sort of our annual guidance of, hey, we want to sell between 1,000 and 1,200 trucks of new business a year. that should generally net us about 800 to 1,000 trucks of net fleet growth. And I think we -- you could look at the cadence of the updates we've been giving each quarter. We're certainly on track to kind of hit the numbers that we talked about on a regular basis. I do think those deals are still taking a little bit longer to get the ink on the paper. But I do -- I would say that team is executing extremely well on getting our startups to a point of profitability faster than what we have seen in maybe more historical or normal times. And so I think Shelley commented on Final Mile, big and bulky products going into new homes. Housing activity, I think, is still relatively weak. We really would love to see more activity in the housing market. I think that would be a big catalyst for demand for transportation. And then Darren, to the extent you want to add anything on Intermodal.

I would just want to say Intermodal is the place where dialogue with the customers around how long the duration of this freight recession or depressed truckload pricing market has gone on, continues to maybe even surprise the customers as much, if not more, than the carriers and the capacity providers. And so we continue to find real strong opportunities to grow our Eastern Network business, where customers are trying to be out in front of the potential for truckload prices to climb in whatever future point that finally does occur. I think our customers are growing a little bit more and more nervous about what will capacity and prices do in whatever version of future you want to look for. And so converting to Intermodal has been one of the actions they can take to mitigate and kind of hedge against that. And then the service we provide has been really, really strong and excellent as good a service as we've ever provided in my whole career and so feel like that's been a strong part of retaining our Intermodal highway to rail conversion that has been effective in our Eastern network.

And Tom, if I could just add on to what Darren said, I mean, I think it's a really important point. We've seen really consistent growth, particularly in our Eastern network. And when we think about where we are in this cycle, obviously, truck rates are very depressed. You generally want higher truck rates and you want higher fuel prices as a catalyst to convert more highway freight to the railroads. We've been consistently complementary of the service we're getting from our primary rail providers. We think that's creating value for our customers. Obviously, we've been very focused on operational excellence, lowering our cost to serve. But this is a market which as depressed as truck rates are today, we've seen healthy mid-single in some of the last couple of quarters, double-digit volume growth in the Eastern network, and that is where we compete most directly with truck in Intermodal. And so I think it is a true testament to the service. I think it's a true testament to -- well, the collective service product that both J.B. Hunt and the rail providers are performing too.

On the topic of Intermodal, how do you think about there is some business that shifted from Norfolk to CSX, right? And I don't know if that was kind of more your discretion or [ BNs ] or mix of both. But do you tend to be indifferent, I think, like, Brad, like you were saying, all of your rail service providers are doing well. So how do we think about the preference to J.B. Hunt, impact J.B. Hunt. I mean you've got great customer relationships, you probably keep the business regardless. But I don't think it's very clear to investors of is this good bad and different.

Well, let me first start by -- we have two Eastern rail providers for a reason. We like to have both of CSX and Norfolk Southern, they both do things really, really well, and they both do things that the other one doesn't do. And so that gives us a lot of strength in our network to have access to both. You referenced the share shift. Look, BNSF had been discussing plans to change the way they connect for Charlotte and Jacksonville for some time. That discussion was going on well before there was any kind of a merger discussion, and that was kind of starting and stopping. And then certainly, I think the merger was the intent to try to merge was announced at the end of July, and that sped things up and BNSF made a decision for the routes from Los Angeles to Charlotte and Jacksonville to change the way they connect and connect with CSX. We certainly weren't a cheer leader to do that. We weren't also necessarily saying absolutely not. We need to be careful. We need to be good partners with BNSF, they weren't going about that change purely because of a potential for a merger. They were going about that change for some efficiency work that they were trying to accomplish. And just expanding what they did with CSX, I think they felt like premerger that was a good opportunity. Now I also want to be loud and clear that transition occurred early in September. That is the only transition of share that has moved J.B. Hunt volume. We don't have any intent. We're not out trying to work on transitioning market share from Norfolk Southern to CSX. That's not part of our daily effort, and we don't have anything in the works. I think there are a number of announcements that seem to be coming out from certainly BNSF and CSX over ways that they can work together. To the extent we have business that's moving on both BNSF and CSX and the new service could complement or provide an opportunity for us to grow. We'd love to do that, but we're not actively looking for ways to shift business from one railroad to another. We are actively looking forward to CSX's opening of Howard Street Tunnel for double-stack clearance into the Northeast and can see that as an opportunity for us to go attack highway to rail conversion and look for ways to grow. And so that's where our focus is at. We maintain really strong relationships with all of our rail providers and to the extent we can help them achieve goals in growing and share with them our customers' feedback. That's where our focus is at.

Tom, I think the one thing that's important J.B. Hunt's goal is not to take -- or move share for one to the other. J.B. Hunt's goal is to grow the market and take share from the highway. And so I think that's what we work with the rail providers on, hey, how do we take more traffic off the roads. How do we improve safety on the road, how do we reduce congestion or roads and how do we bring more volume to your network and do so by working with them on OD payers and transit times and all of those things. And we've said this many times, we bid on $120 billion worth of freight a year. We have a lot of visibility to where freight originates and where it is destined to and we use that information to help inform ourselves as well as our rail providers from where we think there are opportunities for us to grow together.

So how -- is there any way you can frame Darren, like the comment on Howard Street Tunnel. Like if you just looked at the Eastern network alone, is this like 10% of lanes in the East that opens a new opportunity for growth for J.B. Hunt? Is it like I don't have a good sense of how meaningful of an opportunity.

Okay. I don't know how to frame it as a percentage. The one thing I would say is if we look at our Eastern network lanes that we do the heaviest lanes are Chicago to call it Harrisburg, New Jersey, Chicago, Atlanta and then Atlanta back to New Jersey. Those three corridors are really a heavy chunk of what happens in the Eastern network. And up until the Howard Street Tunnel opened, CSX wasn't able to offer Atlanta to New Jersey, Atlanta to Philadelphia service. And so we look forward to that opportunity and certainly can understand the value in additional capacity in one of the three largest lanes that we operate and then they can certainly gain even better opportunities down into Florida and I think their route may even go all the way up into Massachusetts, and that's a place where the Norfolk Southern route actually doesn't go. So we just look forward to having optionality to have competition and know that there's additional capacity in the lane and feel like that will be a good opportunity for us to create value for our customers and grow highway to rail conversion.

Right. So it's not necessarily a new market, but you've got a new player that can participate well so that creates more opportunity...

With the exception of going up beyond to Massachusetts that could really be a opportunity you bet.

Okay. You've talked about the cost program. And I think that's been something that you've worked on costs through the downturn as a strong management team would do, right? But I think this is a little more focused, a $100 million program. Can you give us some thoughts about how big of a change is for J.B. Hunt. I mean I think J.B. Hunt, think of historically is very growth driven. That's very much the culture, right? And a lot of success with that. This is -- seems like a little different component you're adding. So maybe just if you could offer some thoughts on that program? Is there a lot more to go beyond that? How do we think about it?

Well let me just start, and Brad, I'll let you -- we are still a growth company. We're a disciplined growth company. And I think -- for us, as we have looked at the last 3.5 years, growth has been very difficult because of the current environment. So we -- Brad says this a lot. We really know how to grow. I don't know of any company that knows how to kind of shrink or be smaller than what they were. So it's always a challenging environment for us. We've been working on costs really since the recession hit 3.5 years ago. We did all the things. I think one of the steps that we took that I think is really going to pay long-term dividends for our shareholders is we didn't do any mass layoffs. But we did a great job managing through attrition and through performance management. We reduced our workforce by 15%. So we went about it a little bit different way, but we're actually able to achieve it. I think that's created a level of safety for our people to understand that when you bring new ideas to us, even if those new ideas might create more efficiency in your work and could eliminate part of your team, there's still going to be a really great place at J.B. Hunt. And so we've been working on costs. I think we made a pretty big change there at the beginning of this year, really after tariffs got put in place, our customers started telling us, we don't know what we're going to do. Some are putting pauses on their shipments. It was like, "Oh, no, we're going to go through another really difficult year". We really put in motion less, and we need to be offensive, and we can't wait on something to turn. We've got to lower our cost to serve. That will allow us to compete more in the market. and really grow with our customers and return margin back to our shareholders. And so that really second the mind of our people. What does that mean and how do we need to do that? And so Brad, maybe I'll let you talk about how we attacked both that and business transformation.

Yes. So there's really been two elements to the initiatives we launched earlier this year that Shelley was referencing. Lowering our cost to serve. I mean we have -- we really scrutinized a lot of the ideas that in terms of the process where our executives went around to different areas of the business. thought more instead of vertically thought more horizontally across the org how are these areas impacting us from a cost perspective, where our opportunities the scrutiny really came on, are we identifying these cost opportunities as something that's structural or temporary? What we really targeted and think of all the costs that hit our P&L what we've identified is $100 million of structural cost. And we said that these aren't volume dependent. These are costs we think, regardless of the environment we're in. We think we can permanently remove from the business. That leaves plenty of opportunity for a lot of other productivity and volume-driven efficiencies that can come that are maybe outside of what we've identified as structural. And the second part of that process Shelley alluded to as business transformation. So where can we look at the design of a process from origin to destination. And how do we think about redefining that process? Where can we introduce technology maybe to improve efficiencies. But the distinction between lowering our cost to serve on the structural side versus this business transformation is there is an element of scoped engineering and technology work where there is some investment that we have to make to go achieve some of these benefits, and that has to go through a fairly rigorous underwriting process internally to generate the returns that would be satisfactory for our hurdle rate. And so we have -- I would say we've done a really good job, obviously, evidenced by Q3. I actually think evidence in Q2, I think we are well on our way on this lower cost our cost to serve journey in the second quarter. I think we've proven we've done a good job out of the gate on the cost side. I think the opportunities on kind of the forward look is how does some of these business processes being reimagined with the benefit of technology, automation, where do those opportunities come to fruition and help us drive efficiency and put us in a good spot for the eventual recovery in the freight cycle, which it's a matter of when, not if, right, Tom? We been saying that for how many years?

That's right. It's coming soon.

We've been saying that for how many years.

Which is exactly why we really set an offensive lower cost to serve really grow a math of our customers. But I think the other thing is we've identified the $100 million that we shared, our internal targets are much greater than that. And so we know that we still have inflation that we're trying to offset. And all of those things, I think we came out of the gate pretty strong in third quarter, but a lot more work to do.

So how do I think about the way that could flow through the P&L? I think when we look at the numbers 2Q and then even more so in 3Q, we saw a significant improvement in purchase transportation. So that seemed to be the bigger impact, I know we don't have full visibility to how the numbers show up in the categories. But -- is that going to remain a place where you have the bigger impact? Or you think it broadens out to show up in other comp and benefits or other lines in the P&L?

Well, I think you're probably referencing some of the segmented information, maybe making reference more to Intermodal with that question. Is that fair?

Yes.

I think the one thing that's largely missed, and Darren, you may want to address this, I mean we break down the P&L by segment, but it really doesn't necessarily give you a lot of insight into what I'd consider to be our transcontinental network versus our Easter network. And so when you've seen as much of a shift in the growth in our Eastern network and I think our volumes were down 6% in transcon. PT certainly makes up a lot larger percentage of our overall cost structure in transcon than it would in local East. And so what I would tell you is I think what you would see is that there was really great cost work across all line items on the P&L. I think that maybe some of that mix shift between transcon and Eastern Network probably makes that a little bit less visible in light of how much of that mix shift has played out in the last 2 quarters.

Certainly, that's an area that would show up where we've worked intentionally on our balance. And that wasn't necessarily part of the $100 million cost effort that we talked about on the Q2 earnings call. So as we came into the year, we really wanted to improve the way we balance the equipment. And so when I think about while we we're effective at getting price improvements in our headhaul markets. We also had a reduction in how many empties we were moving and really feel good about the direction we're going there. And then beyond that, we've also -- that PTE line in the Intermodal P&L that you can see. It's inclusive of fuel. It's inclusive of the purchase transportation expense associated with outsourced dray is also in that line. So there's a lot of moving pieces in there. That's not where I would focus my attention. We're going to certainly be working on driver productivity, productivity of our assets, how do we drive better tractor productivity on the dray fleet. Those are how do we drive out empty miles in the drayage system. Those are the places that our cost initiatives are beginning to really show up.

So the focus on kind of price on the head haul lane and utilization on backhaul was not a part of that $100 million program. That was separate improvement.

That's right. I mean every...

Fall into the bucket of volume dependent, right?

SP1 Yes. So how much of the $100 million run rate did you get in 3Q? Were you at the kind of full run rate? Or how far?

What we said publicly is greater than $20 million. So on an annualized basis, $80 million of $100 million, but as Shelley just alluded to. Obviously, Tom, you know how long I've been around the transportation sector and even in a seat similar to yours at various point in my career. I've heard a lot of cost initiatives being discussed by management teams before and quarter after quarter don't necessarily see the proof in the pudding. I think when J.B. Hunt says something and we say this over and we have a say-do culture. When we say something, we do it. when we came out to publicly announce a $100 million cost initiative, we wanted to make sure we weren't just telling people it that you could see it in our performance and in our results. And again, we're 1 quarter in. I think we did a really good job of executing on the cost initiative. So sure, we're 80% of -- if we annualize everything we did in Q3, we would be 80% done with our $100 million cost initiative. But like as Shelley said, our internal target is something that's a lot bigger than that.

So it's -- even though you're 80% there on the piece you identified, there's still some nice runway left to keep building as you go in '26.

Yes.

Okay. Great. How do you think about freight outlook for '26 and kind of the algorithm for J.B. Hunt in '26? I mean, obviously, I know Brad is not going to bite on giving guidance. Ever so I'm sure you won't for 2016 either. But just high level, are you optimistic that Intermodal volumes can grow? Are you optimistic you can get that 3% to 4% price, it's been elusive the last couple of years. Just high level, what do you think is maybe a base case or a more likely case.

I'll take a shot at this and let Shelley or Darren cleaned it out. I'm optimistic that when you think about our organization, we've been very focused on operational excellence. And so regardless of what the market presents us and how we have to compete. I am confident that J.B. Hunt can deliver very strong value for our customers and win and whatever that market may be. That's in Intermodal, that's in dedicated, that's in highway, that's in Final Mile, I think across all of our portfolio of services, I think we offer very unique value that is very hard for a lot of our competition to replicate. Now when I think about how are we set up really well regardless of what the environment looks like, I think we've just proven at least through 1 quarter, we've been really good at executing on or lower our cost to serve. I think we've seen really good operating leverage in the business. We saw a nice improvement, for example, in Intermodal volumes Q2 to Q3. There was a large percentage of that incremental business, that incremental revenue that fell to the bottom line because of the cost discipline. So to the extent that the environment presents us opportunities for growth, I think that will show very nicely on our profitability. I think that operational torque or operational leverage will show well in an environment where we're recovering. I think financially, our leverage is still quite conservative, but we were even more conservative. So as we create value, obviously, that value is going to accrete to our shareholders, and we've reduced our share count by, I think, around 7.5% and over the last 24 months. And so we're in a position where we're long in the tooth of this freight recession, even though were, I was not going to use that word anymore. We're generating very strong free cash flow. I think that we've been clear. We think our maintenance CapEx is somewhere around $700 million, and we're generating free cash flow well in excess of that. And we've been returning that to shareholders. We've maintained an investment grade credit rating we supported. I think our dividend has been growing for 21 consecutive years. And year-to-date, we bought back $728 million worth of stock. So I don't see a lot of incremental capital needs for supporting our growth next year, other than what we might see in our dedicated business. And keep in mind, any capital we deploy there is success based. So we get typically long-term contracts. With fixed and variable pricing dynamics, annual price escalators like the ECI, CPI. And so when I go deploy capital in that business, I feel very comfortable with the ROIC that we underwrite these deals to as well as the tenure of that capital being tied up for 5 years. And certainly liking the risk-adjusted return we see on that capital being deployed. So think we're set up really well financially. We're just -- we're not waiting for the market to turn. Clearly, we're trying to make our own story and make it a little bit unique. And so we've just added a little bit more torque to it with some of the cost initiatives we've been able to execute on.

So if I translate that a little bit, that sounds like even if your freight environment is flat, Hopefully, it's better, but if your freight activity is flat, J.B. Hunt got some idiosyncratic drivers and you've given us evidence of execution. So you could potentially improve margin, grow earnings, not saying a lot, but you could see some of that with the levers you control. Is that it's not real specific, but it's...

I did a really good job of answering a guidance question like in a very long elaborate way without providing guidance. And then the follow-up question is to give the guidance. I feel confident that this team is set up to win regardless of what the environment is I just don't know what winning will look like in 2026, but I feel like we're set up well.

Okay. Kelly, what are your thoughts on -- you're close to customers, have worked with customers a long time. What do you -- how do you think customers are doing about next year, what's your sense of risk management? Will they be willing to pay you more price because you're a high-quality provider that can bring capacity to bear and regardless of regulatory pressure?

Yes. One thing we've really worked hard on over the last few years is operational excellence in both service to our customers and safety performance. And that takes time for that to really start to be recognized, from a safety perspective, we're in our third year of our best year. And so we had our best year in 2023, reducing our DOT preventable accidents for per million miles by 25%. We beat that in '24 and begin in 2025. So really doing a great job operationally, have the entire company focused on that, including the way we're compensated and so safety, a big critical component and part of that is because what's happening, one, it's good for business, but two, what's happening in the insurance market. So the best way for us to really control our cost is to reduce and eliminate accidents. The second during this downturn has really been on how we focused on our customers. And so we can focus on getting offensive with our customers also making sure that when we're talking with them, they have the best service across the board. You heard Darren talk about. It's the best in his career, in Intermodal, I would tell you it's the best in the company for all five business units. So very focused in with our customers on how do we solve. And I think you saw some separation start to occur for us in the third quarter. from a market share gain perspective. So we talked about in the market, the data we see that the market actually got worse as the quarter progressed. But actually, our volumes did not. And I think that's our operational excellence and really driving value for our customers that are helping us. The other thing I think that Darren did a nice job of this year was taking rate increases, and those were very difficult. I think we were -- there's a lot of hard work for the little bit of price that we got. But I think our customers did a nice job helping us think through what could we do differently? Darren did some work around how could we take cost out of the system on some of the freight that you move. So I think that's been good. All that to say is we lead into leading into 2026. I think our customers somewhat feel sorry for us because they get how long it's been, but I've never met a customer felt sorry enough to just sign over a rate increase without really good reasons for that. And so the market has to respond to that. So I think our customers there's a little less uncertainty around tariffs. They're a little more settled there. So that's a good thing going into 2026. As we think about 2026, we were talking as a management team Monday, I mean the new tax laws will be in place, and there'll be refund checks. And to whatever extent that, that creates more demand in goods that could be better for our business. Retail sales were good. That could be better for our business. But it's going to be really hard to hear us say after 3.5 years that we think 2026 is going to be a really great year. I think things get a little bit better. And we're really planning on where we are today. We're focused on operational excellence, lowering our cost to serve, so we can grow with our customers. If things get a little better from a demand perspective, that's going to drop to our bottom line because we're prefunded on growth. We have all the capacity that we need in Intermodal to serve our customers. So that will help us. And also, if it gets a little bit tighter from a regulation perspective, that's going to be helpful to us as well. So really planning on this base case scenario. And if either one of those happen, that's just going to be a great benefit for us, but also for our customers.

And I think just for the benefit of the audience in the room as well as online. Our unwillingness to really get optimistic about 2026. We've tried to call it before, and we've been wrong. And so we're sort of out of the business of looking at the crystal ball and trying to read too much into it. But like I said, control what you can control, I think that with Shelley's message and execute. And I think at the end of the day, we're in a really good spot financially and how we can deliver value for customers.

Shelley, you mentioned regulatory factors. You want to give us your view on what's the kind of likely way that this plays out. I think when I talk about it with companies, brokerage, carriers whoever are like, well, enforcement is the key. There is evidence that there's some impact, but hard to say there's a broader-based impact so far. So what's your view about the likely path for this regulatory pressure on drivers questionable capacity?

I mean I don't think I have a different view. Enforcement is going to be key. We did write a white paper. It's available on our website. It just gives you the data for what it is. I think that's important that we educated our customers so that they understood what potential impacts could be coming so that they are prepared and ready. And again, we're going to be more cautious than not about how fast regulation will really take hold and how much that will be enforced. But certainly, that's up to 400,000 drivers that could be impacted I would say that's up to 2 years from now. And so we'll wait and see, again, planning on more of a base case.

So you think your broader estimate is 400,000 drivers that could be impacted by the regulatory variety of regulatory initiatives.

Correct.

Okay. When we say enforcement is key, is that waste stations, roadside stops, what is -- I mean it's probably everything, but what are kind of the key elements that we should consider for...

State by state. And so you do have to think about enforcement state by state, but think about anywhere that somebody could be placed out of service or double checked. And so that takes time. There is some evidence that there's work going on as we speak by state. But again, there's still a lot of capacity in the market. And so there needs to be a take out of some capacity and that be more rationalized or demand go up significantly. So there's still some room for that to really play out.

How many states do you think are seriously focused on enforcement and how many states -- how big could that number get?

Well, I think all states I think all states will be focused on a level of enforcement. To what level, I don't know. But I mean, we've heard good evidence in several states. And I would say there's no real rhyme reason as to why the state has or hasn't done it. And so that gives me confidence that there'll be some level of enforcement.

Okay. We're just about at the end of time here, but is there anything I didn't ask about or you didn't talk about yet that you want to share?

Yes, I think one -- by from guidance. Off on that.

One thing I would say is we've been -- Darren and I have been with the company 31 years. We've seen a lot of change and a lot of movement in our industry. But I think one thing we've done organizationally has really positioned our company for the long term and to be able to win like crazy. And so I looked at our financial performance in the third quarter, one of our best third quarter performance is really ever. And so I think it was our third best third quarter in operating income, and that's in this challenging of a market. I'm excited that we've already prefunded our growth, that we're prepared and ready. We're operationally excellent and that lowering our cost to serve is a big mantra inside our organization. And that really hits back home to our customers. So I'm more excited today than I have been about our future. Having said that, we'll wait and see what 2026 delivers for us.

Okay.

Tom, thanks for having us.

Excellent. Thank you so much for joining us.

Thank you.