Q4 2019 Earnings Call
Greetings, ladies and gentlemen, and welcome to Schneider Nationals fourth quarter 2019 earnings call.
This time, all participants are listen only mode.
A question answer session will follow the fall presentation, if anyone should require operator assistance. Please press star zero on if telephone keypad and is now my pleasure to introduce your host Steven. Thank you may begin.
Thank you and good morning, everyone. Joining me on the call today are Mark work, President and Chief Executive Officer, and Steve Brown, Executive Vice President and Chief Financial Officer.
Earlier today the company issued an earnings press release, which is available on the Investor Relations section of our website.
Before we begin I'd like to remind you that this call may contain forward looking statements.
Actual results may very well, so there may be references to non-GAAP measures.
We refer to the special notes relate to risks and uncertainties are forward looking statements and the reconciliations of non-GAAP measures included in this earnings release.
Now I'd like to turn the call over to our CE Mark work.
Thanks, David Good morning, everyone. Thank you for joining the Schneider call today.
<unk> for a few summary comments for the most recent quarter results regarding core operations and then I will turn it over to Steve brought it for more specifics on the financials and forward commentary for 2020.
Snyder has three operating segments truckload intermodal and logistics.
All operate at considerable scale could serve a highly diversified customer base throughout North America.
With strong Q4 performance intermodal in 2019 for the first time surpassed 1 billion in annual revenues.
Joining the prior achievements of the truckload and logistics segments.
Logistics first crested $1 billion, an operating revenues in 2018.
Despite continued brokerage volume growth of logistics did not maintain that threshold level in full year 2019, primarily due to a large customer in sourcing decision in our import export service line combined with a more muted pricing environment and brokerage.
We expect to regain this milestone in 2020 as we are positioning for volume growth and improved spot pricing environment has a year progressive.
Overall, the market environment in the quarter, what the continuation of the persistent oversupply of capacity trend, particularly in truckload brokerage.
Well, we did see promotional activities that reflects the value customers expect from shrike Schneider, especially in the larger more complex solution set pricing and volume of this project based work was less than what we experienced in the same period in 2018.
Our truckload segment the core trucking operations, excluding the effects of first the final mile delivered an 89.1% operating ratio for the quarter.
It would be a 70 basis points sequential erosion from Q3's, 88.4%.
The <unk> less robust peak season extended even into our dedicated operations as our retail based customers required less extra seasonal surge support.
We typically experience.
Our focus is on sizing our for higher network capacity to call the demand levels, while being mindful of the encouraging catalyst for meaningful industry supply side correction to include a change to the random drug testing requirement to 50% from 25% annually the hardening auto liability insurance markets the effect.
So full year will be our conversion and the national drug and alcohol clearing house on the top of the now extended multiple quarter weak spot pricing market environment.
Truckload revenue per truck for a week again, excluding the effects of first the final mile contracted 5.5% year over year, primarily due to less seasonal promotional opportunities lower spot rates.
Dedicated mix changes.
As we move onto the intermodal segment, we experienced the most robust demand picture crossed.
Our mobile.
Intermodal used a combination of above market order volume growth as result of recent new business awards and optimal container network availability to take advantage of solid seasonal demand, including a higher mix of unique seasonal project work.
Despite the challenging marketplace intermodal through with solid network execution pursuit of unique areas of opportunity and with improving levels of service reliability from our primary rail partners deliberate and 87.7 operating ratio in Q4 versus an 85 to performance up Q4 of last year.
It's actually interesting to do a two year comparison with Q4 2017 intermodal. Since then has grown container count 29% revenue 25%.
And our earnings have increased 45%.
In logistics, our brokerage operating revenues contracted 12% year over year, while growing order count 5%.
Revenue per order was lower year over year in brokerage due to a 600 basis point increase in contract mix to 52% of orders less seasonal premium opportunities in rate compression driven by the highly competitive spot market in Q4.
Logistics operating ratio.
Of 96.5% was it 220 basis point increase year over year.
Before I ask Steve to close out on 2019 and discuss our guidance for 2020 I will finish my comments on our strategy to unlock the full potential of our portfolio of services and that starts with how we allocate our capital.
Both people technology and rolling stock.
We will enter 2020 has a stronger company with a 2019 actions taken with first a final mile and the maturity of our reshaped dedicated portfolio.
Our revenue and earnings growth focus are squarely centered on delivering a truck like reliability execution had a great customer value with our asset base and best in class company Dray intermodal offering.
Capturing multiyear specialty dedicated solutions that continuously create improving value for customers.
Delivering a good consistent driver experience and return profile for the company.
The continuing deployment of shipper driver in carrier facing digital technologies that lower execution friction costs, while continuing to improve our customer carrier and driver experience and finally 2020 will be important development and testing year for us with equipment electrification in new safety and autonomous technologies that so.
Poured our professional drivers.
With that I'll turn it over to Steve.
Thanks, Mark and good morning, everyone.
I'll begin with fourth quarter revenue, excluding fuel surcharge, which was down 144 million compared to the robust fourth quarter of 2018.
For context 63 million of that decline was due to a year over year difference in revenue from first to final mile and from import export business that was in sourced by a customer earlier in 2019.
So adjusting for these two items fourth quarter 2019 revenue was down 81 million or 7.2%.
For the full year 139 million of the 173 million decrease was attributable to the same reasons.
On the topic of first a final mile.
We booked 13 million of shut down costs in the fourth quarter. This is somewhat larger than we originally anticipated and its related to point in time valuations for tractors with the first the final mile specs.
In total for 2019, we recorded 64 million of shutdown costs, which was in the middle of our guided range of 50 to 75 million.
This should substantially closed the books on this service offering and we do not anticipate this being a topic of discussion for 2020 results.
Moving to earnings while fourth quarter adjusted income from operations of 91.4 million was down 24% from the fourth quarter of 2018.
Hi view that we operated even better in fourth quarter of 2019 than the prior year given the difference in operating conditions.
On a full year basis adjusted income from operations of 306 million was well below our expectations going into the year.
This amount of earnings also represents the second highest earnings in our history second only to those of 2018.
More importantly is the fact that we improved our portfolio and our positioning throughout the year.
Mark covered the results of our three primary operating segments. So I will address our other segment.
Fourth quarter 2019 included a 2.4 million loss.
Compared to a 12.1 million loss last year.
As we've discussed in recent quarters. The primary reason for the year over year improvement is lower accruals for incentive compensation.
Outside of that there were only minor variances.
Looking ahead into 2020, we currently expect quarterly losses for the other segment average about 4 million.
And there will likely be some variability among the quarters.
Moving now to the balance sheet, it's ironic that with all the moving parts. We had during 2019, our total assets at year end World, We're only 36 million or 110th of a percent different from the prior year end.
One of the items that move the most was cash and marketable securities, which increased by 170 million during 2019.
That amount is above normal and the main reason was a reduction in trade accounts receivable, which was driven by lower revenues and the collection of first the final mile receivables.
We expect our cash build to be lower in 2020 than in 2019 due to more typical working capital dynamics.
The balance of our cash and marketable securities was 600 million at year end.
We've stated on numerous occasions that we will maintain a conservative balance sheet and are comfortable with the healthy cash position.
We've also stated that we're actively looking for organic and acquisitive ways to invest in the long term success of the company and for the benefit of our stakeholders.
It's not our expectation that we will continue to build cash rather we're looking to productively deploy cash and it's our intention to begin to do so.
On the liability side of the balance sheet. We ended the year with 362 million of debt and anticipate a further reduction of 55 million during 2020 as existing notes reach their maturities.
Transitioning now to 2020, there's an upcoming change to the performance metrics that we provide for our truckload segment.
Given the first a final mile shut down it makes sense to streamline these metrics from four categories down to two.
Beginning with our first quarter 2020 results, we will continue to provide key performance metrics in our for higher and dedicated operations and will discontinue the categories of standard and specialty which are related to equipment type.
So I wanted to give you a heads up about that pending change.
Another upcoming change involves a small but growing component of our business within our truckload segment Weve incubated a complimentary service that pairs of Snyder trailer with third party capacity under operating under their own authority.
The third party capacity as procured through our brokerage unit.
So now that this capacity is up and running it makes sense to align it with our logistics segment beginning in 2020.
We also want to provide some context for 2020 EPS guidance.
First the guidance assumes that overall economic conditions remain similar to those of 2019.
Second as Mark noted earlier, we anticipate capacity rationalization in 2020.
Not all at once were driven by a single catalyst.
The steady progress as result of multiple Confluences.
And why we do not currently envision tight market conditions across 2020, we do see a balancing of capacity and demand.
As such we anticipate overall pricing across our service offerings to be flat to slightly down early in the year and building to favorable comparisons later in the year.
On a full year basis, our guidance assumes average pricing to be flat or up low single digits across the service offerings.
For full year guidance for diluted EPS of $1.25 to $1.35 is therefore incrementally more weighted towards the second half of the year than typical seasonality would suggest.
Regarding net capital expenditures, we expect them to be approximately 310 million similar to 2019.
And our growth capital will be directed toward dedicated and specialty operations as well as trailers to enhance the density of our network.
As always.
We will likely make some incremental changes to our capex plans throughout the year.
In closing, we believe that we're well positioned for 2020 and are energized by the opportunities in front of us and we'll now open up the call for your questions.
Thank you, ladies and gentlemen, it will now be conducting a question answer session. If you'd like to ask your question. Please press star one on your telephone keypad confirmation total indicate your line is in the question Q. You May proceed star to if you'd like to remove your question for thank you.
For participants using speaker equipment, it may be necessary to pick up the handset before pressing the star Keith.
One moment, please if we pull for questions.
Our first question comes from the line of David Ross with Stifel. Please proceed with your question.
Hi, gentlemen.
Well I wanted to talk a little bit about the.
Yes, very strong performance in intermodal and how you think about that going into 2020.
First where do you expect the container count to go as we moved through the year.
Are you going to add a lot of containers or you're going to try to do more with the existing containers and then when you talked about offering a more truck like intermodal product.
Can you comment on on the rail service, how it's improved if theres any partners that have done a better job of getting it there.
Great David its market I'll start and then and Steve can offer any insight as it relates to.
The intermodal container count as you'll know we came down a little bit sequentially from Q3 Q4, as we had some boxes dispose of at end of life.
We believe we're very well positioned to grow this business without additional capital. So we don't foresee.
At this juncture needing to add.
From where we are presently to both container chassis levels in a meaningful way in 2020 insult.
We're focused on the network effects I think that was what are the key drivers to our performance in the fourth quarter is managing the network very very well and having the containers, where we needed them to take advantage of where there was a.
Solid demand and that's really our focus is to tighten up our turns and tighten up that network and I think we're well positioned to do that.
In the second part of that question right.
Service and then the rail partners and the improved service levels.
Excuse me David Yes, we had.
Improved reliability really all across the network.
And.
In both cases meaningful improvement year over year, but certainly our eastern rail partner is distinguished themselves relative to.
Performing on on par with truck like performance and so and again, although our partners are focused on that and all of that allows US then to.
Ultimately compete with the truck alternative and so we see all those signs is very very encouraging.
And then last question just on the intermodal market outlook.
From talking to your customers and seeing the volumes.
That are coming through.
Where are you most optimistic about volume growth in intermodal whether it's by.
Yes lane or or customer type.
Well, we're optimistic about the trade a deal.
We would like to be able to.
See additional share we had some good share growth coming in it out of Mexico, So were little bit bullish there.
And.
Still the conversion opportunities.
The sea of opportunity is still more pronounced in the east but.
Thats also where the higher truck competition is so we would say are.
We are fairly well balanced across though where we expect to have opportunity but.
And maybe the international marketing forced me into a kind of a position to be part of the international markets and the eastern part of the network.
Excellent. Thank you.
Thank you. Our next question comes from line of Ravi Shanker with Morgan Stanley . Please proceed with your question.
Hi, Thanks, Marni I'll then.
Let's see.
Well look at your guidance it seems relatively conservative for environmental where you think that rates are going to be flat to down first half, but up in the second half of the are.
Is there something that prevents better conversion on the or line or.
It's actually been concerned the first the final might deal wins.
I, maybe youre your or conversion should be better or maybe you're being conservative. So maybe you can help us kind of just walk to that but.
Yes sure. This is Steve and of course, we're sitting here in late January and there's lots of this game to be played out.
And could we performed better than our guidance of course, we could could things go the other direction. Yeah. We're just trying to assess how we feel about things we do feel that like I said the cost actions. We've taken during 2019 of tightened up the organization, we're operating well across.
Ross the.
Service offerings and.
Well positioned to.
Leverage whatever environment presents itself, just sometimes things take time, so it's really a degree of the pace and trajectory of capacity rationalization in our view and at that pace could vary.
Good so you're saying that make it could be updated numbers, if the market tightness quicker than you expect in a if capacity comes out sooner.
Yes, but we expect to operate well regardless of the conditions. So.
Theres that element too.
Got it just on the logistics segment, obviously, you've seen a number of players kind of talk about increased competition in the segment and going to pressure on price.
Can you just elaborate and kind of what youre seeing up there and maybe actions that you can take the maybe.
Thank you yourself against some of those trends.
Yeah Robbie its it was a as you mentioned a highly competitive environment I think some of that is driven by just the.
The increase in the contract mix related to the routing guides and a lot less volume finding its way.
Distress category or at least.
Avenues that typically would go to the brokerage arena and so as you've seen our mix of spot. The contract increased I think 600 basis points a year over year and so just a lot less is coming through kind of those other.
Typical channels and I my sense is that's.
What's going on across the entire competitive space.
Our focus as we have an outstanding platform of multi modal platform within brokerage.
And what we're trying to differentiate is how we make it easier to do business with us whether it be carrier or the shipper and do sort of way, where we certainly want to do that direct with us when possible, but also make sure that we're reaching out and finding them where they are operating in partnering with others too to expand our reach so little lower cost of acquisition.
And a higher reach across multiple platforms versus just.
Adjusted direct ones, but.
I think the rationalization of capacity will help but just as we talked on the on the truck side or the intermodal side. It will certainly have a more favorable play here, but presently there is not just not as much of that spot volume as we would typically.
Typically expect.
Got it just one last one from me Steve apologies, if I missed this commentary, but any thoughts on the used truck market and 22 any and get what we can think of in terms of gain on sale for you guys.
Sure I did not make any comments earlier, so on that topic, obviously, the theres plenty of public stats out there that show that the used equipment market has said.
Softened quite a bit and we think theres just a period of time, maybe another quarter or two before that.
In of itself starts to balance out again.
Normalize.
So going in its kind of this first half second half story that we were talking about the earnings guidance, we expect a little drag in the first half of the year from.
Losses on on disposition of equipment.
And then that kind of stabilizing as we get in the second half.
Understood. Thank you.
Thank you.
Thank you. Our next question comes from the line of Ben Hartford with Baird. Please proceed with your question.
Hey, good morning, guys Mark already back.
Interested in your perspective, Mark on the comment about the reshape dedicated portfolio. Obviously, it makes sense to with regard to the changes with first the final mile but anything else that's been done.
Operationally internally that speak to the reshaping of that and I guess in that vein.
You know what do you think about that.
The growth profile of the dedicated business in particular over over a three to five year period as is presently constituted.
Yes.
Yes, Thanks Ben.
Certainly we see on the truck side of our business that to be.
Our primary growth target and I'm really pleased with the.
Reshaping of the other portfolio and really what.
It gets mass and I've said this before on prior calls is we're not quite through all the sunset of the.
Some of the attrition that we.
That we.
Kind of manage through because we were taking very large single site locations 100, plus trucks hundred 50 trucks.
And replacing them and largely replaced all of that but with 10 and 15 size more specialty type solution sets versus just capacity generation plays.
And so.
So the sales effort to do that the execution effort to do that the integration with more closely then with our one way network, which I think makes the dedicated network even stronger when we're well integrated there all of those and we're not done we still have other improvement opportunities to take across the portfolio would have portfolio would have.
From an execution standpoint, and have a series of initiatives to continue.
To improve our our overall integration across that.
Full truckload platform.
So feel very good good momentum there we were really pleased with the pipeline.
And at our target is a much different target just based upon what we had traditionally had shaped our our dedicated portfolio. So a lot less retail more specialty.
Services across a much wider swath of.
The the.
The economy. So all good and we would expect for the multi year to your question Ben that that will be over the next several years our primary growth vehicle.
We'd like to see four or 500 trucks, a year growth and it comes down to then what's your retention rate and whats some of the changes that your customer maybe going through that alters the current portfolio and we've seen some of that with customers changing.
Some of their distribution patterns has had some effects.
On the overall tractor count, but feel very well positioned and the organization is really lined up.
Well in the commercial aspects behind that objective.
So that's helpful. And then if I can get any level of specificity on the comment from you or Steve with regard to pricing being flat to up across the portfolio in 2020, and can you kind of rank order.
The buckets dedicated truckload and intermodal.
You see that playing out whether you see one mode being.
At or or or or worse than that kind of flat to up portfolio pricing comment that you made for 2020. Thanks.
Yeah, I guess, that's a layer of specificity that we haven't gotten into and but obviously the tide kind of moves all of those together I think our net revenue per order in our logistics unit would probably move quick us because as it plays in the spot market by definition.
Most.
Pronounced way as a percent of its overall revenue.
And then were predominantly contractual and the rest of the business and so theres a little different dynamic going on within that space. So if that helps provide some context, we think are for higher space trucks I will be there.
Right, there on probably par with logistics space, but I think Steve contractual nature dedicated more multi year in nature.
So most of those comments centered around our network businesses.
Great. Thanks, if I could just get one specific question answered truckload versus intermodal do you see one as being if you look at one way truckload versus domestic intermodal one is being more competitive than the other during 2020 promote contractual bit perspective. Thanks.
Let's think about that a little bit better I think.
We certainly don't see.
Any strategic appetite changes from our customers relative to looking for opportunities to maximize.
Intermodal.
So we've seen some conversion back this year to so over the road, particularly the he's just because of pricing so.
Yes, very bullish on the intermodal.
Alignment with the customer community and so I don't think I really would put a difference between the two.
Thank you.
Thank you Sir our next question comes from the line of Jack Atkins Stephens. Please proceed with your question.
Hey, guys. Good morning, Thanks, very much for taking my questions.
So I guess just starting off for me what is your capital allocation I guess markers, Steve how do you think about balancing.
M&A relative to increase shareholder returns you know your your balance sheet is very strong you're going to have nice free cash flow.
Continuing I mean are that are the opportunities and M&A market accelerating from your perspective, and what would it take for you guys to maybe get get to point to feel comfortable returning cash to shareholders here.
Yeah. Jack this is Steve I'll tackle that I mean, we haven't taken any options off the table and be clear about that and as in my earlier comments just trying to convey the message that were very aware that we have.
The cash on the balance sheet, and we absolutely want to put it work for the benefit of shareholders, whether that's investment and long term returns.
And revenue and earnings growth that we can generate and door.
Some.
Returned to shareholders. So.
They are all on the plate being considered and we're not force ranking them at this point, but we want to.
The prudent with.
Deploying capital.
You know if it isn't in our acquisition or acquisitive space, we want to make sure that.
We're fine paying a fair price, we don't want to pay.
More than fair price.
And so that that creates a bit of a dynamic too so we won't be prudent stewards of capital and.
Measure ourselves over a longer course of time.
As opposed to short burst so.
We're we've we do focus on long term earnings growth.
That makes sense, that's that's very fair approach and I guess for my for my second question, you're kind of going back to the partnership you announced during the fourth quarter with truck stop Dot Com I think specifically related to this book it now pilot.
Is this a sign that you guys are seeing maybe some increased opportunities to move to a more automated business model.
And our there maybe some potential.
Fairly meaningful synergies to be gained over the next several years as you guys, maybe do more with technology in your business, even though you're already I think on the forefront of technology within that within the industry or are you seeing more opportunities.
Do you utilize technology to drive efficiencies as you look forward over the next couple of years.
Jack do you are right on our strategy. We believe there is ample opportunity across all parts of our business.
To use the power of technology and automation to really just increase the speed and accuracy of information that we share with our various trade partners too as you mentioned.
Both on our platform direct but extending into others like truck stop dot com.
To reach people, where they may be at and do so in such a way that takes the.
The friction in the time out of it by using some automated technologies and our quest platform up enables that the decision science to be able to post that and.
In various places we think has great promise and I think people are more and more getting comfortable.
Changing the way they do business on both the carrier shipper.
And.
Side to take advantage of that so that's where we talk about our primary investments and tech, it's and exactly that space.
Okay, great. Thank you again for the time.
Thank you Sir our next question comes from the line of Chris Wetherbee with Citi. Please proceed with your question.
Hey, Thanks, good morning, guys.
Alright.
I guess maybe.
I apologize if I missed in your prepared remarks busy morning, with multiple calls, but wanted to kind of touched a little bit on sort of the more near term fundamentals that youre seeing in the truckload market kind of how December shaped up does it feel like it ended up kind of coming in a bit better than that maybe the expectations were and how it's sort of that translated into.
In early January I carry activity I know, it's a challenging time of year to kind of measure the health or lack thereof. The market. The kind of wanted to get sort of that early read and how you guys you're thinking about it.
Chris Tonight as you asked one of Mckamy momentum to finished the year I I think we're probably most disappointed with the October in early November time frames.
If you would again measure too.
Typical peak season, and we felt better about December the length momentum throughout so it did.
Appear to build but overall the quarter just didnt have what we would typically see and and there's lots of reasons, perhaps based upon how the holiday fell and.
And.
This to shrink the season for whatever reason, but we just didn't see all that promotional activity. We typically saw but we did see some building and we wouldn't say, it's a terrific robust start to January but it's it's on expectation and and we have seen some build throughout the month again like we saw in December so.
And again I'm speaking, mostly to the network side of the business as the for higher side.
Okay. Okay. That's helpful. And then when you think about Sir your pricing commentary for 2020 can you talk a bit about how we should be thinking about fleet development in that context. So obviously, you've got to gone you've gone through the first the final mile calling over the course of the last couple of quarters, but how do we think about the fleet in 2020.
You are referencing fleet sizing.
Correct.
That's correct.
I think.
We are satisfied with where maybe I do a little bit by segment I think we're satisfied where we are.
From a for higher standpoint, which is our largest component and we're really focusing our.
Our growth aspirations and where we're targeting.
In our specialty areas of both in the liquid tanker space for example, which would be in the specialty area.
And dedicated.
And as I mentioned earlier, I think we have great growth potential intermodal and doing so without adding capital in any meaningful way to do that so.
Our growth focus is in those specialty areas.
And then obviously logistics, we think is post post for a rebound, particularly the second half of the year as things start to firm up.
Okay. Okay. That's helpful.
And then I guess, maybe my last question just coming.
Specifically back to intermodal and thinking about the opportunity set there.
The Union Pacific is changing a little bit of of them.
At this approach to too.
Transcontinental business, a one to get a sense and maybe how you thought the load growth outlook was going to be obviously bouncing back to growth in the fourth quarter trying to get a sense of maybe how you guys you're thinking about market share opportunity for you specifically in intermodal.
Yeah, we've been we're.
Really pleased with the progress in that business in total and our ability to execute and as they often referred to.
Our competitive advantage as it relates to the company Drayage company Dray model that we just execute very very well against.
And so.
Yes, we would expect that we will continue.
So look for ways to grow that business and obviously as the truck market hardens a bit thats, a nice catalyst, particularly in the east.
For more opportunity there so.
Steve any other kind of framing on that but.
Okay. Okay.
Okay. Appreciate that thank you very much.
Thank you. Our next question comes from the line of Scott Group with Wolfe Research. Please proceed with your question.
Hey, Thanks morning, guys.
Sorry can you can you guys share what you're seeing from.
From bids early on in terms of truckload and intermodal I'm not sure I heard that yet.
Yeah, we have a Scott we have lots of activity in flight, but it hasn't we're so early in that process I don't.
I think we have really any real great insight to share yet.
Relative to being through that.
And we didnt have a whole lot of activity in the fourth quarter.
And so it's hard to have something from a sample set to be representative.
At this juncture.
Okay.
On the on the intermodal side can you say do you have visibility or are your rail cost increases in 20 higher or lower than they were in 19, and then I don't I don't know if you have any get can give any guidance on the direction of intermodal margins for the year.
Okay.
As it relates to.
And our rail costs as you know we have long term contracts that recognize aware.
The market moves and.
Some of the effects and certainly in 2019 was a market move very aggressively in 2018, so as the market kind of rationalize we would expect.
Those same mechanisms to come into play relative to when when the market goes the other direction. So.
So it's all based upon a kind of those those dynamics Scott.
So what does that potentially mean for intermodal margins this year.
Yeah, We've stated in the past that we expect operate in the 10% to 12% margin range and I think our expectations for 2020 would certainly.
Fall comfortably in that range.
Okay, all right. Thank you for the targets.
Thank you. Our next question comes from line of Jordan Alexander with Goldman Sachs. Please proceed with your question.
Yeah, Hi, just a quick follow up on the capacity in the dedicated side I think longer term you mentioned you like to see four or 500 truck growth per year does that apply to 2020 as well.
Well, probably on a on the lower side of that and it really comes down to Jordan.
Some of those other dynamics that go on on the changing supply chain of customers, but certainly on the.
New business acquisition front, we're very comfortable that number it comes down to kind of where where your current network is and what changes may be a foot.
And just a quick follow up with the move to more specialty on the dedicated and.
Some of what you're talking about I mean is does that imply ethnically you mentioned, thus far more private fleet tight conversions than you've traditionally done in dedicated.
So the process, maybe a little bit longer in terms of bringing the San Im just trying to get us feel for for the strategy around that.
Yes, I think Thats a.
Very much on line with what we have experienced and what we intend to a focus on and not that were anti big box retailers or any of those items, but we were.
Over our history.
Our mix was probably too heavy in that regard and underrepresented in some of the other more specialty markets and early over the last 18 to 24 months Thats been our focus and change.
And.
And.
With that comes.
A little different sales cycle, what comes with that as more market penetration that you have to half from a commercial standpoint, which weve been addressing.
But will also comes with that is very predictable.
Very driver.
Value added type of solutions that we think are stickier and provide not only a great experience for the driver in the customer, but also more study returned to the organization.
Great. Thank you.
Thank you. Our next question comes from the line of Bascome majors with Susquehanna. Please proceed with your question, yes. Thanks for taking my questions here I.
Apologies if I missed this earlier was also hopping calls, but did you guys quantify the expected incentive comp headwind that that's going to hit in the other and in could you clarify you know with the call it flat to up seven 8% guidance range.
Is this initial budget have you had a target incentive comp or above or below thanks.
Sure. This is Steve and I, we haven't talked about it on this call, but I have on prior calls where if we talk about headwinds and tailwinds comparing 20 to to 19.
Of course, we have the first a final mile Tailwinds that are about $35 million worth of operating losses that won't be in 2020 that were 19.
So there's that and we've also stated roughly a 20 million dollar year over year headwind.
In 2020.
On the incentive comp piece at your inquiring about and that add that number it assumes a target payout.
For the annual bonus in some of the long term incentive components of that number.
Thanks for clarifying rytary matched the and.
Just a follow up on Jack's question in your prepared remarks from a capital allocation.
I mean, it sounds like you guys are perhaps closer decision are announcing something there I've noticed that you typically announce your dividend or day or two before the Fourq. You report I mean, just something that we can hear something morphing into share from in short order I'm, just kind of curious about the cadence and when we might hear more thanks.
We're not on the cost above anything.
A big there so I don't want to convey that message what I am trying to convey as if we take this very seriously we take out the capital allocation and return on capital very seriously and it's our responses are not.
Passive or dismissive at all we're active.
We're working we're trying to deploy capital and productive ways.
For the long term benefit of the company our shareholders. So that is the message we're trying to convey.
How we deploy that when we do it I don't have specifics about yet I just want to one.
Everyone to know that we're working hard on it and take it very seriously.
Thank you for the thoughtful response in limbo effects.
Okay.
Thank you. Our next question comes from the line of Todd Wadewitz VBS. Please proceed with your question.
Yeah. Good morning, it's Tom.
Wanted to I guess, we seen two competitors in various businesses that have bought side and if you want to call I'd like consolidation businesses, so hub, but a.
Okay stack.
In the <unk>, a while ago and then obviously CHP. The news last night on a prime Prime distribution services is that kind of broad consolidation capability something that a useful.
Capability to have with big retail customers is that something that you might want to having a future is that something that's kind of.
Outside the range of capabilities you might consider in M&A.
Hi, Tom as Mark No I think we would consider a wide range of of items and then we certainly would potentially have some leverage there we have a consolidation deconsolidation business, which is really centered around the ports with our import export business.
Which is.
Largely taking international boxes, and and consolidating placing into that the domestic supply chain and so.
So in some respects not just an LTL and consolidation model, but more of a international one so there are some.
Technologies and there are some other things that could off could offer some leverage there but it's.
We're not narrowing it to two that scope, but.
Wouldn't eliminated either.
I mean is that a view that kind of close for is that a business. It's close proximity to trucker intermodal on would be pretty helpful or is it reasonably distant and not particularly necessary.
Yes.
I don't think it's it's a an absolute for us I think there's different ways to accomplish a service set a solution set to customers across this space, but as Mark said earlier nothing's really ruled out at this point.
Right right Okay.
I think you've commented some on the you know the kind of outlook in pricing outlook.
When you look at second half and you you anticipate some improvement is that driven primarily by that capacity rationalization or are you expecting some actual pickup in a in loads and maybe hearing some optimism optimism from your customers on a level of activity when you look to second half.
Yes, we've not tried to over think that part of it because it you know its election year, who knows what part all like go on in the broader economic space. So we've just kind of assumed status quo from the broader economic setting our assumptions are more built about around specifically within the freight environment.
The capacity in supply equation, and the catalysts that we see changing that dynamic as we move through the year.
Okay, great. Thank you for the time.
Excellent.
Thank you. Our next question comes from the line of Brian Ossenbeck with Jpmorgan. Please proceed with your question.
Hey, good morning, Thanks for taking the question.
Just wanted to see Steve you can offer some more context around some of the cost savings initiatives thinking or at least there effective cost management referred to in the last couple of.
Press releases, if anything specific in going to.
Perhaps a finer point on that and then also perhaps address the the insurance markets been getting lot of attention recently and just curious as to what level of pressure.
You're feeling there compared to maybe what some of the other smaller players are experiencing.
Yeah sure the I'll take the latter part of that first the insurance markets as.
We've probably seen in right about.
Definitely pardon significantly since our last renewal ours is pending later in the first quarter. So we don't have.
Specifics on that yet, but do you anticipate a fairly hefty.
Increase in our premiums depending on how we end up strong structuring our program.
And so.
Black specifics and how those will stack up exactly but certainly I see that is at one of the catalyst for the capacity.
Rationalization Thats the extension of that thought is.
It's one of those things that puts pressure on.
On March and.
Capacity.
Okay, and so right on the cost savings and then just if you could maybe elaborate what what type of increase you have baked into the guidance at this point.
On the insurance side specifically.
Yeah, we haven't.
Communicated what we expect the increase to be would like I said there are lot of moving parts as we began the.
Conversations with the markets.
So, we'll probably need to give us a better update on that.
On our first quarter call.
But on the broader topic of the cost savings that you started with you know we've kind of surgically gone through the organization, whether its operational costs or back office costs.
And.
Indirect or direct or however, you like to think about those things and.
And if I had numerous pockets of change that weve.
Made in the organization. So it's not just one area that we've.
Found some magic solution to its just a lot of hard work across a lot of spaces that aggregate too and we expect to continue that in 2020 and have.
A pipeline of things that we're pursuing.
Including some benefits from tech investments that we're making we'll continue to make.
But other is just.
Process improvements and efficiencies that we identify from questioning how we do things and why we do things.
Okay, and then just one more for Mark real quick on the intermodal side.
Obviously, the railroads are talking about truckload conversion some of even talked about maybe opening up some lanes that had been closed under the rationalization programs are last couple of years, what's what's your perspective on on gaining more share off highway and how if you even are expecting as a means to start to reopen here.
As PSR starts to take the next next sort of couple steps is that a 2020 event or is this something is have to watch and wait and see how it develops.
I think it's incumbent upon us to continue to have dialogue to to be able to demonstrate where we think.
That there could be some advantages.
To either.
Addressing a decision that was made or or even.
As we did a couple of times and announced last year, having some new service lanes just developed because of the commercial.
Capability and the commercial.
Attractions that we can show to the railroads and we want to make sure that has a good partner, we're continuing to bring those in surface those up.
Obviously I can't speak for them they will make the decision that's ultimately in their best interest but.
What we want to make sure as we have at least a seat that we can share perspective and share opportunities and so I think.
Those things or are we are well received in sometimes are working and sometimes they don't.
Okay. Thanks, Mark appreciate it.
Thank you, ladies and gentlemen at this time there no further questions I would like to turn the floor back to management for closing comments.
Great well, thanks, everyone I know, it's a busy day with lots of alternatives out there, but we appreciate the time you gave us.
Thank you ladies and gentlemen. This concludes today's teleconference. You may disconnect. Your lines. This time. Thank you for your participation.