Q1 2020 Earnings Call

Greetings welcome to state or first quarter 2020 earnings call. At this time, all participants I know with only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press Star Zero I know telephone keypad. Please note this conference.

Being recorded.

Now turn the conference over to Steve, but director of IR. Thank you you may begin.

You operator, and good morning, everyone. Joining me on the call today are Mark 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 that Schneider Dot com.

Our call will include remarks about future expectations forecast plans and prospects for Schneider, which constitute forward looking statements for the purposes of the safe Harbor provisions under applicable Federal Securities laws.

Forward looking statements involve risks and uncertainties that could cause actual results could differ materially from current expectations.

The company urges investors to review the risks and uncertainties discussed in our FCC filings, including but not limited to our most recent form 10-K and those risks identified in todays earnings release. All forward looking statements are made added the data this call and Schneider disclaims any duty to update such statements except as required by.

Well.

In addition, pursuant to regulation G., a reconciliation of any non-GAAP financial measures reference during today's call can be found in our earnings release, which includes reconciliations to the most directly comparable GAAP measures now I'd like to turn the call over to our CEO Mark work Mark.

Thank you, Steve and good morning, everyone and thank you for joining the Schneider call today, we recognize as we sit here on April Thirtyth summit. These unprecedented times that results in the first quarter or perhaps a bit less instructive than normal.

Our approach today will bounce Q1 commentary well flexing a bit from normal protocol to provide visibility into the impacts of the health crisis, both from a humanitarian and a business simplification standpoint in the current period.

Snyder has approximately 19000 associates, an owner operators across the globe and nearly four out of fiber. These great individuals filled a central roles roles that must report to work daily to fulfill our promises to our customers. They are drivers owner operators shop warehouse and driver services.

So now in a short they've been outstanding and their commitment to keep the nation's goods moving we recognize and thank them for their professionalism and commitment.

That's the onset of the Cobot 19 health crisis, we've had 26 associates, who have experienced a confirmed diagnosis.

Another 200, plus associates have been tested and instructed the corn team by health professional due to a potential exposure.

Company has responded with emergency paid time off support and the more advanced cases provided additional benefit supported systems. So they can fully focused on their recovery.

The efforts of continued sourcing up protective face masks hand, Sanitizers and disinfecting wipes is now and very appropriately the new business normal.

Our support functions in the areas such as customer facing driver leadership route planning check and back office functions in a matter of days converted to a work from home model consistent with best health practices.

Today, with some new tools and processes the business continues to operate very effectively and.

My view these experiences will certainly drive lasting change where and how work is structured and executed.

I will ultimately benefit.

Business, our associates and our customer base.

Well the impacts of Cobot 19, our daily work lives are pronounced it's also proving to be another demonstration of our company is resolved and adaptability.

We entered this condition operating from a position of strength.

Financially strong a strong and diverse customer base in a purposely constructed portfolio services.

These advantages enable us to play the long game and take a balanced approach.

That includes prudent elements of defense and the near term actions regarding cost and cash flows.

While positioning the company on the offensive for an economic in freight recovery.

As part of a lasting change and how work is accomplished we've continued our investments in AI driven automation and we've advanced those efforts through the first quarter.

For instance, in our for higher truckload business, 80% of orders now go through an AI driven enrichment process, where the quest platform completes missing or incorrect data elements from the customer tender. So that it can pass through our algorithm for an acceptance or rejection decision.

If accepted the order is automatically created in the system, making the entire process touchless.

This enables our people to focus on higher customer value elements and will increasingly be a driver a productivity into our business.

Another example of intermodal where in the early stages of implementation of company Dray fleet dispatch automation.

The quest platform takes and the rail grounding data balances the order appointment process by company Dray availability and then automatically dispatches the dray driver through an optimization algorithm.

The dray dispatches executed in a touchless fashion in April we will surpass 30% automated company Dray dispatch.

In addition, we've improved our variable cost position through improving our performance in areas of safe operations driver recruiting mix.

You'll efficiency gains and equipment maintenance efficiencies, many of which we consider to be sustainable variable margin gains.

We believe that we are at the height of the crisis driven business impacts.

Across the enterprise I think it's helpful to look at our book of business through the lens of end markets served.

As companies began to act against a non essential business designations around the middle of March a segment of our customer data base predominantly in the retail and industrial verticals was impacted.

For instance in various dedicated operations, we had roughly 445 drivers impacted due to customer temporary shutdowns.

We expect a situation to continue to improve throughout the second quarter and we have worked with our customers in a fashion consistent with the integrate into strategic nature of the relationship to balance the needs of both organizations and these unprecedented times.

We expect most all operations to restart wants the broad shelter in place restrictions begin to lift.

But at various levels of ramp up velocity.

And in keeping with the whole dedicated team one of the many disappointing fall out of the current environment.

Is how our dedicated planned new business startup activity has slowed due to customer distraction and certainly understandable.

Over 200 units and startup holding pattern that should break loose wants the restrictions begin to lift and business normalizes again.

Non specialty assets and capacity allocation are fungible, especially in the short term and we routinely flow resources or verticals that are experiencing a surge in demand from places that are contracting.

As industrial non essential retail verticals lag, we quickly allocated resources, the surging food beverage consumer products and other central retail segments.

Despite the dislocation of assets in mid March tractor asset productivity improved slightly in Q1 out of like comparison basis.

As the Pancer restocking surge began to normalize the ability to redeploy is becoming more difficult as a month of April has progressed, we have moderated our incoming driver hiring numbers for the month of April a made to account for the more tepid demand levels.

Got a month to date basis.

Year over year comparison truckload build miles are currently down high single digits daily from the prior year.

The impact is more pronounced in the network for higher portion of our business.

That's a function of approximately 300 fewer trucks and lower demand levels than a year ago April.

Let's move on to intermodal.

Year over year order growth in the first quarter was 3.2% with a large mix change due to the competitive condition on the west.

An impact import activity with the extended Asia export market closures.

We enjoyed order growth of 20 plus percent year over year and the combination of the eastern Mexican portion of the network.

Offset by an 8% order shrinking as year over year in the quarter in the western regional and Transcon combination.

The higher rail expense and dray costs as a percent of revenue.

Due impart to this mix change contributed in part to 160 basis point margin erosion year over year in the quarter.

As we now look to where we are the month of April the intermodal segment is being negatively impacted by the Asian import air pocket limiting volume through the ports.

Combined with a higher mix of non essential retail than we enjoyed our truckload segment.

Therefore, intermodal daily tender volumes as compared to a year ago in April our currently down in the upper teen percentages.

We are disposing of containers that have reached end of life without replacing them in the short term. So we expect to have roughly a thousand less containers and surface at the end of Q2 of 20 as compare to the end of Q2 of 19.

And finally, our brokerage business continues its growth trend with volume growth in the high single digits.

In the first quarter.

Items are certainly helped by consumer restocking behavior in March and support of larger shipper needs with some margin offset with a tightening capacity situation.

Before we get to your questions I want to turn it over to Steve to provide some additional insight into our goals going forward actions to position the company favorably for recovery and economic activity and freight demand.

Thanks, and good morning, everyone as Mark noted at the beginning of his comments we are adapting our approach for this call to focus primarily on the current state of the business and we'll speak only briefly to our first quarter results.

So I'll begin with an overview of the framework, we're utilizing as we move through this virus event.

Although we reiterate marks comments that it's truly a strategic asset to be able to address this situation from a strong position not just financially that organizationally with the Snyder culture.

First customer base, a balanced portfolio services and robust decision support tools.

Well no one knows exactly how this will play out we are utilizing a base case assumption that the brunt of the negative impact from lower freight volumes will be born in the second quarter.

Mark described elements of the downward slope, we experienced during April.

And we are expecting second quarter volumes to remain depressed as it will likely take some time for various industries and regions of the country to pass through the necessary stages to reopen and door regained scale in their operations.

Beyond the second quarter, we are looking for a steady pick up in freight volumes throughout the third and fourth quarters. Although we expect the second half ups slope to be more gradual than the abrupt April downslope.

So our emphasis is on balancing near term pressures with mid term opportunities.

The partially addressed near term pressures, we've implemented several cost initiatives.

We've implemented a hiring freeze for non driver positions deferred annual merit increases pursuit targeted furloughs and reduced work hours.

Volume related areas of the company.

These are measured steps that can be taken while ensuring that we're positioning the company for the subsequent upside as this situation.

At the same time, we're providing financial support for our associates, who have been impacted by the virus and are actively investing in the safety of our people buy procuring large quantities of mass and cleaning supplies.

Regarding our first quarter I'll provide a few summary comments.

We are well positioned as we entered the year and we're experiencing modestly firming market conditions prior to the virus related impacts on our business.

So we were meeting our expectations as an enterprise and it felt like a good setup for the year.

Then in response to the rapid changes in operating conditions. The team did a great job during March two quickly adapt and get resources, where they were needed.

There are few items in our first quarter results that will bring to your attention.

The first as a negative year over year impact duty equipment related items.

The first quarter of last year, we had gains on sale of 2.8 million and in the first quarter of this year, we had 4.8 million of expense, which was a combination of losses on disposition.

An asset impairment charge on equipment held for sale.

The next couple of items are in the nonoperating portion of our income statement.

We recognized a valuation gain of 6.1 million related to our equity position in the telematics company platform Science.

They raised additional funding during the first quarter and that prompted evaluation event for us.

So there's the possibility that we will further adjust this valuation in the second quarter as their funding round is completed.

The next item relates to interest income.

Well there was not a large impact on our first quarter.

Interest income.

We expect that the remaining quarters of 2020 will be affected by the abrupt decline in short term interest rates.

We now anticipate lower interest income of about 1.5 million per quarter for your EPS modeling purposes.

Looking ahead, and giving given the circumstances, we've made the decision to suspend full year earnings guidance.

Our intention to resume this guidance as soon as its practical to do so.

Regarding net capital expenditures, we have made several adjustments, we're maintaining steady investments and replacement equipment to maintain our desired fleet age, but have removed most of the budgeted growth capital.

In addition, we have deferred some discretionary projects, which are mostly property related.

On the other hand, we're accelerating our investments in technology, particularly in decision science and automation.

The net effect of these actions as a revised full year 2020 guidance number of 260 million.

Down from our initial guide of 310 million.

With that I'll turn it back to Mark for closing comments.

Thank you Steven in closing Schneider drivers shop warehouse in frontline leaders shined, when our customers in the nation needed them most through the height of the health crisis.

As we look forward our eyes are squarely focused on the horizon in the rebound in economic activity as the country begins to reopen for business.

We came into the crisis and a strong financial position.

With a portfolio of services that gives our customers optionality by mode and value proposition.

We think that matters now and perhaps even more so in the future as customers look to adapt their strategies related to production inventory placement and responsiveness to variable demand patterns.

Finally, we are leveraging our considerable financial strength by continuing our critical investments in our quest technology platform that not only provides for long term favorable positioning of the business, but delivers tangible benefits in the present.

Operator, we will now open the call for questions.

Thank you.

I'd like to ask your question. Please press star one on your telephone keypad.

For me to Tele indicate your line is in the question Q.

Press Star too if you like to remove your question from the Q and for participants using speaker equipment may be necessary to pick up your headset before pressing the star. He is our first question is from Jason Sito with Cowen and company. Please proceed.

Jason Your line is life.

Thank you operator morning, gentlemen, appreciate the time hope you are all doing well I wanted to talk a little bit about what you're seeing out there.

From you or your clients in terms of people.

Putting downward pressure on pricing is anybody asking to reopen contracts at this time.

And then I've a follow up on the intermodal side.

So that a question Jay some more aware, we are and the renewal process or just maybe out of cycle.

I I'm I'd love to hear renewals to but this is more of the out of cycle stuff. There are our customers coming to you on the Autocycles time right now we're not really.

Yeah as you as we look across the portfolio.

I don't I only we have very many examples of that.

Our have been some discussions about other items like payment terms and some other items based upon where people may be feeling some distress.

But.

The most part everything is kind of operating on the same cadence that we would have expected maybe a little bit of delay and the renewal process just based upon some distraction.

And so again, we have very deep and long standing relationships with most of our top customers and.

We've been through many cycles together on both sides of it so I would say overall the behavior on both sides have been.

Very steady.

And there are an all set.

Yes, I guess I would characterize it maybe in some cases, we've got some delay of implementation on both whether its dedicated intermodal or.

Our network side were about 30% or so through on the intermodal book of business and I did I define that as.

Not only through the process, but the actual understanding of what the award looks like there's other more that in flight.

We've got insight back on what the future will look like is about 30% on the intermodal side and 35% to 40% on the van side.

Which is about typical but I don't expect as much so that to get done in the second quarter, just based on where we are in the.

Handling the virus.

Right and in terms of the rates that you're getting could you give us a little bit of color on those.

A couple of couple of comments break it again down by kind of segment on on the network side, we're seeing.

Again, how we measure this as we understand what the award looks like we try to take into account what historical realization rate is by customer because they do vary based upon the quality of the information.

They are utilized in their process.

And we would suggest.

The early feedback with suggests we have a bit of share gain 5% to 8% or so at slightly lower pricing on the truck side and.

More material share gain on the intermodal side again was slightly lower pricing.

But again, we have to make sure and understand what the real realization rate will be once everything gets back to quote unquote more normal timeframe. Okay. A quick follow up on the intermodal side a lot of the railroads have been touting.

You know operational gains.

Clearly volumes for them or are down. So we would expect some of the operations to look better what are you seeing on the performance on the intermodal side from the rails and how would you expect that to react.

Sort of as we come out of this pandemic.

Well rail outperformance as has been outstanding.

I guess, we'd also characterize it as record performance.

And I think most of it as sustainable, particularly in our eastern partner who's been on it.

Very solid performance trajectory and.

And very much competes on a consistent basis with the reliability of truck and I don't see that changing.

And you saw we had a 20% or so growth and the combination of the east of the Mexican markets and so even with the growth that we've had.

The performance has been outstanding.

Okay. Appreciate the color appreciate the time every won't be safe out there.

Yeah.

Our next question is from Jack Atkins Stephens. Please proceed.

Hey, guys. Good morning, Thanks, very much for the time.

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So mark I guess, maybe if we could just kind of go back to the near term demand transport for a moment before ask a longer term follow up question, but.

There are a way to maybe talk from all that about at first of all thank you very much for providing some insight into sort of how you expect the rest of the year to go I know there a lot of the pieces, but I know, we all really appreciate that but yeah, you're thinking about what you're seeing in April but you could you maybe kinda talk for a moment about how the demand trends on the on the truck side.

Break down between.

More of your standard equipment type versus your specialty equipment. I know you guys are breaking it out quite like that anymore from up reporting perspective, but just curious how those different types of assets are faring here in April and how you think that recovery process is got to go for those as we look out over the next couple of quarters.

Sure US maybe start with just reiterating what we covered on the dedicated side.

We had about 445 of our units of roughly 3900 to 4000 that got caught up in the non essential shutdown phase and most while we're starting to see some come back that has still ahead of us yet. So we really expect more of the recovery of the non essential to be.

More consistent with how states are determining when they get back to.

More normal business climate. So we would expect that we'd still have until middle of made to the end of May do we start to see a material portion.

Of that and what we've been able to do for the most part is redeployed to some surging dedicated.

And our drivers have been very accommodating understanding that condition and have worked into the network if necessary.

So thats so that's on on the dedicated side.

We do believe that as we mentioned the second quarter will be.

The trough.

We're looking and trying to understand everyday.

When exactly that will be there are some more positive signs that our customers are starting to communicate on some of their.

Plans of volume and starting to get back into kind of.

A more normal cadence, but we expect April and we expect may in particular, it'd probably be a tough month and start to see some more recovery as we get into June.

And I think thats consistent across really all our segments as Jack.

Okay. Okay. That's good so there's not really a difference in sort of how the specialty equipment as performing relative to more of the standard van equipment.

Well the dedicated specialty has been more.

Consistent.

Because it's generally not where we've seen the erosion would be in some certain industrial markets.

And certain non essential retail in our specialty equipment for most part has been cut spared into.

Into those verticals. So that's still operating fairly effectively are fairly fairly normally.

Okay, that's great to great to hear and then just for a follow up question you know I'm just going back to your comments both in the press release and in the prepared remarks about you guys are coming into this crisis was an extremely strong balance sheet a lot of net cash I know you guys have been looking to deploy that capital.

They purposes.

For the last a little while here and how are you guys thinking about the M&A market.

Yeah has that changed at all because of this are you seeing.

Ah different types or maybe an increased number of targets that you think could could be really attractive for schneider longer term. Just just curious how you guys you're thinking about deploying this.

This balance sheet, because it seems like the opportunity set and has just gotten greater over the last 90 days.

Yeah. Jack this is Steve I'll take that one and I think it's safe to say that over the last couple of months, we redirected to all of our internal resources to be fully focused on the mission at hand so.

Any such a in that M&A screening activities. It kind of been put on pause for a while now that though we are gaining a sense of footing and.

And things are moving.

Moving along a path that we somewhat anticipated.

Starting in mid March as we started trading to imagine what this might look like.

I think we can start to redirect some of those efforts and are certainly.

Interested in a strategic opportunities to deploy capital and will resume those activities.

Obviously, it takes two parties to engage in a transaction and so.

So.

Theres that dynamic about.

When someone might be willing to sell and why and and so on and what would fit what we're looking for but.

That's just some context, but yes, we would be we remain.

I'm interested in.

Pursuit.

Long as it meets our strike strategic criteria.

Okay, great it, but but I guess just from a strategic perspective, you know mark as you as you sort of think about.

The opportunity set in front of you are from an M&A perspective, you know has that.

Hi, this crisis sort of change sort of what you'd be willing to look at or what you're looking for in terms of additional capabilities or.

Anything like that.

Yes, probably have to move on here, but.

No I don't think it changes.

Changes our thoughts relative to what we would strategically be interested in I think I agree with your approach that your thesis that.

Things might be up more reasonably available for a whole host.

Criteria.

And so I think we're looking forward to getting back and making and spending time against those assessments.

Okay. Thank you thanks.

Our next question is from Ravi Shanker with Morgan Stanley. Please proceed.

Thank you.

Gentlemen.

Just to get a better signing of the extended the disruption. So far can you share with us going to what percent do you. If your customers are still up and running your exposure to staples versus industrial end markets and also essentially we're at another potential.

Yeah, Raviv I'll give you some perspective, there and I could give you how we really think about that is.

As we define essential it would be the things that you would expect food and beverage consumer products central retails certain paper verticals.

Packaging.

And home improvement and if you look at that consistently across our book of business.

The dedicated numbers I gave you pretty much define that that's in the upper eightys that we would consider that to be in.

The central services.

Our remaining truck business is about 80, 182% into those categories.

And our least concentrated around essential happens to be intermodal and if you think about what is generally imported is not food and beverage type products its apparel and other kind of general merchandise through retail channels and so our mix of essential in the intermodal spaces.

And the low sixtys.

So mid eighties.

It is.

Low eightys for our network business on the truck side and low Sixtys for our intermodal network business.

Got it and what percentage of these customers roughly are still running you think.

Yes, [laughter], it's so different by you know to top 70, or 80 customers on our truck and intermodal business make up the vast vast majority of our.

Mix it in the logistic side, it's thousands of customers that make that up Ravi so.

I guess, if they're shipping with us we call them essential so that those percentages I think are or pretty close.

I understood.

Just a follow up Mark your comments at the top of the call on the algorithms and the touchless operations are pretty interesting.

I mean is this and then.

Again never we had a good crisis rights as this event kind of getting you the power off some of the automated processes that you guys already happened place and kind of what does.

The number of transactions spray employee or employees sport truck look like in five years time, if you can really leverage does kind of systems.

Yeah, Ravi that's exactly.

What we think the opportunity is and.

And so we've been very proud of the whole organization's ability to adapt and.

And.

In fact, we accelerated through the first quarter in the midst of all of this the automation activity not only in our implementation schedule.

But also in Boulder dust to advance our investments within the calendar year because of the potential and so.

I'm highly confident that we can grow our business.

Without having to have near the same.

Investment we used to have relative to the gionee side of the house. So it's not necessarily looking to cut this how do we grow our business had a much.

Lower internal cost point to do so in the tools on the platform on this kind of second quest acts. If you will our second generation of meaningful investment here.

Has been very very encouraging and.

And I think it really moves us from the original vision of taking all of the inputs of data in assembly in such a way that we can help our people make better decisions across.

The needs of the customer the business and perhaps the driver associates to now having the confidence of doing it and the modeling to.

To say, we don't need just put the information we can have the system largely make those decisions kick out the unusual ones.

So that we can get our people focused on additional sales activity additional penetration of the customer book things are much higher value then.

Transactional part of the business and so.

And I think going through this massive.

Disruption here and with the viruses is shown maybe out a bit of necessity, we turn those things on faster and we've been very pleased with the outcome.

Hi, good thank you.

Our next question is from Scott Group with Wolfe Research. Please proceed.

Hey, Thanks morning, guys. So I just want a couple of follow ups on some of the April updates that that the on the trucking side can you break down the decline between utilization and fleet and then if you have it over the road versus dedicated.

There was a comment about brokerage net revenue improving in the press release, but if you have some color there and then on intermodal.

The the high teens decline or whatever you said is that getting progressively worse is the month is going on.

So Steve I'll start at the tail end of that question I guess.

With the intermodal volumes, what what we're trying to express is that we did.

Both with truck in intermodal experienced a decline.

Through the first part of the month intermodal actually started declining in late March and continued through say mid April and then plateaued and we're starting to see some rebuilding of those volumes as we.

Exit them on here and on the truck side.

Who is pretty strong through the end of March saw several weeks declined fairly rapidly in the truck business and then a stabilization of those trends that continues as we finish them on here.

There were other elements of your question that not sure I absorbed.

Yeah, sorry, I know there was a bunch there I'd be the brokerage net revenue comment just some color. There and then you have thoughts on utilization versus fleet on on the trucking side.

Yeah, it's a on the.

Logistics and brokerage side, it's obviously, a very fluid and rapidly changing market almost week by week.

But most recently, we have been able to use our tools to adapt quickly to market conditions and have.

Been able to ER for procure third party capacity quite efficiently.

Particularly on the spot side of business, which is about half of the brokerage volume we do.

So it was in that space that a transactional space, we're making reference to.

And then the comment relative to utility.

Scott Little less utility on the network side had a little more positive utility on the dedicated side, but the net of all of that in the first quarter was positive.

And if we had consistent with the load volume drop we've had some drop relative to utility in the month of April, but we think will.

That will improve as.

The quarter plays out.

Okay. That's helpful. And then just lastly, maybe Steve any any thoughts on how to think about.

Decremental margins and in the near term here and the losses on sales.

Yeah, the incremental margin ones.

Interesting one because we typically refer to those things.

We're all else has held equal except for volume.

And we're in an environment, where we've got volume and price and mix.

Changes all at the same time, so it kind of throws those rules of thumb up in the air a bit.

At the same time, where we're trying to be as nimble as we can.

As it's prudent to do so with the cost structure.

You know.

So it's a little harder to answer the incremental margin.

Question on that.

On the downside, especially when things happening roughly that's another dimension.

To this it's normal you're referring to.

Flow through seasonality, where things move a little more gradually up and down.

This is a little different when things.

Take a step function down.

So we do anticipate second quarter will be a difficult one from an earnings standpoint.

And well positioned to begin.

Improving.

After that.

Thank you for the time guys. Thanks Scott.

Our next question is from Ben Hartford with Baird. Please proceed.

Hey, Good morning, guys, Steve could you talk a little bit about networking capital dynamics here.

In April and the commentary thus far has been really helpful. So anything you can talk about from.

A receivable in a in a payable side any changes any changes you might have made on the payables side given some changes in the market and then what are you hearing from customers on.

The receivable side and how how might you reasonably expect that to play out in into Q1, I guess in that.

In that vein <unk>, how much does this stress cash collection issue in the industry, how much opportunity from a share perspective might that present to you and you know whether its truckload or for brokerage.

Yeah, I think from a macro standpoint, the whole working capital dynamic will put some stress on on incremental are marginal capacity.

For us in particular.

I haven't seen a large impact to date.

With our working capital however, I.

I think the.

Second quarter will be the proving ground for that dynamic there have been a series of requests that that mark alluded to earlier.

Subset of our customer group wanting to talk about their payment terms and other.

Payment related matters and so we're taking a look at those into reasoned manner and understanding the situation, but at the same time.

The vast majority of our bills are paid and very short order and so therefore, we need to take a pretty firm stance on the whole discussion around payment terms.

I would you expect the supply dynamic to play out in the industry and.

For you guys the reduction in Capex.

If the baseline assumption holds in terms of the improvement in the back half of the year sequentially. How quickly do you think you'll be too to add incremental capex.

On the upside.

Yeah, I think we're well positioned to turn that switch back on its pretty much as soon as.

The opportunity set as their including OEM capacity and.

Seeing seeing some firming in the market so were.

No I think will pretty quickly switch, our mindset and might need to update our capex guidance as we get later and into the year. We just wanted to provide some commentary where we are at the at the moment.

In broad strokes around cash flows we still anticipate free cash flow generation for the full year as we anticipate the.

Adjustments, we've made to Capex combined with the.

Deferral of.

Payroll taxes, the company portion of some payroll taxes provided under the care Act.

Goes will more than offset any degradation of our working capital condition in the year. So we do anticipate free cash flow generation.

And are looking through the boy that.

Yes, but maybe just some other color around to that our dedicated pipeline is.

Very strong we would.

Be very bullish to put additional capital.

Play there.

The are quite confident we can do that.

We always see in these times is a flight to quality from the driver community. So we are essentially only hiring experienced drivers and.

And what gives us a chance to show them.

Broader basis, what we have to offer as a company and so these times, we want to make sure we can take advantage of that and.

If this recovers at a faster pace I.

I think we're going to be well position to take advantage.

Okay. Thank you.

Okay.

Our next question is from Brian Ossenbeck with Jpmorgan. Please proceed.

Hey, good morning, Thanks for taking the question.

Mark I think early you referred to balance and the for higher network.

Maybe just go a bit harder now as things are normalizing or they are trying to find a new normal can you talk a little bit more about that as well as whats the balance within intermodal.

And what do you think that means for truck count or how you would try to manage that what's the potential for a pretty big snap back in the second half of the year.

Yes, Brian I think that is the real trick is how do we be mindful of the short term.

And a condition with being very mindful of.

How we can take advantage of.

All our strengths coming out the back side of this and so.

We're very much meaning to keep our scale through this it's one of our advantages that we have is our scale and so.

Could we be down a bit on the network side depending upon.

At this extends a slower period for a longer period of time, perhaps but our focus is related to added to the best we can maintain our scale through this.

Particularly.

If we get some positive signs here over the next several weeks that it looks like.

June.

Coverage as kind of our thought process presently that that would be.

Kind of work are going in.

He says, let's keep our scale to the best we can and be ready for the recovery and our flexibility.

To take advantage of that is first top of mind.

On the on the intermodal side.

We certainly have dislocation just because it's such a network business of pitching catch up between your containers and when the west has gone through kind of the import to.

Shrink to create has that we've grown a lot in the east in Mexico and some other locations. We just had in the short term here some dislocation more empty repositioning cost and those items that.

Impact our ability in the short term.

And.

But we think we could quickly recover that relative to our demand picture to get back onto our normal flow. So we really do think this is a short term second quarter type impact even in the intermodal business.

Okay got it.

A follow up on the intermodal side you are talking more about this.

Railed dray product.

Which is searching is I'm, assuming it's off a pretty low level.

You can give some context as to who who's that for how much capacity you have to offer that and what sort of the business case for for Schneider to offer that in terms of margin in return.

Yes, Brian we looked at.

We don't generally give specific customer contacts but.

We looked at that as a such as a opportunistic play to maybe help some of the.

Customers that we support and other areas of the portfolio with.

Them exploring a private box a play there we don't really see that being a major growth driver of the business or having massive.

Application across though.

Much of the portfolio. So we were looking at that is as a weight.

[music].

To experiment a bit see what to potential might look like how we could perhaps leveraged our scale.

But we don't really think it's going to be an important in large strategic play for us if any have any meaningful size.

Okay got it.

All right. Thank you for a time.

Our next question is from Ken Hoexter with Bank of America. Please proceed.

Hi, Good morning, Mark and Steve can you maybe talk a bit about the you noted a delay in completing some of the dedicated orders.

Through the bid season, maybe can you talk about how the spot business is going talk about your spot exposure burst contract and then.

Just backing up to that bigger picture your thought on on targeted makes up a dedicated versus for higher.

Yes, Ken good morning.

No. We are largely in the 60 40 range network for and to versus dedicated I think overtime.

The 50 50 mix is really where we've kind of.

Placed our our targets honest I think there's great synergies between the two and how they.

Which manifests itself for value to the customers and so that mix feels about right to us.

My questions around the delay would just some of the awards have been delayed an implementation just because of the distraction at the start up activity that.

That customer resources aren't available for and so that's.

Again, I think that's just pushing it out a quarter. So that's not going to change the.

Change the trajectory over the long term of the business.

And then the other question was around spot I believe.

Yeah, we haven't gone up we are a mid single digits spot player we might be up a 100 basis points hundred 50 basis points from our normal.

Cadence there so we are still largely.

Across really everything that we do in the asset side of the world.

Still maintaining our integrity relative to the contract mix.

Yeah.

Is that the mid single digits is that on total revenues are just on the trucking side.

That would be on our.

Within trial, Yeah, I guess actually probably within network right for skews, our for higher side of the business yeah.

[music].

Just on the for higher so okay, yes.

The capex given you're changing target here can you talk about.

The timing of Trups, given what's going on with the Oems and what you view is odd on capacity that just replacement.

Capital or or what are you see for the fleet.

Yeah. It is predominantly replacement equipment tractors and trailers and so far it's been a reasonably steady flow there's been a little bit of delay.

Stuff, we were expecting in March we got in April for example, so.

But at a relatively steady cycle.

Throughout the year, we tend to get most of our equipment delivered.

Prior to the fourth quarter.

And we've been following that cadence this year as well.

And just the last one might want but brokerage as a percent of logistics use and usually provide that in the upper eightys. It wasn't in the.

I guess on the data that I saw did that change.

In terms of anything going on within the brokerage side or logistics.

If anything it's increased a little bit it's such a predominant part of the logistics segment brokerage is that the statistic stopped having much meaning so.

Yes.

Okay. It was it clarification I appreciate that thanks for talking again appreciate it.

Our next question is from Thomas.

Well I'd with would you be please proceed.

Hi, Good morning wanted to ask you a mark about your thoughts on.

How this would impact competitive dynamic in brokerage in truckload in terms of you know it seems that there's some logic that would say.

The big guys or the high quality big guys to be more precise.

Could gain benefit as a you know work from home maybe difficult value technology scale would be maybe accentuated.

Financial strange strength things like that so.

Do you think that kinda is that a real benefit that could persist and help you out or you know in terms of share gain a in brokerage and truck or is that something pretty incremental and and pretty temporary.

But I think there are a.

Many forces at play and you mentioned.

Several of them I think.

The technology play is becoming more and more critical across all platforms of our portfolio not just in the brokerage space.

I think about.

The hardening of the insurance markets in a very meaningful impacts that that has really across the.

Really all of the platforms liquidity.

We always see drivers fleeing the quality and times of difficulty that is playing out very strongly.

You know there's some other things that can help low fuel cost can help perhaps maybe lenders not wanting equipment back could help in the short term. So there could be some other offsets to that but.

I think this is an opportunity for large well capitalized technology savvy.

Good providers quality providers to take share and that's really the mindset that we have.

Across the logistics across our truck business, particularly in dedicated.

And across our intermodal business over the long term.

Yeah, I mean, that's maybe a typical cyclical effect.

I do you think Theres a bigger effect. This time in terms of when you get out yet one freight improves.

You're looking at later this year next year than it kind of a bigger benefit than we normally see.

To the big guys and a high quality players.

Yeah, I do I think Theres theres a lot of play on the customer side too right I think theres going to be supply chain.

Changes relative to this just in time inventory too.

Just in case is going to play out I think this ecommerce piece puts inventory and more platelets, all just drives more and more precision.

And some of that and I think those who.

Can adapt to that have the wherewithal to do it which I do believe is skewed towards the.

To the.

Large providers, who have the wherewithal to invest in those I. Just I think this is it a changing moment of the industry and as it always is on these very very world changing events and I think that plays well to the large shipper and I think it plays well to the large.

Carrier.

Okay, Great just one follow up question.

For you.

It's a little tricky to tell your first quarter, and obviously second quarter is quite a bit different but you saw.

A lot of load growth in intermodal in east.

And that seems in kind of contract to the idea of we truck market.

Motors more vulnerable tougher to kind of.

Growing intermodal and that would be particularly true in the shorter haul market and you are you optimistic that you can.

Kind of grow well in the east even as the truck market Oh looking to second half not second quarter, obviously, but but do you think the east there's still a got good opportunity.

For our mobile growth or do you think that maybe half too.

Wait a bit longer look out a year to just given how much capacity there isn't truck.

Well I make this comment not as a replacement to the west or the transcon that we certainly are looking forward to the bounced back of but.

We don't believe we're at our caps or at our ability we have a number of interesting things and late stage pipeline that would suggest we still have legs.

In the east.

And it helps when our provider is performing as strong as they are performing well there is still a we can demonstrate a value proposition to our customer community and even easy easier done when we're performing from a reliability.

On par with truck and so.

So Tom it's not our entire focus you know we're excited about the near shoring things that can come back and make Mexico.

Even a bigger strategic play into the future and certainly looking forward to the more normal import patterns as well.

But yeah, we're not discouraged that were at the upper limit so what we're capable of in the east.

He even against a weak truck market.

[noise] as demonstrated in the first quarter, yes.

Sure Okay, great. Thank you for the time I appreciate it.

Our next question is from David Ross CFO. Please proceed.

Hey, good morning, gentlemen.

David or just one just wanted to circle back on the truckload volume comments in April because there there has been some decline in the fleet.

So wanted to know of that high single digit decline, what's attributed to lower miles per tractor and.

How much has contributed to lower number of tractors.

And that's in the for end of the network side of the business David that was the question.

Before I guess I'd.

And that.

Well I mean, it said in late April truckload volumes are down upper single digit percentages I don't know if that overall dedicated end for higher.

I was speaking specifically in for higher because I figured that was where with more volatile.

It is it's a higher personally I got your question sorry.

That is a full truck.

Statement and it is.

More heavily weighted towards the network side of the business than the dedicated side of the business and that's.

On all contracts, whether that's on our tanker or dry van.

Oh or our reef whatever the trailing equipment side is there. So that is more of a network impact and again, that's where we generally feel at first.

This is irregular route business the dedicated business is generally in this case more steady.

It's a dedicated is down low to mid single then for higher would be down double digits did on the.

Volume side.

That's a tighter band than that and they're both in a single digits.

Okay.

For our fleet was mostly down year over year due to the first to final mile exit we come directly glad you guys aren't in right now.

But also down 3% sequentially.

Why the sequential drop and.

How do you see that for the balance of 2020.

As I mentioned earlier, we were working to we want to really maintain our scale through this could we have a little bit of attrition through the second quarter, yes.

Our driver count really isn't down.

In a material way, we didn't do some tightening up of our ratios.

We're always mindful of how can we can get a.

Higher ratios of driver to two to truck. So there's really no signaling being given their David if asked a question relative to the sequential change.

I have a tightening up with our capital.

And then last question just on fleet age you, Steve we're at the tractor fleet stand right now and.

Are you keeping a normal replacement schedule this year.

Oh, Yeah, we are aware, we even with the pruning of the.

Capex we would.

Maintain or at most age our fleet by a month and were.

We're within a month or so of our target fleet age to begin with so that's.

One of the benefits of being able to steadily invest.

Through good times in tough times.

That dynamic so we're very close to where we want to be with fleet age.

At around two years.

You are running.

Yes, they do it by a we have such a mixed fleet David between Sleepers day cabs shots. So that's how we generally don't publish say hey average age of fleet because it's all depends on the on the configuration. So.

So our sleepers are the youngest age.

Good day cabs or slightly older and that are.

Yard equipment is.

Quite a bit older than our day cap so.

Intermodal Dray fleet, they all have their own configurations, but.

We keep they maybe the for higher fleet, if you just want to.

Pick that one because that's where it matters most I would think specialize in dredger monkey.

Yes, we just we we trade we generally average about two and a half years to three years, depending upon where we are in this cycle.

On the sleeper unit, if thats, which is the predominant play in our.

For higher network.

That's helpful. Thank you you bet.

Our next question is from Georgia in Algeria with Goldman Sachs. Please proceed.

Yes, Hi, I think as mentioned.

In the release that you're seeing all perhaps intelligent sanctioned and customize your suppliers reopening are ramping I'm just trying to curious as you've talked to them as it's a function of trying to get inventory in place where things open because there's been a drawdown stops I'm just trying to get a sense for sort of.

Restack replenishment angle to all this is that that's is that what you're thinking are seeing or hearing.

Yes.

Comment is mostly around those who were in a more of a shutdown mode because of deemed non essential which is skewed.

In the large shipper mode to that non essential retail and some industrial markets and on our logistics side skewed to the very small micro shipper, who.

Based upon their community, where they are weren't deemed essential and so starting they see the dialogue about the planning cycle of when they start to come back online is really.

Who is the basis for that thought and comment.

So any thoughts more broadly on inventory levels that you're hearing as you've talked to customers.

Yeah, that's a little bit across the board I think inventories overall, particularly around those in the essential category, we would still based upon our discussion.

Fairly lean and and perhaps some need to rebuild.

Inventory.

To be more comfortable.

Conversely on some of the non essential side. There is some concern that the inventory didn't get into their locations in stores to take advantage of the season.

And so.

Some discussion is that a inventory gonna have to wait for next year on the seasonality side and so if there is some displacement of.

Hi, exactly when this hit and and whats in the pipeline and then how do they kind of recover from that and get back into the other normal seasonal pattern and so.

It's a kind of a mixed bag.

Okay. Thanks very much.

Thank you. This does conclude today's conference you may disconnect. Your lines at this time and thank you for your participation.