Q1 2022 Schneider National Inc Earnings Call

Greetings and welcome to the Snyder's first quarter 2022 earnings call. At this time all participants are in a listen 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 on your telephone keypad. Please note. This conference is being recorded I would now.

Turn the conference over to your host Steve vendors you may begin.

Thank you operator, and good morning, everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer, and Steve <unk> 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 at Schneider Dot com.

Our call will include remarks about future expectations forecasts plans and prospects for Schneider.

These 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 to differ materially from current expectations. The company urges investors to review the risks and uncertainties discussed in our SEC filings, including but not limited to our most recent 10-K and those risks identified in today's earnings release.

All forward looking statements are made as of the date of this call and Schneider disclaims any duty to update such statements except as required by law.

In addition, pursuant to regulation G. A reconciliation of any non-GAAP financial measures referenced 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 Rourke Mark.

Thank you, Steve and Hello, everyone and thank you for joining Schneider's call. This morning.

This month marks our fifth anniversary of being a publicly traded company. Many of you have been with US on the journey since April of 2017, and we are grateful for your insight encouragement and support.

I'll start our prepared comments this morning on our first quarter operating performance by.

By illustrating with metrics, how our portfolio of services has been reshaped into a leading multi modal transportation and logistics platform.

The transformation of Schneider to date has not been consistently recognized when you consider the current trading multiple of the company.

And the most recently completed quarter and our three segments of truckload intermodal and logistics.

That light segments of intermodal logistics represented 61% of the segment's revenue mix excluding fuel surcharge.

Year over year intermodal order count grew 1% with year over year container growth of 26%, enabling an attractive runway opportunity for rail conversion and growth is rail fluidity begins to return to the network.

Logistics produced another quarter with order count growth exceeding 20% and our brokerage offering placing revenue essentially on par with our truckload segment.

Since 2016, our compounded annual order volume growth rate in brokerage is 16%.

In truckload, we averaged over 10300 tractors in the quarter with 56% or 5700 of those operating within dedicated customer configurations.

With additional startups currently in flight and a very strong new business pipeline.

Well, we are very proud of our truckload heritage and truckload remains a very important element of our long term positioning of the Schneider enterprise.

These metrics illustrate Schneider is much more than a one way truckload organization.

So let's transition to the segments, specifically with particular emphasis on our strategic growth drivers of dedicated truck intermodal and logistics.

In the quarter in truckload dedicated revenue grow.

52% over one year ago, and the growth is nearly evenly split between organic growth and the addition of our acquisition of Midwest logistics systems at the end of 2021 .

The acquisition is going well, we intend to build upon the associate and customer base strengths with an approach of running it separately with targeted cost and operational synergies that are focused on improving driver and customer experienced opportunities.

With one quarter under our belts. We are pleased that the approach has been well received by the MLS associates and customers and the business results are at or above expectations for both revenue and earnings.

Revenue per truck per week again, excluding fuel surcharge and dedicated in network was up year over year by 10% and 19%, respectively and dedicating more of that improvement was realized in asset productivity as our new business startups mature more than 100% of the improvement in network was price related has asked that productivity.

Network was affected the most by the temporary system outage, we experienced in the quarter due to a vendor hardware failure as well as COVID-19 related impacts on driver availability early in the year.

As it relates to current market conditions, the first quarter contract renewals and price adjustments in dedicated and network.

Main highly supportive of the inflationary costs in the business, particularly around driver compensation and direct cost areas, such as new equipment acquisition equipment maintenance and replacement parts.

It is our view that shipper allocation events have largely moved spot price business to contract, which in general delivers better cost acceptance in service.

Better acceptance results results in less tender rejects and smoother supply chain execution for all parties.

In fact in our network based offerings, we are seeing materially higher levels of award tenders and acceptance after Alex allocation events than prior to those events.

So let's transition intermodal.

On our last earnings call. We discussed the role we expect intermodal to play as a growth driver for the company, while offering our customers additional value and achieving their carbon emission reduction commitments.

Specifically, our stated goal is to double intermodal by 2030.

Part of that plan was to create competitive differentiation with the largest industry player with shippers, who most value an asset base execution model of own container or chassis and company driver Dray model.

The unique asset base model alignment with the Union Pacific and the West and the <unk> in the east provides the desired differentiation.

We also chose to announced the Western rail partner change to the Union Pacific a year in advance. So we could operate in an open and transparent manner with our stakeholders, namely our trade drivers and our customers and importantly to act with integrity and be highly respectful of our long term relationship with a b NSF team.

It speaks to the quality of their organization and leadership as we are collectively working through this transition in a constructive and professional fashion.

The timing also gave us the open air time to develop a robust plan with the Union Pacific to execute the change with a very high level of operational excellence and be in regular communication with all our stakeholders to allow them to be an ally in the change.

The joint commitment resources and plan to do just that is on track and we are highly confident in our collective execution capability.

Sequentially within the first quarter, we grew the intermodal container count by 2200 containers we.

We expect a 26% growth in containers year over year to be translated into order volume growth as rail fluidity, and labor conditions improve and our customers loading and unloading locations.

Revenue per order improved 16% year over year, excluding fuel contributing to a 510 basis point improvement in operating ratio to 87, 1%.

As we move to logistics they were led by our brokerage offering which delivered another quarter of excellent business results improving operation operating ratio year over year 320 basis points to 92, 3%.

Logistics earnings surpassed the intermodal segment for the first time, our investments in Schneider freight power are focused on digitally connecting to the shippers and third party carriers with price book and track automation benefits.

The advancements are helping to drive productivity in the business in fact in the quarter brokerage.

Through order count over 20% with people count increasing just 7%.

Finally, we experienced a sizeable net asset property gains so I wanted to write some strategic tech.

<unk> for that development.

The gain was derived from a capital allocation exercise, we regularly perform across our various operating units.

We have been operating inside Canada for nearly 30 years.

The assessment determined that the current and future prospects of cross border operations based in Canada was expected to remain substantively inferior to other uses of resources, especially rolling stock capital assigned across our truckload and intermodal offerings.

Therefore by the end of the quarter, we have largely reallocated the power trailer and container capital to a series of higher return profile operations in the United States.

The attractiveness of the commercial property in Canada resulted in an expedited sales process.

So as I turn it over to Steve for his remarks, I feel we have ample opportunity to continue to deliver leading performance across our three operating segments and that confidence is embedded in our full year guidance raise.

Thank you Mark and thanks to each of you for joining us this morning.

Picking up where mark left off I'll begin with additional context regarding our forward looking comments, we've increased our guidance for full year adjusted diluted earnings per share to a range of $2 55 to $2 70 per share.

This represents an 18% or 7% increase from our prior guidance midpoint.

We're making this increase despite the fact that we now expect to sell less equipment. This year that that was inherent in our initial guidance.

During our last earnings call I noted that we expected equipment gains for 2022 to be similar to those of 2021, which were $64 million.

Our updated outlook for gains as approximately $45 million and it reflects our expectations to retain some equipment, especially trailers.

So that we can support the growth opportunities, we see in our dedicated and power only offerings.

So our updated EPS forecast reflects expectations for strong operational performance across the portfolio for the remainder of the year.

As Marc mentioned, we're seeing a return to normalcy is the contractual market has stabilized over the past couple of months and absorbed many of the tenders that were going to the spot market.

The contractual rate environment remains healthy as shippers values of capacity in service that we provide.

We expect constructive conditions to remain intact throughout 2022, and this applies to both our truckload and intermodal segments.

In our logistics segment dynamic market conditions provide the opportunity to fully utilize our decision science tools and rapidly adapt.

We actively participate in both the contract and spot markets.

Regarding capital expenditures, we're increasing our full year expectations for net capex to $500 million.

This increase is due to cost increases combined with some incremental trailing equipment.

I'll wrap up with brief comments regarding our first quarter revenues, excluding fuel surcharges were up 28% over the first quarter of 2021, and all three segments made meaningful contributions to this topline growth.

Adjusted income from operations increased 95% over the first quarter of 2021, while adjusted earnings per share increased 84%.

So the reason for the differing percentages was a four cent loss on equity investments that was recorded this quarter.

Also it is important to note that the first quarters of 2022, and 2021 contained minimal gains from equipment sales as they were limited dispositions in either quarter.

Yeah.

So operating performance was even stronger than the year over year EPS comparison implies.

The portfolio is executing effectively and generating strong returns on invested capital, which is a strategic outcome of the reshaping that's been underway for the past several years and will continue as we move forward.

On the topic of capital net Capex during the first quarter was only $9 9 million and this was a function of the property proceeds mostly offsetting the capex for equipment.

As is apparent from our full year guidance of 500 million, we anticipate a sizable step up in equipment deliveries over the remaining three quarters of this year.

And we continue to prioritize capital allocation toward our strategic priorities of growing dedicated intermodal and logistics businesses.

All while making steady investments in technology.

And so with that we'll open up the call for your questions.

And at this time, we will be conducting a question and answer session.

If you'd like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is in the question queue.

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One moment, please while we poll for questions.

And our first question comes from the line of John .

Jon Chappell with Evercore ISI. Please proceed with your question.

Thank you and good morning.

Mark starting with intermodal you've laid out your growth ambitions, there and in a lot of what you're doing to attain that growth by 2030 I'm. Just wondering how the transition has been going early days, obviously it doesn't fully start until next year, but as.

As you said before you're kind of preparing and as it relates to that revenue per order down sequentially. Just wondering if that's part of the preparations to move over to the U P. But that was seasonality or was it some of the accessorial, maybe going away a little bit and be more representative of a run rate going forward.

Great. Thank you for the <unk>.

Question Jonathan.

As you mentioned, we're in a great deal of planning as it relates to the transition.

Across the commercial aspects the dray aspects.

And just the whole integration of the business process and we're feeling.

Two things are feeling really good about.

The engagement with the with the Union Pacific to do that well and we've been really pleased with the commercial receptivity of the change coming from our customer community and so part of that is preparing how we go ahead and make commitments through the rest of the year.

And have a really really solid plan.

To do this with a high degree of operational excellence. So I'm really proud of the team I'm really pleased with.

Of the engagement across all of our stakeholders and as we sit here now at the end of April we feel we're really well positioned to do exactly what we set out to do so that's the first part second part as it relates to the revenue per order yeah. There are some seasonality impacts through the <unk>.

Peak retail season, that's evident in that but I will tell you that the.

Contract renewals continue to be highly reflective of the inflationary cost in the business around.

The expense line and our customers are highly responsive to that and that and that applies whether we're talking our.

Truck business, our intermodal offering.

And John This is Steve I would just add to that.

Sequential comment that you're making about revenue per order. There. There was a also a length of haul a component of that as the <unk>.

Most of our growth is occurring in the east which has shorter.

Length of haul and in the west or the transcontinental moves so that that's a factor in that that number as well.

That's really helpful. Steve and then just the second one as it relates to equipment availability. Steve you just laid out how did seem to be a back end loaded kind of capex and you were able to add more dedicated trucks of the MLS acquisition, but how do you think about the truck count and how it's spread between them dedicated and network just as it relates to the OE.

Am availability and your ability to actually spend that capital through the rest of the year.

Now, we're giving you our best.

Kind of estimate at this point.

We believe we're going to get a good portion of what we've laid out here.

Will we get it in a slightly delayed fashion potentially.

Which we didn't have a lot of plan for new equipment in the first quarter. So this is consistent with how we've laid out our expectations with the OEM and the.

So at this junction, we're feeling pretty good but as you know the <unk> supply chain has been fairly fluid.

And while their confidence is high will have to.

See how the whole year plays out you know and.

As far as the mix of the equipment. The tractor count if you will now versus end of this year.

See growth I would expect it to be and dedicated configurations or supporting our intermodal dray fleet and kind of a maintenance mode with the truckload network component of it got.

Got it that makes sense. Thanks, Steve Thanks, Mark.

Okay.

Our next question comes from the line of Bruce <unk> with Stifel. Please proceed with your question.

Great. Thank you and good morning, everyone.

Good morning.

So it seems like your business has obviously changed a fair amount of recent years, how are you thinking about earnings volatility for the overall enterprise.

This cycle versus last if I, if I look at the parts, obviously and in network exposure is quite a bit lower so I think that would come down to your view on an intermodal logistics grows from here any color would be really helpful.

Well, you're absolutely right if the mix of our business and the configuration of it is a much different then.

If you.

You generally compare back to a prior periods, particularly in 2018 phase.

As you sit here today with and our truck configuration.

As I mentioned, we're at 5700 dedicated units to 4500 units in the network business and we would anticipate continued growth in the.

A dedicated portion of that I think we had 280 or so units in the first quarter and start up sequentially from the fourth quarter to the first quarter organically.

And as I mentioned in my opening comments, a very robust pipeline. So there has not been any dampening of enthusiasm for what.

Dedicated provides to our customer community and certainty around.

Cost and service, particularly in the markets that we're serving in the more specialty type dedicated market. So.

We would expect that those mix.

Elements that we're seeing change will continue to be in a trajectory in the truck business, which as you think about the dedicated mix being.

Longer term contracts as well as a more consistent volumes, we think that bodes well for resiliency of our truck segment.

On the logistics excuse me on the intermodal front.

We again believe there's been too much conversion back to over the road based upon the activities of the last couple of years relative to the urgency around the supply chain.

And in addition to what we can help customers solve an increasingly the commitments, they're making on carbon emissions and so.

As we sit here, we think we have some great tailwind, we're executing well and the differentiation that we're bringing to market.

So that we can offer that.

Service relative to one truck one container and owned chassis to give a great experience to our customers. We think will continue.

To be received very well in the marketplace, regardless of the of the business cycle and thirdly, our logistics business is more variable in its cost nature Bye bye had setup.

We can adapt and have proven to adapt very well there with our decision support and our freight power platform and again all of those have been.

Developed.

And honed over the last several years, all with the idea of being a more resilient business model.

That's a great overview, maybe just following up on your last point there on logistics.

It seems like you know if I look at the numbers on a year over year basis, you saw a sequential improvement in brokerage volumes, which I would think is encouraging yet you're still talking about bringing some more stuff in house can you talk about what's allowing you to differentiate that logistics business, perhaps some from your peers is that are there things you do.

Doing in terms of loyalty programs for drivers that are keeping them in house or is it purely what youre doing on the technology side.

Thanks again for taking the time.

I think what the things that we offer differentiation from a business model standpoint, we have the ability.

To leverage.

All organization and enterprise to the benefit of our customer, which allows us I think to grab share because we're playing in the truck we're playing in intermodal and we're helping them on.

Some of the other lanes that don't fit other People's networks, which is so well how our logistics model plays.

But we also have and have invested in the ability for them not to be totally reliant on the enterprise or overflow and that they have a <unk>.

Have developed a capability to develop their own customers develop their own demand.

<unk>.

Serving part of the portfolio and so we're getting the benefits of both of that capability from a commercial standpoint.

And obviously, we've found ways importantly.

To bring more solutions by using our Orange box.

In a fashion that's easy for our customers to say, yes to US and then we've developed the networks underneath that with smaller carriers to go ahead and operate.

That business at a network configuration, which you really have to do because you have to balance your trailer pools and so you have to think in a network way and that is how really our business model is positioned and so.

I think that again favors the carriers like ourselves who can can vantage both.

Capacity.

Our capacity as well as third parties, but also keep that trailer network imbalance and a way to serve our customers and so all of that is kind of playing out what youre seeing in our results.

So just to clarify on that it seems beneficial for the shippers. How do you think about the drivers in that ecosystem, you know being able to keep them on your platform.

Yeah, how we set up and how we think about our integration with power only is that we're running on networks.

That are not being disruptive to our <unk>.

<unk> company driver network in an owner operator network and so our technology and tools allow US then to segment and determined where those things fit best both from a price and value of the customer but also from the capacity. It all ultimately will serve that.

So we have deconflict it that on the front end of the processes. So that we can go ahead and execute with excellence on the backend.

And so that is valuable to both our company and owner operator capacity, but also increasingly to third parties, who don't have access to some of the same quality shippers that we do because of the trailer pool at network and that's what we're really aggregating on their power only front.

Understood. Thank you for your time.

You bet.

Yeah.

Our next question comes from the line of Alex do with Bank of America. Please proceed with your question.

Hey, good morning.

Morning, Ken.

Marc or Steve can you just talk a little bit about the environment now in terms of your your thoughts on on the market and I ask that in the in looking at your revenue per truck, which show deceleration I got your answer before that to John about kind of seasonality and other things, but maybe that just talk about the components within revenue per truck.

What you're seeing in and how we should think about that going forward as you go through bid season.

When we talk about Ken are our networks, we're talking about really the contract trailer pool network. If we do play in the spot World. It's generally supporting our contract customers on something that's dislocated.

Within their business that they need help with and and so.

I know theres, a lot of emphasis and focus on the trucks.

Truckstop boards and the things that have nature of spot, but that's really not.

Applicable to what we do particularly on the asset side of the business. So.

When we look at.

<unk>.

Demand is quite healthy.

Cross the contract side, we've been through nearly 40% of our contract renewals already in the first quarter, we are seeing share gain and very healthy improve.

Improvement in price to take.

With recognition towards the inflationary costs around the driver around equipment. So we think the market is still very responsive to that and and necessary based upon the costs that have come into the business themselves.

Been nothing but encouraged based upon.

The first quarter of the year and how those things have progressed as you look at the network side of the business and the truck side, we had a 19% improvement in revenue.

Year over year with well over 100% of that being on the price line because of the some of the <unk>.

Throughput issues that I highlighted in my earlier comments so.

Again reflective of where the market is and the value that we're providing.

And can you talk to the components of our revenue per truck, maybe just talk about where you're seeing.

Is it linked to haul is it.

Anything that's shifting within the mix.

The shift that we're experiencing in truck is more between dedicated configurations and.

Network configuration, there hasnt been a great deal of shift in length of haul or anything.

Anything underlying that's driving any of the difference there Ken.

Okay.

Comments are clear, Ken where on the intermodal revenue per order and that's where I was referring to the length of haul differences. It was not applicable to the truckload segment.

East versus West No I guess, yeah, I got that on the intermodal side I guess I was thinking more maybe utilization or miles per truck. If they if anything is is eating or detracting aside from just pricing right. If there was anything within mix.

You know just given.

Breakout other than the revenue per truck.

Nothing I would point you to know.

Okay.

And then my follow up you said you you mentioned kind of in getting out of Canada, you did kind of a business review, where you do it quite often.

What was there also we'll look at you know how you allocate capital between whether it's adding more dedicated resources or growing intermodal more specifically or more focus on on logistics. You know just in the three segments of the business was was there any kind of analysis of where you want to focus a little more or just.

You know I'm trying to keep the same and in terms of your your third breakdown.

As we have kind of assess what we believe.

How we want to allocate capital, but where we believe the market will best reward the things that we do well Ken is that we have focused our strategic growth driver, thus our capital allocation.

Around dedicated truck intermodal.

Both container chassis and power when we say intermodal.

And technology and increasingly more trailers for power only in our logistics business and so that's.

Really our focus of growth.

But within those.

Elements, we constantly look for ways to improve our capital allocation to put those against the best.

You to the customer and the best value back to the enterprise and that really was within the truck segment truck network segment, what was the change in Canada to redeploy those assets.

Okay, great. Thanks, a lot.

Yeah.

Our next question comes from the line of Ravi Shanker with Morgan Stanley . Please proceed with your question.

Thanks.

Yes.

I wanted to follow up on the point about intermodal conversions.

You mentioned and you've seen this in our data as well that we saw actually more our truck conversion.

The rail to truck conversion the cycle because of the congestion everything else.

Slide how tight the truck market was.

So even if real congestion eases in the truck market loosens, even more in the back half of deal or I mean, do you see that traffic going back to rail to stay on track or how do you see that playing out over the next I'd say six to 12 months kind of if we do enter a downside.

Hi, Ravi maybe a longer term comment and then maybe something.

More close in as.

As we studied the intermodal market, what's available for that addressable market to your point, we have seen some conversion back initially.

And then what 2015 timeframe because of precision scheduled railroading and then more recently because of the congestion.

And so we think there is ample opportunity for the growth aspirations that we have laid out and our execution model.

To achieve what we've laid out is that doubling by 2030.

And so I think the market can't support that particularly.

We have such a valuable commodity as it relates to emission reduction and that's where as we start to adopt electric vehicles that will most that'll first happen around the dray performance or the dray operations within.

Our intermodal offering and so the combination of all of those things together I think.

Offer great customer value and so the.

The combination of those two just the conversion back and then the unique value that our intermodal can provide on the.

Emission reductions that gives us confidence that.

Longer term, we can get to our objective short term, we still think with the price of fuel.

And with our customer on loading starting to finally improve so we can get our box turns more.

Back to normal that we can see some improvement yet this year, obviously in the volume as it relates to intermodal. So we think we have both a short and long term improvement opportunity.

Great. Thanks for the detail there a second question is interesting.

It's interesting to note on the negligible gain on sale I think you and some of your peers are also talking about this.

Kind of.

Gain on sale in the short term because your carton Ah.

Don't have the ability to replace your trucks because of what's happening in your truck market I don't think the industry has been in this position for a while it's a how do you think about how it is going to play out.

When do you think those new trucks come in.

What does the guidance on getting to say look like and also kind of is there a maintenance cost drag here. If your truck fleet gets older than you'd like.

Yes. There are there is certainly is tension between age of fleet and maintenance costs.

And so we're very mindful of that.

As it relates to the availability I think it was your first part of your question Ravi I don't think this is going to materially improve outside.

Well, we've been experiencing what we're projecting here in 2022 I think this can stick with us all through I think the most likely scenario is even through 2023. So.

We have to be very good at the utility of the equipment that we do have and we have to leverage our relationships and our scale to get the equipment from our OEM providers. So that we can get favor there. So that we can get to that equipment better than the average carrier and that's what we're focused on.

Got it and does it completely off the wall type thoughts slash question, but I know in the airline space it'd be airline OEM is not able to deliver an airline on schedule. Our plan on schedule, there's potential compensation from the Oems do the airline.

It's like at what point do you tell your OEM partners, Hey, what gave this and what can you do to help us with our fleet age and maybe any contracts.

Ravi I'm, taking notes I'm going to try that.

Sure first thanks, gentlemen, it takes some time.

All credit you.

Our next question comes from the line of enjoyed in Algeria with Goldman Sachs. Please proceed with your question.

Yeah, Hi morning, I'm, just curious you know spot truck rates sort of well off their peak yeah, why are shippers looking to to shift into contract is it.

I'm just sort of curious maybe you could talk to how much the gap is closed I mean, Scott.

<unk> contract today versus I don't know a few months ago, just trying to get a sense that.

Yeah from a shipper standpoint.

Again, we play largely in the contract trailer pool market and.

So.

Why would shipper.

Value contract is really around the trailer pool and the efficiency that that creates and so I think there are limitations to how effectively and efficiently people can try to get after.

The tail of the spot market because of the live load live unload inefficiencies that come with that type of capacity can play around the edges, but it doesn't generally play in the places that our assets are being deployed.

And as I as I mentioned earlier, we generally are supporting our contract customers with dislocation issues that theyre dealing with when we play in the spot market. So not that we're completely isolated but were more isolated because of that approach to the market and what we bring as a major container and trailer provider.

Okay, and then just a quick follow up on dedicated I'm. Just curious I know your pipeline is really strong today I assume that pipeline that you're referring to is business that you have waiting to start.

About future pipeline or or request for proposals for business, that's not yet in the official pipeline does that continue to be on a rising curve. Thank you.

Yes, there hasnt been any real slowdown as it relates to the dedicated pipeline activity and in that space. We are focused a little bit more on the specialty areas.

Especially equivalent there'd be temp flatbed private fleet things that we are providing additional services.

Beyond just moving.

A product from a to b or from a DC to a store for example that you see in the dry van space. So.

So it's a bit broader market reach for us because of the specialty nature of that business.

Whether it be in food grade tank too.

As I mentioned the over dimensional product in our flatbed so.

All of those.

Needs in the marketplace around that certainty of cost and price.

Service I think are playing very very well.

Thanks, so much.

Our next question comes from the line of Tom <unk> with UBS. Please proceed with your question.

Yes, good good morning wanted.

Wanted to get I ask you a little bit about the logistics side and the look forward.

Obviously that you know that.

Performance continues to be very impressive there in terms of the you know the volume growth and also the margin.

Should we think about that.

That year over year momentum sustaining.

On the load side I mean, the market is changing a bed with you know I know, it's not your primary focus on spot market, but maybe more of an impact in brokerage and then what about the impact to margin is that something you think that the strong or can it can be sustained in the next couple of quarters.

Okay.

Thanks, Tom.

Yeah. We've just had just really solid performance as you saw you saw that.

Dropping off from sequentially fourth quarter to the first quarter.

And we do play in the spot market a little bit more aggressively there were about 50 50 contract to spot.

Can go up and down a little bit from there. So we have our our feet firmly into both camps as it relates to that in our brokerage business.

In our power only in our faster growing power only more so that's in the contract space.

So we believe that is more durable it's more durable from a customer standpoint, because of that but it's also more durable from a carrier standpoint, if we go into any type of change in freight condition, who will even be in my view more attractive to the carrier community.

And as such that business generally has.

He's done it and this continues to demonstrate.

Solid job of adapting quickly to carrier costing and shipper costing.

Therefore, <unk> been able to demonstrate.

Demonstrating a very consistent and durable margin performance.

So I.

I guess.

To answer your question, specifically, we see great opportunities across both our live life traditional brokerage our power only and the investments that we've made in our platform to stay ahead of the market and to be very responsive to it so.

And you see in our results.

Okay. So it sounds like pretty pretty bullish continuing all look on that business.

One I guess one more question just on intermodal the turns were pretty challenged in the quarter.

I understand that's you know that the you know kind of rail issues customer issues, maybe to a lighter warehouse issues to a lesser extent.

Does it make sense to be optimistic on sequential improvement is that something that we'd be better off just modeling that that you know kind of sequentially stays the same how do you know what what are your thoughts on outlook and level of conviction in.

You know improvement if if you think that'll be the case.

Keith on the container turns.

It's a combination of several things there Tom in the quarter certainly we were impacted by Covid early in the year and a couple of our key hub markets.

When you take a lot of equipment on during a particular quarter you are not as efficient in getting it in service and getting it all.

In the right spots, although there on your books Youre not getting the full benefit of those 2200 sequential fourth quarter first quarter was a pretty big.

Big change and then.

Our network businesses, which.

Intermodal is one when we had the system hardware failure. They were impacted for a couple of days, they're disproportionately to some other parts of our portfolio. So.

All of that served as a bit of a drag to our performance as it relates to the box turns what I'm encouraged by is coming through the.

<unk> season here in the first quarter, the receptivity to the changes that we're making in announcing in our business.

And sure that we're getting relative to those allocation event. So it gives us optimism.

That with the additional boxes and with Covid behind us and with.

I would like to think it's behind us.

And with the awards that were enjoying that we'll have some lift in our throughput lift in our turns and then ultimately lifting and the volume associated with those boxes.

But do you think.

Are you optimistic on the rails, improving or is that it seems like that would be an important component of that.

Yeah I mean.

There's differences between railroads the east is performing from a fluidity standpoint better than the western.

And I think Thats again, how we allocate our our boxes as to how we can best get those serve but yeah, we think everything will start.

As.

Our fluidity returning less.

Less chaos in the network, we think all parts of that will start to improve.

Right. Okay. Thanks for the time.

Our next question comes from the line of Jack Atkins with Stephens. Please proceed with your question.

Okay, great. Good morning, and thank you for taking my questions.

Good morning, Jack.

I guess, Marc I would just love to get your your perspective.

You know on the market in general you know in terms of what's kind of going on here and what's been going on through the first.

Three or four months of the year and how you think the rest of the year plays out in terms of the.

Truckload market, but the freight markets more broadly do you think what we're seeing here in the spot market is it is it more of just an air pocket or do you think there's something kind of changing from like.

A demand perspective, or a capacity perspective, we'd just love to kind of get your thoughts because you know I understand the contract market isn't really changing that much but certainly were seeing up yeah.

So a pretty meaningful shift in the spot market.

That tends to lead the contract market. So we'd just love to get your thoughts there.

Yeah, Jack maybe just some overall comments on the market and certainly I think when shippers are looking and have been looking to get more stability in there.

Allocation they are.

Specifically targeting getting freight from the spot to the contract and so I think there is some bleed into the contract world as a result of that.

We do believe particularly in the northern part of the country here are a bit delayed on some of the seasonality impacts because of weather.

And we're now just getting to the front end of the Bev.

The summer food season, so and we're starting to see some of that break loose here finally at the end of April .

And so I think we're at a bit of a delayed seasonality because of particularly the home improvement channel some of the.

Yes.

That are more weather dependent.

And we're starting to see that change and some of them have a tender behaviors coming through those various parts of our customer base.

But.

That being said I still think it's a fairly healthy wherever we've talked to a few customers that.

Can can see some changes at the.

Affluent customer maybe more service oriented.

Lower income folks feeling obviously a bit more stress as it relates to the cost performance, particularly inflationary impacts.

But it's really through their data have suggested that the.

Large middle is still very much intact, and spending and well positioned and they are quite.

Confident relative to there.

Our mix of customer that theyre going to do okay with.

With what's going on so.

Then we have to see how all this plays out over time, but our tenders and our contract business appears to be quite solid.

What's getting all the attention is the load boards.

Jack to add onto that this Steve.

I don't know how to quantify this but just from a macro level I think that there there was some form of a poll.

Pull forward.

Especially large customers that have global supply chains that took place maybe in the fourth quarter and created a little bit of this dynamic that we're seeing.

Here.

That happened late in the first quarter and into the early second but I think that that is kind of a that'll work its way through.

So it could be a contributor not trying to call. It the contributor but it was a factor based on what we've heard from some of our customer base. Okay.

All very helpful color and I guess, maybe to follow up on that for a moment.

Yeah, you know as you sort of think about the second half of this year and you know contracts in the market the marketplace that will renew in the second half of this year on the truckload side specifically.

There inflationary cost pressures out there are the market still feels like it's still you know.

Somewhat tight although not as high as it was do you think that the market will support contractual rate increases in the second half of the year or.

You know is it maybe going to be customer dependent.

As we look out to the remainder of the year certainly the second half of last year, we were.

With our support of our customers addressing the inflationary cost and.

And so I think the comps will be much different.

But I think they are still going to be reflective.

Of the inflation that we have experienced but we did a very good job as a company and.

And perhaps as an industry addressing those.

And the second for those who renewed later in the year had to go back.

Yes, some of the things that probably weren't covering what they needed to cover that we did earlier in the year.

So.

Particularly as of now we've gotten through this first quarter renewals.

Feeling very very good about the understanding where the customer are relative to those <unk> and <unk>.

Really to ensure that they get the capacity that they need to to meet their objectives. Jack. So at this point, we don't feel that we're going to be in a net negative price area relative to the inflation.

Okay, Alright, Thank you again for the time, Mark and Steve.

Thank you Sir.

Our next question comes from the line of base come majors.

Please proceed with your question.

All of these companies are you on the line. Please make sure you're not on mute.

Okay.

If we do not have visco measures on the line.

Our next question will come from Scott.

Group with Wolfe.

Wolfe Research. Please proceed with your question.

Hey, Thanks, good morning.

I wanted to go back to the question about logistics results just in a slower market.

Maybe Steve it would be helpful. I think can you just share when you logistics at $42 million of operating income in the first quarter.

What does the guidance assume the rest of the year or does it go higher from from $42 million does it go down.

What's in the guide.

Well, we don't give segment guidance to begin with but I think that based on Mark's earlier comments about our how we view the ongoing growth prospects and.

The various tools and capabilities that we have in the market that we're optimistic that the margin and revenue profile that we've experienced here lately will continue throughout this year.

We do incorporate.

A continuation of those contributions from our logistics segment.

Okay and then.

Can you just share Steve.

The cadence of that.

Get to that 45 million or whatever gains throughout.

Throughout the year and then any just.

Thoughts on.

Progression in margins the rest of the year of truckload and intermodal. Thank you.

Sure.

As far as the $45 million of equipment gains. We currently anticipate the bulk of that being largely evenly distributed between the third and fourth quarters.

But we would expect some in the second so hopefully that's.

Helpful in shaping that part of it and.

So I think we will see some form of.

Yes.

Typical if you want to call it that seasonality in terms of our margin performance as we move through this year.

So that that's inherent in our assumptions as well.

Okay.

Thank you guys.

Our next question comes from the line of Chris Wetherbee with Citi. Please proceed with your question.

Hey, Thanks, maybe two questions on the dedicated side, maybe first big picture.

Well, maybe this is for the total truckload business, obviously the acquisition of MLS takes the fleet count excuse it more dedicated heavily versus the network. The network has been coming down pretty consistently you think out over a couple of years, what do you think the right.

Waiting is between dedicated and network and that business is it going to continue.

You get smaller.

Well, Chris our objective would be to grow around network, our objective with necessarily for network to get smaller, but clearly the driver community.

Have some affinity for.

The value that they believe that they get in their work life.

Configuration balance or certainty or route schedule that makes dedicated a bit more attractive obviously to the to the <unk>.

<unk> driver and that is at play between the mix that we have between network.

And.

Dedicated.

But we're working on things that work to do to drive more predictability to drive more certainty to drive more regularity into the network portion of our business to help combat that so we have a number of initiatives.

To improve that overall consistency element that dedicated offers to our driver community. So.

I would love for us to be back to.

Im hesitant to throw numbers out since that's been difficult for us to do relative to the network side of the place, but we're not purposeful we're not in a purposeful shrink mode.

The network configuration, but we are in a purposeful growth mode as it relates to the dedicated side and the dedicated offering.

Okay. That's very helpful. I appreciate that.

And then on that point about dedicated growth what should we be expecting this year in terms of incremental truck counts as we go forward from the first quarter.

Okay.

But without being overly specific I think that that recent trends, where we've been able to add several hundred trucks sequentially per quarter of net gains.

The dedicated.

Configurations would.

We would expect that to continue based on the pipeline that we see.

Okay, great well. Thank you very much for the time I appreciate it.

Our next question comes from the line of Todd Fowler with Keybanc capital markets. Please proceed with your question.

Hey, great Thanks, and good morning.

It's just at a high level question on the guidance raise you know Steve I think you said it was about 18 cents at the midpoint and then you pick up maybe another four or five operationally from the lower equipment gains.

Can you help us think about what's driving the higher guidance for the remainder of the year relative to where we were maybe.

Two or three months ago.

I think we've touched upon many of the points already it's a it's how the.

We have purposefully reshaped portfolio is performing.

In this market and as we see the market we play in the unfolding across the course of the year. When we were assembling our original budgets.

We based our initial guidance off off of.

Wasn't exactly clear how the year would start off and so on and now that we're into it.

Have a good sense being basically four months in now so it's really eight months that we're projecting here gives us some confidence to go ahead and.

Increase those numbers based on.

In the past traveled to date and what we have line of sight to in front of us here.

I guess, Steve maybe to drill down I mean is there a way you can help us think about is it better performance in logistics is it you know the contract renewals on the truckload side I guess is there any way just to think about you know.

Where you've got that better line of visibility.

It's kind of yes to all of the above.

A singular thread is that we're basing it on it is.

Think the portfolio effect.

That.

We strove to achieve and wanted to continue to build upon.

But we also see the <unk>.

Growth prospects at our logistics and intermodal and dedicated coming.

Coming to fruition, so there's topline element that goes with this.

As well as the operational execution portion of it.

To deliver the margins to go with the topline growth.

Okay Fair enough and then just for a follow up I think you've also touched on this a little bit but just to make sure. We've got it correct from a modeling standpoint, it sounds like that the cadence of the quarters that the the gains are a little bit more backend weighted and then youre expecting some seasonality, which would typically suggest stronger margins in <unk>.

Maybe for Q, but is there anything else, we need to think about from a modeling perspective, as we shape the quarters off of <unk> to get to the full year range. Thanks.

I think that pretty much captures.

What we're trying to convey there Todd.

By the way that that.

Second half, if you will our equipment gains or.

Somewhat similar to what we experienced in 2021.

When you add that to the third and fourth quarter together so.

If that's helpful. As you think about things and.

And.

It's just.

I think steady as she goes.

The machine is up and running and we just need to keep the throughput going through it and execute our plans.

Fully anticipate that the.

The team set up to do so.

Okay sounds good congratulations on the results thanks for the time.

Thanks Pat.

Our next question comes from the line of Brian often bank with Jpmorgan. Please proceed with your question.

Hey, good morning, Thanks for taking the question maybe.

Maybe sticking with the reshaping of the portfolio looking at logistics I think the long term range on the margin side, it's 46%, obviously well above that right. Now do you think you've done enough reached enough scale in things like power only and free power to potentially move that target up over the long term or.

Or is this more of a.

Growing with the same margin, but just generating more EBITDA dollars.

How are you thinking about that at this point.

Yes, that's a good question and.

I think it's something that we.

Take under review, we typically do that on an annual basis as we begin our.

Three year planning process in the fall and it's certainly something that will be on our list we contemplated.

Whether we should change that or not as we entered this year.

But we'll certainly be taking a look at it what we've been focused on.

There's obviously been more.

Maintaining margins, while driving top line growth and then as a result, delivering more earnings dollars through our logistics segment.

That has certainly proven to be successful.

In the marketplace and becoming an increasingly important contributor to our overall earnings and revenue profile.

So it's a balance there and.

I guess, there's a simplistic statement, we're always trying to grow revenue and margins at everything we do it's how much do you emphasize one versus the other.

Answer to that is dependent on what part of the portfolio. It is and what's going on.

In the market.

Given point in time.

No.

I think for the near term at least we will continue to focus on maintaining solid margins.

In our logistics segment and focusing on topline growth.

Okay. Thanks, Steve I appreciate that.

Maybe just a quick follow up for Mark It was helpful to hear kind of the process and the strategy of doing the transition over to over to the team.

You may have seen a bit of a falloff in India.

A competitor who made the move earlier this year, they expect to get that back, but maybe you can elaborate in terms of like what type of commitments and resources are able to secure from from ship from some shippers and we know that.

He is investing quite heavily.

So you started early you put some parameters out there.

Are you able to get some confidence.

They're able to bring over those types of volumes and then the customers and lanes that you're expecting at this point.

Yes, Brian Thanks for the question and absolutely you know Theres a lot of debate whether do you go ahead and.

And announced as early as we did but we did so because we wanted to make sure that we can get.

Our whole organization the whole menu.

Pacific Organization, and then what the implication that means for our commercial efforts to to get out in front as much as possible to have a very robust plan.

And we've put a lot of effort a lot of resources internally as well has the union Pacific.

And increasingly together.

To go out and demonstrate to our customer community, how we're going to have a great transition and we're going to sell into that and how thats going to.

B a value and so.

<unk>.

Looking at the early response and the allocation exercises that we've recently been through and the discussions with our customers.

I'm, even more confident that I was with you.

And then we looked at this initially and just couldn't feel better about the response all the way around those stakeholders.

What we're trying to do here and I think going early and being transparent.

Being really respectful of our partner and what they mean to us and what they have met to US all of that is playing out.

In a way that he will be proud I think of the effort, but also I think will benefit from that planning.

Okay, great. Thank you Mark appreciate all that.

And we have reached the end of the question and answer session and also concludes today's conference you may disconnect. Your lines at this time.

You for your participation.

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