Q2 2022 Schneider National Inc Earnings Call

Greetings and welcome to the Schneider National Inc. Second quarter 2022 earnings call. At this time all participants are in a listen only mode. A brief 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 as a reminder, this conference is being recorded it is now my pleasure to introduce your host Steve Bennett.

Director of IR. Please go ahead.

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 East.

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 second quarter call. This morning.

Opening comments will cover our second quarter results, what we're currently seeing in the marketplace.

And an update on our full year guidance.

In the second quarter. The market has clearly moved past the chaotic routing guide breakdown at higher tender rejection phase to the more normalized typical seasonality condition that has not existed the last couple of years.

In our truckload and intermodal network offerings, we are essentially through the annual allocation of award process with our shipper base.

And the results of that process indicate that our customers desire and value incumbency and dependability.

In general we have improved our market share at rates that recognize the unprecedented inflationary impacts of wages equipment and other operating expenses.

And our second quarter results, you'll see further evidence of the transformation of our multimodal transportation and logistics portfolio to a higher concentration of revenue and earnings in our asset light segments and the heightened prominence of our dedicated contract configurations in our truckload segment.

In the second quarter, 60% of our segment revenues and 53% of our earnings were derived from our two asset light segments intermodal and logistics.

At 175 million in enterprise earnings this quarter was our second most profitable our history, just missing the highest quarter of fourth quarter 2021 the.

The difference was modest equipment disposals and gains this quarter as we deferred planned disposals due to new equipment delivery delays and new business implementations and dedicated empower only.

We see a more material equipment gains step up in the second half of the year, Steve Russell will offer commentary on it in a few minutes.

We also had meaningful growth in dedicated truckload year over year. We have added 1800 tractors in service within dedicated contract solutions, 47% of that growth was organic and 53% was gained through our MLS acquisition.

280 of those units were added sequentially from the first quarter and we have several new account startups on the docket for Q3 implementation and a healthy new business pipeline, we are navigating through six.

60% of our truckload segment tractors are over 6000 units now reside in dedicated configurations.

That is important because in general dedicated contracts are longer term in nature renew at a greater than 90% rate are stickier through freight cycles, and our professional drivers prefer the more predictable nature of the work.

The diversification and configuration of our portfolio of services has been constructed with the intent of building additional resilience in our results, while bringing great multimodal value to our customer community, especially centered around the flexibility and control of container and trailer pools.

So let's spend a few moments on intermodal specifically the western part of the network is highly challenged on fluidity and reliability and we're working closely with our partners to focus on key areas of improvement. So we can move more volume that benefits the rail providers Schneider and importantly, our customers.

We are seeing customers through their allocation events selectively convert intermodal volumes to over the road. While this strategy has practical limits. It is more pronounced in prior periods.

Through non overlapping lanes, we are now moving 15% of our western based volumes on the Union Pacific.

The 15% number means customers are already sourcing.

Business to us on the U P. We are utilizing a sourcing drivers at new ramp facility locations and we are working out the process and technology connections with the Union Pacific.

In the second quarter intermodal enjoyed its highest revenue quarter in history on.

On 5% order growth year over year, and 16% revenue per order improvement.

We have lots of runway on box turns when container dwell times of customer unloading locations returned to its historical performance standards and as rail fluidity returns, particularly on the western part of the network.

Additionally.

New container delivery timing is ahead of new chassis deliveries by a couple of quarters, we expect to start to see more of our planned new chassis deliveries in time for peak season utilization, which also should serve as a boost to container turns.

While we are justifiably focused on rail fluidity.

Box turns into west pad, that's an important component for our high performance intermodal offering I should mention that our eastern rail partner <unk> is performing very reliably and we continue to enjoy year over year order volume growth in the eastern part of the network.

I will close my opening remarks on our logistics segments logistics had a remarkable quarter at $47 million in earnings a 9% operating margins, which is well ahead of our long term margin target range of 4% to 6%.

Our processes tools are very adept and adjusting to the live load live unload spot market movements.

And we grew order volumes throughout the quarter.

Our investments in Schneider freight power and digital capabilities continue to lower our cost to serve enables faster business volume growth than people growth and this is especially evident in our power only offering.

Our contract versus spot order volumes in our traditional live load live unload brokerage toggles between 50 and 60% depending upon market.

Contract has moved higher in that range throughout the recent allocation season.

And power only continues to grow in prominence and serves as a high performing and flexible complement to our network offering in truckload.

The differentiating feature of our power only is that greater than 90% is contracted volumes.

While we're collaborative with our truckload segment offering it is not simply an overflow model, but one where we secure through our revenue management processes upfront lane commitments via the customer allocation decisions.

As a result, we believe power only is resilient has a freight cycles moderate.

Now, let me turn it over to Steve <unk> for his additional commentary on the quarter and look ahead to the second half.

Thank you Mark good morning to everyone on the call and we appreciate you joining us today.

Mark mentioned earlier, the strength of earnings in the second quarter and another way to put that in perspective is to note that adjusted earnings per share were 20% better than our prior best second quarter, which was last year.

Also last year's second quarter contained an additional 14 cents of EPS from the combination of equipment and equity gains Dan did this year's second quarter.

So the year over year increase in the remainder of our operating results was even more pronounced than it first appears.

Revenues, excluding fuel surcharge increased nearly 250 million over the second quarter of 2021.

Driven by a 20 plus percent increases at each segment truckload intermodal and logistics.

Adjusted income from operations increased nearly 50 million year over year with contributions from each segment.

<unk> was the standout contributor with $30 million increase in earnings compared to the second quarter of 2021.

During the second quarter, we closed on the acquisition of Wisconsin based <unk> transportation.

As previously disclosed the primary purpose of this deal was to gain access to the equipment, we're well down the path of achieving this objective.

And most of the equipment is being deployed in dedicated configurations in support of growth opportunities in our existing operations.

So the benefits of the acquisition will be feathered into our truckload segment, beginning with the third quarter.

And given the limited deal size and the late quarter timing there was virtually no impact on our second quarter results.

Regarding our full year guidance for adjusted diluted earnings per share.

The new range of $2 60 to $2 70, refines our prior range of $2 55 to 270.

In essence, we're modestly increasing the midpoint of the range, despite lower expectations for equipment gains.

Our prior guidance assumed about $40 million in equipment gains for the second half of the year.

While our updated guidance includes roughly $25 million.

And to be clear this updated EPS guidance does not include any second half gains or losses from our equity investments.

However, our guidance does incorporate our expectations for a moderating but stable operating environment and the return of some seasonality for the remainder of the year.

Our guidance for full year net capex is unchanged at $500 million.

And given that our first half net capex was $110 million. There's obviously a lot of activity planned for the second half of the year.

Our OEM partners have a lot of equipment to deliver and our team as many units to either onboard or dispose of so.

So there could be some spillover into next year, but our collective intentions are to execute against the $500 million plan.

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

Thank you we will now be conducting a question and answer session. If you would like to ask a question. Please press star.

100 telephone keypad.

Confirmation tone will indicate your line is as our question queue.

Press Star two if you would like to remove your question from the queue.

We ask that you limit your questions to one so that others may have an opportunity to ask questions.

First question comes from Ravi Shankar with Morgan Stanley . Please go ahead.

Good morning, Thank you.

A quick follow up on the the Union Pacific comment are the new business, that's coming on how does that compare versus expectations and where is it coming from is that share gain from other I N C either that that conversion from truck.

Yeah, Ravi yet I would define whats coming on where we are presently is on non overlapping lanes that we have with our current provider. So it's it's new origin destination pairs that we haven't had the opportunity to pursue before.

And so it's all kind of new share for us because of the kind of the unique nature of those O D pairs.

Great and just a quick follow up Steven how much did the board had to the full year guide.

It's around the edges like I said, given the lack of deal size there.

Yeah.

The equipment, we were after a few hundred trailers and a lesser number than that of tractors. That's just kind of a complimentary thing.

But a few cents a share.

Great. Thank you.

It comes from Jon Chapell with Evercore ISI. Please go ahead.

Thank you good morning, I don't know if Jim is on the call. If he has for him if not I guess.

Marc you could take it on.

On the intermodal side, obviously, you're going through this transition right now you spoke about some of the rail service issues that we're all acutely aware of budget.

But your revenue still did really well both from a volume perspective, and a revenue per load perspective, but the margin deteriorated both quarter over quarter and year over year, So I'm trying to get a sense.

As we think about the disconnect. There was the the operating ratio was that due to the rail service was it due to just the arithmetic of fuel where there's some transitional costs that are taking place in the western part of the network as you prepare for next year and how do we think about that or cadence going forward.

Great Yes. Thank you for the question.

There's a little bit of a multiple ways to approach that certainly we are executing on.

On our current footprint and <unk>.

Highly focused on doing the best job with our customers as we.

Our planning towards and executing and building capability to our futures. So we are where we have a foot in both camps and I'm pleased not only with the execution within the constraints of the fluidity of the network in.

What we're also seeing is increased on loading times at our customer locations and so.

With all of that I'm really pleased with how we're executing our current and preparing and starting as I mentioned in my opening comments.

Our our new path that won't be fully on next year.

We also have inflation certainly there's some catch up on rail PT costs.

And we have also grown our driver fleet a couple of hundred drivers as we prepare for the future and so those are some incremental costs that are into the business in the quarter from us.

Unquote startup standpoint, if you will.

And then just other inflationary pressures that we're seeing as we're holding onto equipment, a little bit longer on the maintenance front.

And we don't have just said we've mentioned that as much gains of sale this quarter than we would typically have in a quarter just based upon.

The growth in the fleet there.

Okay. So it should be.

We think about you know some of those cost challenges remaining and that's incorporated in the guidance expectations for intermodal Omar.

Yes, I think we have solid performance in our margins are are solid, but yeah. We've baked what we expect to both commercially with coming through the allocation season, and while we expect our cost position would be for the remainder of the year.

Great. Thank you so much.

[noise] question, Jack Atkins with Stephens. Please go ahead.

Okay, great. Thank you good morning, Jack.

I can see.

I guess, Mark I'd love to get your your perspective on.

Sort of the macro and market backdrop.

We've kind of heard conflicting comments here.

And from from different transportation providers. So if you could maybe give us your kind of perspective on what your customers are telling you about the trajectory of their business and you know how are you thinking about peak season.

This year around around the fourth quarter.

Thanks, Jack Yeah, I would say, we have probably less visibility into what peak season would look like this year than we had perhaps the last two years from a planning standpoint with our customers I will tell you. We think the volumes are pretty steady I.

I think theres a lot of discussion around inventory levels.

Many of our retailers tell us they still have several hundred basis points.

Of Stockout performance worse than what they had pre pandemic.

Would suggest that the employee the inventory they do have maybe some of the wrong inventory.

Based upon the disruptions that everyone's been dealing with so I still think there's plenty of than we're seeing in our operational strictly in the retail space on the vendor side and on the DC to store side, some pretty well.

What we would consider now more normal seasonality, we lacked seasonality last couple of years because everything was on full throttle you really couldn't tell the difference and that we're just starting to see what we would see more typically whether it's support the July season, the back to school season.

And how things ebb and flow between vendor inbound and DC to store and so a bit more of a norm normal condition. Jack is how I would describe it but I would still say.

Very solid demand and.

Maybe a little different this year were much farther along on the allocation season coming through the second quarter than is typical and so we have very little left in the intermodal and truckload network Pi to really understand what the second half looks like so we think we're well positioned in.

And that's reflective in our in our guidance.

Okay, Great and maybe just a brief follow up you said that 15% of your Western rail volumes are on your new partner Union Pacific You know, where do you expect that exit rate to be at the end of the year.

Well, we do have some plans probably not at this point kind of disclose those.

But we are focused on the non overlapping lanes.

So that we can get our processes down that we can show progress.

Progress to our driver community and we can start to not have such a.

Stop start on the exchange as we get into the first of the year and so we expect to build from this number from here.

And I'm really appreciative of our customers supporting us on that because these are new lanes that we have typically not pursued with our customer community.

I think it speaks to there.

Excitement and their support of what we're trying to do particularly when we combine.

When we consider a differentiated experience between what we'll have in the future on the west and a very high performing eastern partner with the <unk> and so we should expect that to continue literally liked them to throw a number at you right now Jack.

I understand thanks again for the time.

Next question first to bank with Stifel. Please go ahead.

Good morning, and thank you for the time.

Right.

Just a question on the logistics side, what do you see as the growth trajectory of that of that business. If we head into a slower freight year, obviously, it's been sort of in hyper growth mode, but they start to think about the pieces of it you would expect sort of volumes continue to benefit from digital brokerage trends.

And power only as you noted earlier is still growing pretty significantly.

I think there's a path to that business continuing to grow double digits sort of in the medium term and then on the margins do you think the 4% to 6% could become closer to 6% as power only take share there. Thank you.

Alright, we'll unpack several good questions within that.

You know, we do expect our logistics in particular, our brokerage element within logistics to be one of the fastest growing parts of our portfolio and even in what we would consider a more moderated market they had record volume growth.

I had a record volume in the second quarter from an order count standpoint.

Really across our configuration will that'd be live library or are emerging power only and so we would expect that to continue.

Some of that certainly is because we have a mechanism that.

It's not simply an overflow model here at.

Schneider so they have great capabilities, both digitally and through a heavy telemarketing sales presence to kind of chart their own path and gain their own volumes across all <unk>.

All modes and so.

And we will continue to collaborate which we do with the power only and we do think that has <unk>.

Significant runway based upon how easy that we can bring how easy it is for the shipper and the constant here, we bring the carrier using our trailer pools.

And Youre right I think over time, what we're looking at what is the appropriate margin range on our long term targets and we would expect that as we go through that annual process. There is likely an update to reflect those mix changes over time.

Got it. Thank you just a really quick follow up just regards to your dedicated business. You've obviously added a lot of new contracts and you said you have more to come in the second half.

Is it fair to think that you could be doing sort of flat to positive revenue per truck per week and most freight environment next year.

2023 is the question.

Yeah, just thinking sort of I think on the dedicated side you know, we think about that being sort of less volatile you've added a lot of business, there and youre still adding business and so those contracts should start to sort of extend through 'twenty. Three. So do you I guess do you have confidence that that'll be a pretty stable to growing business and in most environments.

I got your question. Thank you.

<unk> part of the attraction of dedicated it is from a driver condition standpoint are more stable and consistent and the work patterns, which the drivers prefer but also from a company standpoint.

It's more resilient through whatever freight cycles may or may not occur in the future and our portfolio now being at least 60%.

By the time, we come out of the year are.

Baked there we think that is much more defensible.

Great. Thank you very much.

Next question basketball majors with political.

Please go ahead.

Marc or Steve you did at the Investor perception study with an outside consultant about a month ago I'm, assuming you've gotten some feedback from that can you share anything you learn whether surprising your own surprising and how might that inform how you manage the business the indoor engage with your investors.

Thanks.

Hi, This is Steve I'll tackle that one.

It's actually still in process.

Trying to throw as wide of a net as we can to elicit a solid feedback from the entire investment community.

Whether they are currently invested in our company or not in the various voices that contribute to the overall mosaic of the transportation space.

So it's still in flight.

We've gotten a bit of a preliminary feedback.

It will.

Likely help us shape, how we do our messaging going forward and so and so on.

To date haven't seen something shocking or profound come come out of it but I think there are some adjustments that we can perhaps make in our engagement with the investment community as we go forward.

We look forward to.

Implementing those as we head into next year, it will probably be another month or two before we sit down and get the formal results from that study.

Thank you.

Next question Todd Fowler with Keybanc. Please go ahead.

Hey, great Thanks, and good morning.

I was wondering if you could speak to your expectations for the truckload fleet, both dedicated and for higher sequentially in the back half of the year I'm just curious it sounds like there's some new business still being on boarded and dedicated so what your expectation would be sequentially for for the dedicated fleets and then for higher continues to drift a little bit lower sequential.

I'm just curious if this starts to stabilize at some point thanks.

Yes, hey, thanks for the question and certainly as we continue to lean in both organically and acquisitive potentially on.

Dedicated opportunities you should expect to see us to continue to add growth to that segment of the portfolio.

As we stated many times where were looking to stabilize and have a very healthy.

And prominent network business, but one that we certainly want to be responsive to the desires of our of our driver community and make sure that we put them in the best position to be successful long term.

And so it has been feeding to a degree our dedicated growth.

That said we did grow.

Sequentially.

<unk> first quarter second quarter about 100 drivers in our network fleet, which was a positive sign.

And.

Turning to look for opportunities to continue that momentum, but on a growth strategic growth driver basis in the truckload segment, we would still be.

Focusing predominantly on the growth driver being in the dedicated and specialty surface area.

Yeah, Okay that makes sense Mark and then just can you comment just generally about the dedicated pipeline is that still a pretty robust or has that changed at all with just some of the the way we've seen that the overall market settle down a little bit.

No we haven't seen really any change in the dedicated pipeline again, we're pursuing dedicated that isn't simply trying to capture capacity.

To cover.

One way or distress type needs.

Pursuing durable dedicated that ads.

Specific value to what the customer is trying to do strategically.

Therefore.

The intent would be for it to be durable then through whatever freight cycle.

That's been really our focus for the last several years on that type of dedicated not not a capacity generation type of dedicated.

Right. Okay. Good okay. Thanks for the color this morning.

Next question Ari Rosa with credit Suisse.

Great Hey, good morning, gents, Thanks for taking the call. So I wanted to ask about the intermodal business as you think about positioning for 2023.

And I think about what the competitive landscape is looking like in the West Obviously, you have one I M C with.

With B NSF and you have a number of.

Number of I M sees who are going to be an on U P. As we think about 2023, how do you think about that.

Differentiating your offering relative to some of your peer I am sees operating on on the U P and kind of how how Schneider maybe is positioned to win there and then on a related note I'm just wondering with the labor negotiations are underway at the rails what impact you might.

I see that as having an on the intermodal business.

Alright, well. Thank you for the question and certainly are.

Approach on this change that we've made in the west was.

Centered squarely on how to create the most.

Differentiation.

In the marketplace.

What I would.

Highlight here is our differentiation on the move is that we are bringing a very large asset centric approach to the union Pacific and asset centric being our own box our own chassis.

And are predominantly company dray model.

And so with that we're at.

Bring a highly controlled service offering that makes us not only efficient inside the four walls of Schneider, but we're also a great partner with the railroad because of that efficiency, which aligns very closely with precision scheduled railroad concepts.

Secondly, then we then get a combined uniquely with that asset based model.

Between the U P and the west and the <unk> in the east.

<unk> derive specific efficiencies because of those more efficient connections that our current setup and so what we're differentiating on his efficiency. What we're differentiating on has the experience the customer gets on this controlled asset model and we also bringing differentiation on a much different set of unique origin destination pairs as of <unk>.

All of that so thats.

Really the strategic intent behind the change and nothing to date would suggest that.

Our dialogue with the market and our customer community.

That's the wrong approach.

Got it. Thank you so much and then any comment on the impact of labor negotiations and how that might impact your cost structure.

Labor is I think one of the constraints, we're all feeling and I believe the rails are no different there having enough.

Oh, the labor capacity to be as efficient.

As I will offer I will defer to them to respond to what they believe the risks are there.

Okay fair enough. Thanks for the time.

Next question, Jordan <unk> with Goldman Sachs.

Yeah, Hi, I was wondering can you talk a little bit about.

In truckload thoughts around price negotiations forthcoming and timing of certain negotiations and.

Are you getting any sense or pre your early sense that just might be a more challenging a discussion point with customers. Thanks.

As I mentioned, we are largely through the allocation season.

With our.

Two largest network businesses truckload and truckload network and intermodal the.

The customer community has responded and I think looking for quite frankly, less chaos and.

And dependability.

Particularly as we align predominantly with trailer pool and container pool shippers.

That positions us very favorably.

They've also been incredibly supportive of the inflationary impacts around driver wages and equipment and so.

We feel coming out of that process, we feel pretty good and we feel pretty aligned strategically with our customer base and we look forward to executing on their behalf.

So pricing in our view it has been reflective of the inflationary costs and we would expect that to continue.

Okay and then just.

Follow up I guess this is more intermodal related but obviously the rails have had.

Well noted service issues, but I'm just curious in terms of overall congestion.

We're also the pinch points would you say aside from the rail networks. Thanks.

While pinch points are we have seen and even at our truckload trailer.

Our dwell time at customers now are back to even above peak COVID-19.

Times, and I think thats, a condition of still where not all through the labor constraints or.

Ah seasonality of vacations, and a reoccurring of Covid that we're experiencing around the country. So we're I think we're still not nearly as fluid we're not back to any level of historical.

Standards of turning equipment at our customer locations, so that would still be.

Pinch point and then for us specifically.

While we're very pleased from a supply chain standpoint, we've been able to get our container volume increases into the fleet.

We have yet.

Working on the back half of this year to get caught up on our chassis.

Cover.

Chassis increases to cover those increases and so we've got some built in inefficiency.

Short term of that which we expect to remedy in the second half of the year.

But outside that the well documented rail place those are the maybe two other places I would point you towards.

Thanks, so much.

Next question, Tom <unk> with UBS.

Yeah good morning.

I had to ask you mark a bit about what youre seeing in terms of capacity and also how you might think sequentially about the brokerage business.

So you know.

I guess truckloads pretty opaque market, it's kind of hard to know exactly what's happening with capacity do you think that there is significant capacity, leaving the market you know the owner operators small carriers.

Happening faster than what you've seen in prior cycles.

And then with respect to brokerage.

You know that the quarter was very very impressive in terms of the brokerage results I'm. Just wondering if you think that that's kind of a peak level from a gross margin and operating income perspective, or do you think that's something that you can sustain and three Q4 Q.

You know just given that that spot rates could fall further so I guess kind of two things within that thank you.

Okay.

Conversely, we do think there is.

Some certainly some tremendous stress in the small and micro carrier market, particularly those who.

Got in at a high cost point to chase the spot market and obviously that has gone through a bit of.

More than just a bit of a change, but a significant change. So so yes. We do believe there are subs substantive stresses we can catch see it in the volume of calls that come into our brokerage business, which we are.

Trying to use more of a digital channel to deal with that.

We study closely the the motor carrier Authority Replications, who is not renewing.

That's a bit of a lag it's a leading indicator and that is starting to see even though I think it's a couple of months behind you could see dark increases there in motor carrier authority is not being renewed I would expect as that progresses and that data is refresh that it will even be more pronounced.

So.

And as we've gone through this pandemic stage of the market.

The micro carrier has been the predominant growth vehicle for the industry and I think that will be the first element of the industry that drops back off based upon.

Inflationary pressures.

As it relates to think.

Certainly the business model that we have in brokerage the second quarter was highly ideal.

And so what we would say as we.

Coming here into July that the pricing with shippers as stabilized carrier cost a more stabilized so.

It was a highly advantageous period in the second quarter.

We've always felt that our.

Biggest earnings contribution over time, with our logistics and brokerage business was market share grow the topline grow volume.

And not to.

Not be as focused on the on the margin performance, which is with our 4% to 6% range was based on so we still philosophically believe that's the case, although with our power OE component.

As we mentioned earlier prior question, we would anticipate reviewing and addressing our long term expectations of margin within that.

If I go back to the attrition do you subscribe to the idea that we will have faster attrition and capacity.

This cycle than maybe we've seen in like 2018 2019 or prior cycles.

I do I do just because of the cost basis that so many of these carriers came into the market at now we would also say looking at our.

Leasing business and looking at our brokerage we havent seen we wouldn't setback in our experienced at this juncture is massive.

Exiting yet.

The macro data that we can look from the government FMC MSA appears to be maybe stronger than maybe what we're feeling presently but I think we're just on the front end of that time.

Great. Okay. Thanks, Mark.

Got it.

Next question, Chris Wetherbee with Citi.

Hey, Thanks. Good morning, guys. This is are you like when you're on for Chris. So maybe we can just you can help give us a better understanding of what the potential for cost take out looks like.

Maybe and in the second half and more into 2023, yes. There is more of a downturn in the truckload cycle and specifically you also mentioned that we are seeing a return to seasonality, but how how much closer are we really getting to that in the back half of the year.

Yeah.

Yep.

If I caught all of the question it was more.

Cost takeout opportunities I'm, sorry, Eli.

Yeah. So it's the truckload cycle starts to take more of a dip downwards, what's the what's the opportunity for you guys to take more costs out of the network.

Yeah.

Well, maybe I'll point to where our investments are from a technology standpoint to do that and certainly digitizing and automating our business.

Particularly around the transaction level has been a significant focus and we're seeing it start to bear fruit, particularly.

In our logistics business, but we're bringing those same digital tools to get to the long tail shipper and carrier and our other segments, whether it'd be bulk trucking intermodal. So that we can get after the long tail more efficiently and more effectively from a cost of acquisition standpoint of volume so that will continue to be.

Significant focus of the organization.

And then obviously, if the market cools, which we don't put it in a place that we're anti inflationary at this point.

We would expect to start to see some relief in the driver recruiting phase the maintenance and parts in costs and all the other areas that in.

In my 34 years Ive never seen.

The level of inflation that we've experienced in the last Ah.

It's 24 months and so our operating cost position and that type of environment would likely improve significantly.

I also would add to that that I think that there is.

There were to be some sort of air pocket that we go through that could create a ironically some opportunities for improved efficiency, especially in our truck network.

As people have a chance to our customers, maybe you have a chance to catch their breath and become more fluid at their locations because that's been one of our biggest pinch points within our network.

Network on the truck side.

I think those efficiency opportunities may be a couple of quarters away in our in our intermodal network given that there are more variables that go into that equation, but.

That efficiency play it could be a part of the.

The answer as well.

Asset productivity.

That makes sense and then just a quick follow up on intermodal I know you guys have more assets coming online and you probably can't give quarter to quarter, but any way, we should be thinking about additional containers coming online here in the back half.

Yes, I would think.

We're focused primarily on growth of assets in intermodal will be on the chassis front not so much on the container front, so where we were just a.

A couple of quarters ahead of the chassis that we are the containers.

Got it thanks, so a.

A couple of quarters behind.

Next question, Brian Hoffmann talk with J P. Morgan.

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

Mark maybe just to come back to the views on the capacity in the market, maybe one short term one more longer term, but maybe.

85 is obviously out there I don't know, what's going to get enforced or not but do you have a different model I'm wondering what that might impact some of your peers and how that would affect them and if there's any other states here you're watching as potentially following.

And then also this morning, we saw the big settlements out and.

In Texas.

If that was well telegraphed are expected, but what are some of the implications from that as you look forward does that really change the pace of our insurance.

Insurance cost of premiums that you're already experiencing right now across the industry.

Great. Thank you.

Thank you Brian .

Five condition is a very.

Our view a very big deal.

We founded highly disruptive.

When we made those changes a few years ago anticipating this.

Very outcome.

I think there's 70000 or so owner operators presently in the state of California, and as you mentioned there are a few following states that we've also had to make adjustments in.

And really what we found through that process. Brian is it what surprised me is the number of folks who are willing to move out of the state of California.

For us to do that so that's one component you kind of changed.

The geographic mix of your fleet.

And we were had a number of people through that process.

B the last straw to get out of the industry and so in our view if our experience is reflective we will start to see an attrition of capacity in there.

Those markets that go to that type of.

Kind of a rulemaking if you will so it.

It will be disruptive and if people haven't prepared for it that's all in front of them and as you mentioned I think there are a lot of people that we're in the wait and see mode.

Awesome and maybe a few other larger carriers had already made those adjustments. So it won't have any material impact for us if anything it'll be a positive impact because we will be able to and we've already made those adjustments and are prepared to serve.

Those who may fall off as a result, so its a big deal and as you mentioned, it's not just California, it's several potentially other states as well.

As we've always set of folks wanted to be an employee there is a.

Lots of places for them to.

To achieve that and.

We're really are.

Messing with very successful.

Purpose will folks who wanted to be their own on their own business.

And on the.

Insurance side with the settlement at this morning with.

With more in Texas is that kind of what you expected.

I'll jump into that I suppose here, it's kind of difficult to know how that will ripple through its certainly not the first shock claim that has occurred in the space or across the country in various industries.

<unk>.

So we'll have to see how it plays out there are it's predominantly a large fleet phenomenon that we're talking about here with excess towers in.

I think over the course of time companies are making adjustments to the size and structure within those towers and reevaluating their self retained risk and so on.

How that all translates into ultimate insurance costs will have to see but it's it's.

Yes.

It's not going to help.

Yeah.

Right.

If I can ask one quick clarification just on the on the box turns because that's a big focal point it sounds like.

Perhaps there's more container.

Containers that are in the system, but not not effective.

He was actually getting counted you know the numbers that we see are theres, a theres not fully utilized because they're missing the chassis. So it sounds like there's opportunities to improve but I just didn't know.

If you could quantify or perhaps put some context around you know just what that would be if you were kind of fully matched at this point in time.

Yes, those are fully in our numbers and we would consider this the trough of what we would expect based upon.

Fluidity and.

Getting them all in when we bring all of those obviously, they're not in for the full quarter and so you have some inefficiency to get them to get them placed but.

We do still kept all of those are in our numbers.

Okay. Thanks for the time I appreciate it.

Next question Elliot Alper with Cowen. Please go ahead.

Great. Thank you.

Last quarter, you talked about contract renewals being highly supportive of the inflationary environment.

The outlook this quarter discussing some frame moderation I guess anything you could share on how the market has evolved over the past three months.

Maybe within that you have a pretty diverse end market footprint can you speak to some of the pockets of weakness in any strength within that portfolio.

Okay.

As it relates to pricing pricing is still even even though we've been through.

Price escalation process, both within the allocation events in prior periods and also out of periods.

Hmm.

As we've gone through the second quarter pricing is still on a contractual basis going up to cover any additional inflation.

That's.

And the business and so very supportive from a customer standpoint and again.

We're committed to being a great partner for them, what they need to accomplish through that transaction as well so very very supportive.

The condition of the market continues.

And our focus has been on reshaping our portfolio to a degree where we can build resiliency.

Only the customer contracting phase, which is what you see in the dedicated growth, but also being very mindful of the segments that we want to make sure that we're on.

Leading into aggressively commercially whether that'd be.

Value retail do it yourself retail food and beverage things that are more durable, depending upon where you might be in an economic cycle and so.

So we think obviously being paid fairly for the value that you provide is critical but also aligning yourself with the parts of the economy and the shipper community. That's most durable through cycles has been a focus and continues to be a focus of the commercial efforts of the company.

Alright, thank you.

Question can help me here with bank of America.

Hey, great good morning.

So just wanted to I guess continue on on that that thought process. When a blend your commentary on the market with what you saw truck right. So dedicated is 60%, but I guess I would've expected the truck market, given where rates are where rates could have been maybe bigger margin upside.

It looked like you decelerated, 6% revenue per truck per week.

Are you seeing the spot rates declined faster than you thought maybe.

Is it more about the cost side of the equation you mentioned before on driver pay and how the market is changing maybe talk a little bit about that.

Yeah, I'm not sure I'm tracking with the question on the acceleration I want to clarify that for me Ken I, just want to understand right. Because you talked about the commentary that the backdrop of a decelerating economy, but I guess, even still I would've expected from what we saw with other carriers may be.

Still a bigger benefit on margin from from the way rates were in the in the quarter. So did you see the what was it because of a bigger faster decline in spot rates that we hear a lot about was it because costs were up faster just to understand why the margins.

On truck.

Could have been stronger relative to what we've seen in others.

Yes, I think we'd probably an outlier as it relates to the lack of gains.

As we've held onto our equipment for growth opportunities in power only and are dedicated.

Our portfolio. So we've sold very few units, particularly in the second quarter, which we would expect to step up here as we mentioned in our comments.

In the third and fourth.

Sure.

Okay.

And so I think that is probably the predominant difference, particularly year over year as it relates to what would have been at.

Tailwind a year ago, and we just didn't get the experience of that this quarter and that was purposeful based upon another ability to put growth in.

But certainly the spot market is has moderated we don't play on our asset.

Businesses, all that much in the spot market, we are toggled between upper single digits to low double digits in that.

So it has less influence on US there obviously that plays more specifically for us in our logistics business.

And I think all that considered and what we're doing there I think the margins.

Were pretty solid.

Okay, and then just a follow up you mentioned on the intermodal fleet right group the fleet, 28% loads up 5%.

You mentioned about the chassis and the like kind of delaying the progress is there a difference so far and what you're seeing early on in Union Pacific in terms of of the asset turn versus your prior western partner.

We're really pleased with the Union Pacific, particularly on the fluidity inside their ramps and so we would say we have not seen any drop off and we've got some technology connections that we're still working on to make.

Make that even more efficient for our driver community.

Not knowing not doing as much with you pay up to this point.

We're actually very pleased with the early returns there.

Great. Thanks, Mark Thanks have a great one.

Next question Scott Group with Wolfe Research.

Hey, Thanks, good morning, guys. So.

Just some clarity on the guidance it implies sort of earnings flat, maybe down slightly from <unk>. The rest of the year any any directional color on the segments in terms of what you think gets better from here or what potentially worse from here and then just.

Separately hunt on their call a couple of weeks ago.

As they look ahead to 'twenty three bid season, they think intermodal price, maybe we'll hold up something better than truckload pricing I'm wondering if you agree with that or no.

Sure.

The second half.

I think we don't want to just.

Beat gains to death, but.

Paired to the prior year, we do anticipate having.

Lesser gains in the second half of this year than we had in the second half of last year, albeit at the second half of this year to stepped up from the first half of this year.

But gains not being as prominent.

A factor in our earnings number this year as part of that.

<unk> dynamic that you referenced there and.

I think the biggest question Mark.

In our range, if you will for towards the upper or the lower end ultimately really gets down to the fourth quarter and what types of <unk>.

Project in premium opportunities present themselves compared to the prior year, which those opportunities were ample.

And so I think that is the one thing that we'll have to see how it plays out.

And we talked a bit about the logistics margin of 9% in the second quarter and could there be some.

Modest moderation within those margins in the second half of the year. That's possible. So I think those those combination of things are the ones that come to mind in response to your question.

And Scott maybe just commentary.

Was it maybe 2023 comments, but certainly as we got through the second quarter.

Renewals are.

Our intermodal pricing improvement really led the way across the enterprise so consistent.

Whether that holds all the way through 2023, we think there is room for that but we're not.

Making comment there just yet.

Thank you guys.

Okay.

Next question.

With Raymond James.

Hey, good morning, everybody.

Good morning.

Hey, I just have one and it has some power only but it's been obviously a real source of strength in logistics.

Mentioned the high contractual nature of that book, but then and I think I heard you say that trailer tents or slower on the shipper side.

I guess my question is how are you thinking about overall trailer utilization at Schneider today.

And how big of a trailer fleet size do you need to kind of sustain current power on the growth rates.

Yes, I think one of the.

Thanks for the question.

Certainly we anticipate over time being more of a trailing equipment centric organization as a result of using our technology and our network management capabilities around assets in this case trailers.

To aggregate freight on behalf of our customers.

Whether it be our assets, whether it be owner operators or whether it'd be third parties and to do that will be more trailer centric, which is one of the reasons and the success. We've had there is why we haven't sold and we've held onto our trailing equipment.

As a result of that probably a little more advanced than we would have anticipated at this juncture and so as you think about what we'll be bringing forth in our capital allocation decisions in the forthcoming years it'll be more trailer century.

Than would be typical because of this phenomenon so.

And my comment around the delays. It's just we're just seeing more dwell time it had constantly on load locations.

Which once that obviously returns to more historical standards and that frees up capacity for us to to grow the business without without adding as many trailers.

Apply appreciate it.

Okay.

I will now turn the floor over to Mark for closing remarks.

Well. Thank you everyone I want to thank everyone for participating today and just a few final thoughts we're continuing to execute on our strategy of growing and scaling this highly diversified multi modal transportation logistics platform.

And then we want to offer great value to a wide array of shippers freight needs and increasingly we see ourselves aggregating freight and capacity around the flexibility and control of what we've been talking about here. This morning, our container and trailer assets for both Schneider and third parties and as a result, we see our revenue and earnings growth increasingly less asset and.

People intensive.

While the market chaos over the last two years is moderating our portfolio is well positioned as evidenced through the most recently completed allocation season as well as the more defensive nature of our truckload mix towards dedicated.

Despite the current challenges in intermodal, we do expect to move beyond these inefficiencies and we remain very bullish long term on the growth prospects of intermodal and the value. It provides to our shipper community both economically and environmentally.

As I mentioned earlier I am highly pleased and encouraged by the customer recognition of our competitive differentiation with our new Western rail partner that goes into full effect next year in.

In combination with our already high performing <unk> offering.

Our intermodal team has been tireless and engaging with our customers on the merit of the change.

And also planning the conversion with the Union Pacific and we would expect to be flawless during that transition.

Finally, the challenge over the last couple of years have greatly advanced capability and value. The market is derived from our logistics offering we're not taking our foot off the pedal of our technology investments to connect our various trade partners and.

And provide resources to grow not only our brokerage.

Capability, but this <unk>.

Very valuable.

Value, creating power only offering that we think adds value.

Irrespective of market cycles, and so that because what you can expect from us and again, thank you for participating today.

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Yeah.

Okay.

[music].

Yes.

[music].