Q3 2023 Knight-Swift Transportation Holdings Inc Earnings Call

Good afternoon, My name is Judy and I'll be your conference operator today at.

Speaker 1: Good afternoon. My name is Ludi and I'll be your conference operator today. At this time, I would like to welcome everyone to the night sweep transportation third quarter, 2023 earnings conference call.

At this time I would like to welcome everyone to the Knight suite Transportation third quarter 2023 earnings conference call.

Speaker 1: All lines have been placed on mute to prevent any background noise. If at any time during this call you require immediate assistance, please press star 0 for the operator.

All lines have been placed on mute to prevent any background noise if.

But any time during this call you require immediate assistance. Please press star zero for the operator.

Speaker 1: Speakers from today's call will be Dave Jackson, President and CEO , and Adam Miller, CFO . Mr. Miller, the meeting is now yours.

Speakers from today's call there'll be be Jackson, President and CEO and I didn't Miller CFO . Mr. Miller, the meeting is now yours.

Speaker 2: Thank you, Ludi, appreciate that. And a good afternoon, everyone, and thank you for joining our third quarter 2023 earnings call.

Thank you Lou I appreciate that and a good afternoon, everyone and thank you for joining our third quarter 2023 earnings call.

Speaker 2: Today we plan to discuss topics related to the results of the quarter, provide an update on current market conditions, and update our 2023 guidance.

Today, we plan to discuss topics related to the results of the quarter provide an update on current market conditions and update our 2023 guidance.

Speaker 2: We have slides to accompany this call, which are posted on our investor website.

We have slides to accompany this call which are posted on our investor website.

Speaker 2: Our call is scheduled to last one hour today. And following our commentary, we'll answer as we're answering questions related to these topics in order to get to as many participants as possible. We are going to limit the questions to one per participant.

Our call is scheduled to last one hour today and following our commentary we will answer as we ran two questions related to these topics in order to get to as many participants as possible we are going to limit the questions to one per participant.

Speaker 2: If you have a second question or a follow up, please feel free to get back into the queue. We'll answer as many questions as possible.

If you have a second question or a follow up please feel free to get back into the queue and we'll answer as many questions as possible.

Speaker 2: If we're not able to get to your question due to time restrictions, you may call 602-606-6349 following the call and we'll answer as many questions as possible at that point.

We're not able to get to your question due to time restrictions you May call 602, 600 66349, following the call and we'll answer as many questions as possible at that point.

Speaker 2: So to begin, I'll first refer you to the disclosures on slide two of the presentation, and I'll also note the following. This conference call and presentation may contain forward-looking statements made by the company that involve risks, assumptions, and uncertainties that are difficult to predict.

So to begin I'll.

First refer you to disclosures on slide two of the presentation and I'll also note the following.

This conference call and presentation may contain forward looking statements made by the company that involve risks assumptions and uncertainties that are difficult to predict.

Speaker 2: Investors are directed to the information contained in item 1A, risk factors, or part 1 of the company's annual report on form 10K filed with the United States SEC for a discussion of the risk that may affect the company's future operating results.

Investors are directed to the information contained in item one a risk factors or part one of the company's annual report on Form 10-K filed with the United States SEC for a discussion of the risks that may affect the company's future operating results.

Our results may differ.

Speaker 2: Before we get into the slides, I want to turn the call over today for a few opening remarks.

Where we get into the slides I want to turn the call over to Dave for a few opening remarks. Thank.

Speaker 3: Thank you, Adam, and hello everyone, and thank you for joining our call today.

Thank you, Adam and Hello, everyone and thank you for joining our call today.

Speaker 3: As has been widely reported, we continue to be in a depressed truckload freight market where rate expectations from shippers are often close to if not below operating cost spot rates are at

As has been widely reported we continue to be in a depressed truckload freight market where rate expectations from shippers.

Are often close to if not below operating cost that spot rates are at or not at sustainable levels and our proven not to be survivable.

Speaker 3: are not at sustainable levels and are proving not to be survivable for those that are dependent on that type of freight. When we did our last call a quarter ago, there were rumors of yellow closing. Obviously since that call that has indeed taken place and the already resilient LPL market has seen more strength.

Are those that are dependent on that type of freight.

When we did our last call a quarter ago, there were rumors of yellow closing.

Obviously since that call that has indeed taken place in the already resilient L. T O market has seen more strength.

Speaker 3: On the truckload side, the announcements of failures and rumors of more seem to be increasing by the week as of late.

On the truckload side, the announcements of failures and rumors of more seem to be increasing by the week as of late.

Speaker 3: It's taken a lot to get to this point so deep along the bottom of this current cycle. But the market is beginning to show signs of sensitivity to when supply leaves suddenly or provider cannot perform with freight lanes that were awarded by offering the cheapest price.

It's taken a lot to get to this point so deep along the bottom of this current cycle.

But the market is beginning to show signs of sensitivity to win supply leave suddenly or provider cannot perform with freight lanes that were awarded by offering the cheapest price and.

And a ship or may find themselves quickly seeking a quality provider.

Speaker 3: and a shipper may find themselves quickly speaking a quality provider at a higher price than the original award.

A higher price than the original award.

Speaker 3: However, we are not seeing enough of that.

However, we are not seeing enough of that.

<unk> kind of activity or enough supply leave and or enough strength in volumes to move rates.

Speaker 3: kind of activity or enough supply leave and or enough strength and volumes to move rate.

Speaker 3: to a meaningful inflection position right now, but it does appear that the stage is being set for positive rate pressure in the next bid season.

Two a meaningful inflection position right now.

But it does appear that the stage is being set for positive rate pressure.

Pressure in the next bid season.

In the Meanwhile.

Here at Knight Swift, we are focused on three specific objectives. The first one is improving the performance of our truckload businesses Ah theres much in our control that we can do that including being better at cost running more miles safely.

Speaker 3: Here at Knight's Weft, we are focused on three specific objectives. The first one is improving the performance of our truckload businesses.

Speaker 3: There's much in our control that we can do, including being better at cost, running more miles safely, and in hiring and retaining driving associates.

And in hiring and retaining driving associates are people are digging in and working hard we're grateful for that.

Speaker 3: Our people are digging in, working hard. We're grateful for that.

Speaker 3: The truckload operating ratio excluding US Express was a 91.5% and we are just simply not comfortable with an OR that starts with a 9.

Truckload operating ratio excluding U S Express it was a 91.5% and we are just simply not comfortable with an O R that starts with a nine.

Speaker 3: and our people are working with urgency to do all that we can.

Our people are working with urgency to do all that we can and.

Speaker 3: Another objective is to grow our LTL network.

Other objective is to grow our L. T O network, AAA Cooper and Midwest Motor Express seamlessly operate on one operating network, while maintaining their local identities.

Speaker 3: Triple A Cooper and Midwest Motor Express seamlessly operate on one operating network while maintaining their local identities.

Speaker 3: We've opened 14 LTL service centers organically since the acquisition of AAA Cooper and MME in 2021. We've already purchased 11 additional terminals that have not yet been launched as service centers and will continue to pursue acquiring additional terminals that fit our nationwide plan in addition to other strategic forms of growth for LTL.

We've opened 14 L. T L service centers organically since the acquisition of AAA Cooper, and NME and 'twenty 'twenty. One we've already purchased 11 additional terminals that have not yet been launched its service centers and will continue to pursue acquiring additional terminals that fit our nationwide plan. In addition to.

Two other strategic forms of growth for L. T L.

Speaker 3: We have found synergies between LPL and the truckload business while not getting in one.

We have found synergies between L. T L in the truckload business.

While not getting in one another's way.

Speaker 3: And the third objective that I would point out is, is the turnaround of US Express. We feel like we had good momentum going into the close of the transaction with the goal of being able to hit the ground running. And it feels like that's what's happened. We've had positive sequential rate improvement, while lowering cost per mile in the first quarter of our ownership despite strong market pressure in the contrary.

And the third objective that I would point out is.

Is the turnaround of U S Express we feel like we had good momentum going into the close of the transaction with the goal of being able to hit the ground running and it feels like that's what's happened.

We've had positive sequential rate improvement, while lowering cost per mile in the first quarter of our ownership despite strong market pressure and the contrary.

Speaker 3: I still, a long ways to go, but we are ahead of schedule. The people at US Express have been great, and we're so excited for where that business is headed. And with some help from the market, we'll get there even sooner. Now we'll turn our...

That's still a long ways to go but we are ahead of schedule. The people at U S Express have been great and we're so excited for where that business is headed and with some help from the market will get there even sooner.

Now I will turn to our.

Our overview slide three.

Speaker 3: The charts on slide three compare our consolidated third quarter revenue and earnings results on a year over year basis. These results now include the results of US Express for the full quarter. Revenue excluding fuel surge charge increased 7.6% while our adjusted operating income declined by 60.8%. Market conditions in the LTO business were strong while the well soft demand continues in the truckload space.

The charts on slide three compare our consolidated third quarter revenue and earnings results on a year over year basis. These results. Now include the results of U S Express for the full quarter revenue, excluding fuel surcharge increased seven 6%, while our adjusted operating income declined by 68% Mark <unk>.

<unk> and the <unk> business, where strong world well soft demand continues in the truckload space.

Speaker 3: GAPA earnings per deluded share for the third quarter of 2023 were 37 cents per share and our adjusted EPS came in at 41 cents per share. These results were negatively impacted on a year-over-year basis by a $20.4 million increase in interest expense and the $22 million reduction in operating income in our third-party insurance business with the non-reportable segments.

Our GAAP earnings per diluted share for the third quarter of 2023 were 37 cents per share and our adjusted EPS came in at 41 cents per share. These results were negatively impacted on a year over year basis by a 24 million dollar increase in interest expense and the $22 million reduction in <unk>.

<unk> income and our third party insurance business with the non reportable segments.

Also.

Speaker 3: The third quarter gap results were positively impacted by a 14.6 million income tax benefit from the partial release of a tax benefit valuation allowance held by US Express associated with net operating losses and the tax credit carry forward benefit.

The third quarter GAAP results were positively impacted by a $14 6 million income tax benefit from the partial release of a tax benefit valuation allowance held by U S Express associated with net operating losses, and the tax credit carryforward benefit.

Speaker 3: at the time of the acquisition. This benefit was recognized post-closing due to the ability of night swift to utilize those tax attributes, which had the effect of reducing the consolidated effective tax rate at night swift to negative 2.1% for the current quarter.

At the time of the acquisition. This benefit was recognized post closing due to the ability of Knight Swift to utilize those tax attributes, which had the effect of reducing the consolidated effective tax rate at Knight Swift to negative two 1% for the current quarter.

Speaker 3: Our adjusted EPS of 41 cents is calculated using a normalized 23.2% effective tax rate for the quarter and excludes the 9 cent per share benefit of the lower tax rate.

Our adjusted EPS of <unk> 41 cents is calculated using a normalized 23, 2% effective tax rate for the quarter and excludes the nine cent per share.

Benefit of the lower tax rate.

Now onto slide or.

Speaker 3: Slide illustrates revenue and adjusted operating income for each of our segments.

Slide illustrates revenue and adjusted operating income for each of our segments.

Freight demand in the third quarter remained stable.

Speaker 3: Freight demand in the third quarter remains stable at soft levels for truck load but barely strong and building an LPL. The truck load season will build usually seen in the late third quarter with subdued and this has continued thus far in early October .

At soft levels for truckload, but fairly strong and building and L. T. L. The truckloads sees it'll build usually seen in the late third quarter was subdued and this has continued thus far in early October .

Speaker 3: our insurance business performed worse than expected. But this was largely offset by LTL and US Express performing ahead of our plan in the quarter while our existing truckload businesses were largely in line.

Our insurance business performed worse than expected, but this was largely offset by L. T O N U S Express performing ahead of our plan in the quarter, while our existing truckload businesses were largely in line.

Speaker 3: Contractual bid rates are largely baked in at this point for the 2024-2023 and the Trechlov business while project opportunities are less prevalent than a normal peak season, but are continuing to materialize.

Contractual bid rates are largely baked in at this point for the 'twenty 'twenty four 2023 in the truckload business well project opportunities are less prevailing than a normal peak season.

But are continuing to materialize.

Speaker 3: After generally falling for much of the past few quarters, fuel prices increased throughout the third quarter, providing a new headwind to operating margins for truckload and intermodal, though our efforts to reduce costs largely offset the impact. Our existing logistics business did a great job in navigating significant declines in volume and revenue per load year over year to maintain a low 90s adjusted operating ratio, excluding US Express logistines.

After generally falling for much of the past few quarters fuel prices increased throughout the third quarter, providing a new headwind to operating margins for truckload and intermodal, though our efforts to reduce cost largely offset the impact our existing logistics business did a great job navigating significant declines in volume and <unk>.

Revenue per load year over year to maintain a low ninety's adjusted operating ratio excluding U S Express logistics.

I'll now turn it over to Adam to discuss each segment's operating performance starting with truckload on slide five.

Speaker 3: I'll now turn it over to Adam to discuss each segment's operating performance starting with truck load on slide 5.

Speaker 2: Hey Dave, for the truckload segment, the ongoing soft demand, further rate pressure and a recent sustained increase in fuel prices were headwinds to operating margins in the third quarter.

Dave, but the truckload segment the ongoing soft demand further rate pressure and a recent sustained increase in fuel prices were headwinds to operating margins in the third quarter.

Speaker 2: However, our actions to reduce cost offset these challenges to produce a slight sequential improvement in adjusted operating ratio for existing truckload business excluding the results of US Express.

However, our actions to reduce costs to offset these challenges to produce a slight sequential improvement in adjusted operating ratio for our existing truckload business. Excluding the results of U S Express.

Speaker 2: The inclusion of US Express negatively impacted the adjusted operating ratio for this segment by 340 base.

The inclusion of U S Express negatively impacted the adjusted operation operating ratio for this segment by 340 basis points.

Speaker 2: On a year of year basis, our truck load revenue, excluding fuel surcharge, increased 21.9% or affecting a 15.5% decline in the existing truck load business prior to the inclusion of US Express.

On a year over year basis, our truckload revenue, excluding fuel surcharge increased 21, 9%, reflecting a <unk>.

18, 5% decline in the existing tripled the business prior to the inclusion of U S Express.

Revenue per loaded mile fell 14% in total or 11, 8% before including U S Express truckload business as the screen bid activity is now fully relaxed excluding the results of U S Express miles per tractor increased 1% for the first year over year increase in 2023.

Speaker 2: Revenue-perloaded miles fell 14% in total, or 11.8% before including the US Express Treble of Business, as the spring-bid activities now slowly realize.

Speaker 2: The results of US Express miles per tractor increased 1% for the first year-over-year increase in 2020.

Speaker 2: including the results of US's fresh miles protractor increased 5.1% year-over-year.

Including the results of U S Xpress miles per tractor increased five 1% year over year.

Speaker 2: The decline in race rates partially offset by the improvement in miles per tractor produced an 8.2% decrease in revenue per tractor year over year. Now,

The decline in race rates, partially offset by the improvement in miles per tractor produced an eight 2% decrease in revenue per tractor year over year.

Now, we'll move to slide six.

The benefits of our diversification into L. T O really stood out as this segment continues to perform well aided by the recent disruption in the industry.

Speaker 2: The benefits of our diversification into LTO really stood out as this segment continues to perform well aided by the recent disruption in the end.

Speaker 2: Our LTL business grew revenue, excluding fuel surge charge, nearly 7% year over year, and delivered a 84.9% adjusted operating rate.

L. T L business grew revenue, excluding fuel surcharge, nearly 7% year over year and delivered an 84.9% adjusted operating ratio.

Pricing growth strengthened as revenue per hundredweight, excluding fuel surcharge increased 10, 7% year over year volumes build throughout the quarter as shipments per day increased four 8% year over year, which reversed the trend of declines seen in the first half of the year.

Speaker 2: Pricing growth strengthened as revenue per 100 weight, excluding fuel surcharge increased 10.7% year-over-year. Volumes built throughout the quarter as shipments per day increased 4.8% year-over-year, which reversed the trend of the client seen in the first half of the year.

Speaker 2: As Dave mentioned, we've brought on 14 new service centers online since entering the business in late 2021. And efforts are underway to continue growing this number with properties and various stages of procurement development or recognition.

As Dave mentioned, we've brought on 14, New service centers online since entering the business in late 2021 and efforts are underway to continue growing this number with properties in various stages of procurement development or reconditioning.

Speaker 2: Feeling out a super regional network in the short term and created a national network in the long term will allow us to participate in more freight and enable us to find opportunities to further support our existing truck load customers with LTO capacity. This remains a key strategic priority for us.

Filling out a superregional network in the short term and created a national network in the long term will allow us to participate in more freight and enable us to find opportunities to further support our existing truckload customers with LTE capacity.

This remains a key strategic priority for us.

Now onto slide seven.

The logistics the logistics market is in a difficult base, where freight demand has been soft for over a year is producing topline price pressure that is no longer being offset by a corresponding declines in purchase transportation costs. Despite these challenges our existing logistics business remains.

Speaker 2: The logistics, the logistics market's in a difficult phase where freight demand has been soft for over a year is producing top-line price pressure that is no longer being offset by corresponding declines in purchase transportation costs. Despite these challenges, our existing logistics business remains disciplined and nimble, maintain a low 90s adjusted operating ratio before the inclusion of US Express.

<unk> nimble maintain a low ninety's adjusted operating ratio before the inclusion of U S Express.

Speaker 2: The US Express Logistics Business is already showing sequential improvement in adjusted operating ratios since the acquisition, closing it within 300 basis points of our existing logistics business as we improve the cost structure and pricing even in a difficult environment.

The U S Express logistics business is already showing sequential sequential improvement in adjusted operating ratio since the acquisition close each within 300 basis points of our existing logistics business as we improve the cost structure and pricing even in a difficult environment.

Speaker 2: Overall revenue was down 24.5% year over year, as revenue per load declined 15.8% and low count decline 10.0%.

Overall revenue was down 24, 5% year over year as revenue per load declined 15, 8% and low count declined $10 three.

Speaker 2: including the US Express Legis X-Valumes, low count was down 29.7% year-over-year in the existing business. The US Express Legis X-Valumes, low count was down 29.7% year-over-year in the existing business.

Good in the U S Express logistics volumes load count was down 29, 7% year over year in the existing business.

Okay.

Now if you move to slide eight.

Speaker 2: I'll cover our intermodal segments. Revenue declined 22.6%, which was driven by a 26.6% decrease in revenue per load, which was partially offset by an increase of 5.5% in load.

I'll cover our intermodal segment revenue declined 22, 6%, which was driven by a 26, 6% decrease in revenue per load, which was partially offset by an increase of five 5% in load count.

Speaker 2: The operating ratio improved 190 basis points since the second quarter as a result of cost reductions, which offset a slight sequential reduction in revenue per load. This business improved during the quarter, reaching break even in September , and we expect modest profitability in the fourth quarter.

The operating ratio improved 190 basis points since the second quarter as a result of cost reductions, which offset a slight sequential reduction in revenue per load. This business improved during the quarter, reaching breakeven in September and we expect modest profitability in the fourth quarter.

Now onto slide nine.

Speaker 2: This slide illustrates our non-reportable segment, which includes insurance, maintenance, and equipment sales and rentals under the Iron Truck Services brand, as well as equipment-least seen in warehouse and active.

This slide illustrates our non reportable segment, which includes insurance maintenance and equipment sales and rentals under the iron truck services brand as well as equipment leasing and warehousing activities.

For the quarter revenue declined 14, 2% year over year, largely as a result of our actions to address the recent challenges within our third party insurance program, including significantly reducing the exposure basis.

Speaker 2: For the quarter, revenue declined 14.2% year-over-year, largely as a result of our actions to address the recent challenges within our third-party insurance program, including significantly reducing the exposure base.

Speaker 2: The 5.4 million operating loss within the non-reportable segment is modestly improved from the 7.1 million operating loss in the second quarter as improvement within other services provided greater offset to the ongoing losses within the third-party insurance.

The $5 4 million operating loss within the non reportable segment has modestly improved from the $7 1 million operating loss in the second quarter as improvement within other services provided greater offset to the ongoing losses within the third party insurance business.

Speaker 2: We are evaluating strategic alternatives for the insurance business, including potential reinsurance strategies for the outstanding liabilities in order to help insulate our business from the volatility primarily arising from prior loss year.

We are about evaluating strategic alternatives for the insurance business, including potential reinsurance strategies for the outstanding liabilities.

To help insulate our business from the volatility primarily arising from prior loss years as noted previously it will take some time for the changes in the insurance business to fully materialize in the results, but we are making progress raising premiums and improving the quality of risks as we work to mitigate volatility.

Speaker 2: As noted previously, it will take some time for the changes in the insurance business to fully materialize in the results. But we are making progress raising premiums and improving the quality of risk as we work to mitigate quality.

Speaker 2: Now I'll turn it over to Dave for an update on the progress in U.S. Express. Thanks, Adam.

Now I'll turn it over to Dave for an update on the progress U S Express thanks Adam.

Speaker 3: The team at US Express is really rallied around the goal of making significant improvements to this business and is currently running ahead of plan as previously mentioned on our projected path to reach an operating profit within the first half of next year.

The team at U S Express has really rallied around the goal of making significant improvements to this business and is currently running ahead of plan as previously mentioned on our projected path to reach an operating profit within the first half of next year as noted in previous slides the U S Express truckload and logistics.

Speaker 3: As noted in previous slides, the US Express truckload and logistics businesses have already made meaningful progress improving their operating ratios.

<unk> businesses have already made meaningful progress improving their operating ratios coming out of the third quarter. We have already reached 100 million dollar annualized run rate of realized synergies with a target of increasing that to $120 million run rate by the end of this year.

Speaker 3: Coming out of the third quarter, we have already reached a $100 million annualized run rate of realized synergies with the target of increasing that to a 120 million run rate by the end of this year.

Speaker 3: We highlight some of the progress on this slide.

We highlight.

Some of the progress on this slide.

Speaker 3: You'll notice these are fundamental areas of the business, some of which are the most critical levers to pull through cycles. Ultimately, as we lower cost per mile and increase rate per mile, we will make operating ratio progress and that has begun.

You'll notice these are fundamental areas of the business some of which are the most critical levers to pull through cycles.

Ultimately as we lower cost per mile and increase rate per mile. We will make operating ratio progress and that has begun.

Speaker 3: US Express is rolling out a decentralized terminal-based operating model, similar to Night and Swift, where there is P&L accountability at the local level with far more personal driver interaction. Nine out of the 10 locations have been converted from places to park to operating terminals.

The U S Express is rolling out a decentralized terminal based operating model similar to Knight Swift, where there is P&L accountability at the local level with far more personal driver interaction.

Nine out of the 10 locations have been converted from places to park to operating terminals.

Speaker 3: Understanding where rates need to be for a proper return has led to the elimination of brokers as the business is now dealing directly with shippers while significantly reducing exposure to spot rates versus contract rates, which is improved from approximately 45% at the beginning of the year to approximately 15% today.

Understanding where rates need to be for a proper return has led to the elimination of brokers as the business is now dealing directly with shippers, while significantly reducing exposure to spot rates versus contract rates, which has improved from approximately 45% at the beginning of the year to approximately 15%.

Today.

Speaker 3: This is an uphill battle as we close this transaction at the end of the spring mid cycle in July , but the team has made progress and will continue.

This is an uphill battle as we close this transaction at the end of the spring bid cycle in July but the team has made progress and will continue.

Speaker 3: as we will soon begin the 2024 bid sees.

As we will soon begin the 'twenty 'twenty four bid season.

Speaker 3: We are excited for this early progress and for how this consequential truckload business is positioning for the future. We have been impressed with the effort and attitude of our new fellow teammates at US Express and appreciate their hard work. Next to slide 11.

We are excited for this early progress and for how this consequential truckload business is positioning for the future.

We have been impressed with the effort and attitude of our new fellow teammates at U S Express and appreciate their hard work.

Next to slide 11 for our outlook.

Speaker 3: Why 11 contains our updated outlook on market conditions for the remainder of 2023.

Slide 11 contains our updated outlook on market conditions for the remainder of 2023, the alltel markets should continue to see solid demand as the recent capacity disruption in the industry continues to be sorted out over the next several months. This should support further yield improvement and as the new busy.

Speaker 3: The LPL market should continue to see solid demand as the recent capacity disruption in the industry continues to be sorted out over the next several months. This should support further yield improvement and as the new business is increasingly reprised through bid activity. In the truckload space, we believe we are moving past inventory destocking. Those shippers caution about the direction of the US consumer behavior is governing freight demand for the time being, it feels.

<unk> is increasingly repriced through bid activity in the truckload space. We believe we are moving past inventory destocking those shippers caution about the direction of the U S consumer behaviors governing freight demand for the time being it feels.

Speaker 3: We continue to expect a modest peak season, including a return of some typical seasonal activity and project opportunities, with opportunities continuing to materialize. Spot rates seem to have bottomed, but have yet to inflict positively, as a result contract rates continue to be pressured.

We continue to expect a modest peak season, including a return of some typical seasonal activity and project opportunities.

With opportunities continuing to materialize spot rates seem to have bottomed, but have yet to inflect positively as a result contract rates continue to be pressured.

Speaker 3: The soft demand, unsustainably low rates, ongoing inflation and restrictive financing conditions will keep pressure on carriers, especially smaller and less well capitalized carriers. These factors should serve to accelerate the ongoing capacity attrition and limit the immediate capacity expansion upon recovery.

The soft demand unsustainably low rates ongoing inflation in restrictive financing conditions will keep pressure on carriers, especially smaller and less well capitalized carriers.

These factors should serve to accelerate the ongoing capacity attrition and limit the immediate capacity expansion upon recovery.

Speaker 3: The pace of cost inflation should ease, though plentiful work alternatives in the general economy will pressure hiring and utilization until freight conditions improve.

The pace of cost inflation should ease, though plentiful work alternatives in the general economy will pressure hiring and utilization until freight conditions improve.

Speaker 3: The equipment availability continues to improve and the used equipment market begins further as small carriers struggle and capacity.

New equipment availability continues to improve and the used equipment market weakens further as small carriers struggling capacity exits.

Speaker 3: I will now turn it back to Adam to cover our 2023 guidance on slide

I will now turn it back to Adam to cover our 2023 guidance on slide 12.

Speaker 2: All right, thanks, Dave, and this will be our final slide. For the full year 2023, we now expect adjusted EPS being the range of 210 to 220 per share, which is an update from our previous guidance of 210 to 230 per share.

Alright, Thanks, Dave and this will be our final slide.

For the full year 2023, we now expect adjusted EPS to be in the range of $2 10 to 220 per share, which is an update from our previous guidance of 210 to 230 per share.

This is based on our expectations that truckload rates are stabilized at current levels for the fourth quarter.

Speaker 2: This is based on our expectations that Truplo rates have stabilized at current levels for the fourth quarter. The Truplo tractor count would be down modestly with miles declining sequentially similar to prior year in the absence of a strong peak. The LTO revenue excluding fuel surcharge increases in the mid teens year over year with a relatively stable sequential margin profile.

The truckload tractor count will be down modestly with miles declining sequentially similar to prior year in the absence of a strong peak.

L T O revenue, excluding fuel surcharge increases in the mid teens year over year with a relatively stable sequential margin profile.

Speaker 2: LTL shipment count and revenue, excluding field surcharge per hunter-weight, improve high single digit percentage year over year. The US Express EPS estimated diluted impact in the fourth quarter expected at less than around five cents I believe.

L T L shipment count and revenue excluding fuel surcharge per hundred weight improve at high single digit percentage year over year.

The U S Express E. P. S estimated diluted impact in the fourth quarter expected at less than or around five I believe.

Speaker 2: as performance continues to improve. Logistics volumes and revenue per load remain under pressure in Q4 with O-R stable in the low 90s.

As performance continues to improve.

Logistics volumes and revenue per load remain under pressure in Q4 with O are stable in the low nineties.

Speaker 2: The Intermodal Operating Ratio Spot will be profitable with volume stable sequentially. The non-reportable opt-in come to decline roughly 10 to 15 millions sequentially. As third party insurance stabilizes and other businesses experience, their typical seasonal slowdown in the fourth quarter. We expect some easing cost pressure in the fourth quarter as we realize further cost containment efforts around some of our cost initiatives.

The intermodal operating ratio slightly profitable with volume stable sequentially.

The non reportable op income to decline roughly $10 million to $15 million sequentially as third party insurance stabilizes and other business has experienced and their typical seasonal slowdown in the fourth quarter.

We expect some easing cost pressure in the fourth quarter as we realized further cost containment efforts around some of our cost initiatives.

Speaker 2: reduced that gain on sale to range from 8 to 12 million, which includes now disposal that US Express.

We expect gain on sale to range from $8 million to $12 million, which includes now disposals at U S Express.

Speaker 2: And we expect a minimal increase in interest expense from Q3 assuming the rate hiking cycle is largely complete. And our net cap cash cap X is expected to be between 770 million for the full year 2023. And that we expect our cash rate to be approximately 26% for the fourth quarter. So that now concludes.

And we expect a minimal increase in interest expense from from Q3, assuming the rate hiking cycle is largely largely completes and a net cap cashed yet cash capex is expected to be between 770 $750 million for the full year 2023.

And that we expect our tax rate to be approximately 26% for the fourth quarter.

So that now concludes our prepared remarks, and so loony, we'll now turn it to you to open the line for questions.

Speaker 2: and so Loody will now turn it to you to open the line for questions.

Thank you and at this time I would like to remind everyone in order to ask a question. Please press Star then the number one.

Speaker 1: Thank you and at this time I would like to remind everyone in order to ask a question, do you press far, then the number one on your telephone keypad? Again, that is the star one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Upon keypad again that is star one on your telephone keypad, possibly give me a moment to compile the Q&A roster.

Speaker 1: Your first question comes from the line of Ravi Shankar from Morgan Stanley , your line is open.

Your first question comes from the line of Ravi Shanker from Morgan Stanley . Your line is open.

Thanks, Good evening everyone.

Speaker 4: uh... thanks uh... the evening everyone uh... so uh... they'll be you you said at the top of the call that you uh... do expect to see some positive pricing momentum going into twenty twenty four uh... seems hard to fathom with spot and conflict with the alright now but you also have spoken of cost inflation affair bet can you unpacked out a little bit more kind of you know what's the early signs on on bid season looking like

So Dave I think you said at the top of the call that you do expect to see some positive pricing momentum going into 2020 for it seems hard to fathom with spot and contract rates, where they are right now, but he also have spoken of cost inflation. A fair bet can you unpack that a little bit more kind of you know what.

What's the early signs on bid season looking like are we looking at in a flat first half and a positive second half or something even better than that.

Speaker 4: Are we looking at flat first half, pause the second half or something even better than that?

Yeah I.

Speaker 3: I would say that that comment is largely based on the economic position of the providers of full truckload transportation today. I think, you know, we've seen in the reports between second quarter and what we've already seen reported out for third quarter. I mean, you have...

I would say that that comment is largely based on the economic position of the providers of full truckload transportation today I think.

You know we've seen in the reports between second quarter and what we've already seen reported out for third quarter I mean do you have.

Speaker 3: really record tight margins in the full truckload space. And this is all while driver wages, which are by far our largest expense, have not increased since 2021. And we likely will have some pent-up increase to work through as perhaps truckload is losing pace in recruiting vocational labor in the economy.

Really record tight margins and a full truckload space and this is all while driver wages, which are by far our largest expense have not increased since 2021.

We likely will have some pent up increase to work through.

As perhaps truckload is is losing pace and recruiting vocational labor in the economy and so.

Speaker 3: It feels like

It feels like we don't we don't have the benefit or opportunity to be aggressive in pricing and in fact, we need we need a little bit of help and so we noted last quarter.

Speaker 3: We don't have the benefit or opportunity to be aggressive in pricing. In fact, we need a little bit of help. And as we noted last quarter, this is a unique freight recession or trough of a freight cycle in that normally when we've seen it so prolonged, so pronounced.

This is a unique freight recession or trough of freight cycle and that normally when we've seen it so prolonged so pronounced.

Speaker 3: We're in a broader economic recession and so we naturally get cost concessions in the areas of fuel and labor and equipment. And

We're in a broader economic recession, and so we naturally get cost concessions in the areas of fuel and labor and equipment.

And in this case, we've seen the opposite and now fuel has kind of turned from being more neutral into now being more of a headwind on the truckload side. So so that's how this is being set up it feels like there are and what I referenced in my comment is we've seen some.

Speaker 3: We've seen the opposite and now fuel is kind of turned from being more neutral into now being more of a headwind on the truckload side and so

Speaker 3: So that's how this is being set up. It feels like there are, and what I referenced in my comment is, we've seen some situations where...

Situations, where.

Speaker 3: It appears that pricey or lanes and meaningful bid awards were awarded to carriers at levels that we just don't understand how that would be possible from a rate perspective. And what we have found is some of that has made its way back through, often it's done through a mini bid as we call them, where perhaps the service level wasn't where it needed to be, or they just couldn't deliver on it. And so...

It appears that pricing or lanes of meaningful bid awards.

We're awarded to carriers at levels that we just don't understand how that would be possible from a rate perspective, and what we have found is some of that has made its way back through often it's done through a mini bid as we call them where.

Perhaps the service level wasn't where it needed to be or are they just couldn't deliver on it and so.

Speaker 3: So we're starting to see some of those signs. That tells us that maybe things have been pushed to the limit. And so, we're here, hunkered down, just working as hard as we can to be as efficient as we can. We have virtually no margin for error on the truckload side of the business right now. And we don't think that we're alone in that. Now, I would guess that

So we're starting to see some of those signs that tells us that that maybe.

Things have been pushed to the limit and so we're.

We're here hunkered down.

Working as hard as we can to be as efficient as we can we have virtually no margin for error on the truckload side of the business right now.

And we don't think we're alone and that now I would guess that.

The our optimism of what could happen and what would need to happen in the bid season might not be the same as is our shippers might view right now.

Speaker 3: the our optimism of what could happen and what would need to happen in a bid season might not be the same as shippers might view right now. Truckload doesn't do cost-based price.

Truckload doesn't do cost based pricing.

Speaker 3: That's more common in the LPL spaces we've learned, but it isn't the case for truckload, but that really is what's driving this. This is not elective, this is just essential. And so we'll have to see how it plays out. If the bid season began right now today, we would really have a tough time seeing it be positive. But as things continue to materialize,

That's more common in the L. T L spaces, we've learned but it isn't the case for truckload, but that really is what's driving. This is this is not this is not elective. This is this is just essential and so.

So we'll have to see how it plays out if the bid season began right now today.

We would really have a tough time.

Seen it be positive.

But as things continue to materialize.

Speaker 2: I think that the natural conditions are going to leave us in that direction. And Robbie, I just add to that, again, the busy and hasn't kicked off. He had some maybe just early discussions with some of the shippers that would have a bid coming out in the next quarter or so.

I think that the natural conditions are going to lead us in that direction and Ravi I'd just add to that.

No again, the bid season hasn't kicked off a tad so maybe just early discussions with some of the shippers that.

You would have a day coming out into the next quarter or so.

Speaker 2: You know, the sentiment is, you know, a lot of our customers have enjoyed low-low rates that they've had in the spot markets, even some of the contract rates. And I think they probably moved a disproportionate amount of their volume. And they historically have to, to brokers where they're able to capture some of that, that discount.

The sentiment is.

Lot of our customers have enjoyed the low rates that they've had in the spot markets.

Even some of the contract rates and I think they probably moved a disproportionate amount of their volume than they historically have to brokers, where they're able to capture some of that that discount.

Speaker 2: And our shippers know just like carriers know that the market is not if it will turn. It's when and they, you know, they're concerned about ensuring that they're going to have sustainable capacity.

And our shippers know just like carriers know that the market. It's not if it will turn its win and they you know they're concerned about ensuring that they are going to have sustainable capacity.

Speaker 2: And so, you know, some of the commentary is, even though the market may not bear it today, they know six months they could be in a tough position if they don't have capacity with asset-based carriers, especially in light of some of the failures that we've seen as of recently. So we're in dialogue with our customers, we want it, we're partners with them. We know what we need for a sustainable capacity, and we feel like we'll be able to work through what we believe would be fair rates moving forward.

And so you know some of the commentary is even though the market may or may not there today. They know six months they could be in a tough position that they don't have capacity with asset based carriers, especially in light of some of the failures that we've seen as of recently so we're in dialogue with our customers and we want it we're partners with them.

We know what we need for sustainable capacity and we feel like we'll be able to work through.

What we believe will be fair rates moving forward.

Speaker 4: uh... very helpful uh... very quick follow up on a speaking of failures on the logistics side we did uh... here headlines that a large digital player may have uh... positive or stop operations uh... today uh... what kind of impact you think that has a market place in kind of what do you think this tells us about where we are in the cycle and kind of for the brokerage model going forward that is a good thing or bad thing kind of yet what is the industry

Very helpful. A very quick follow up speaking of failures on the logistics side, we did hear a headlines that a large digital player may have paused or stopped operations today.

What kind of impact do you think that has the market players enough or do you think this tells us about where we are in the cycle and kind of for the brokerage model going forward.

Good thing or a bad thing and if yes, what does it mean for the industry.

Speaker 2: So here's it. I said, we'll answer that round because I think everybody on the call would like to appreciate a comment. But it's one question because I think a lot of the first the first analyst has two than everyone decided to ask to. So one question.

So here's what I'd say, well, we'll answer that right because I think everybody on the call I would like to depreciate a comment but.

It's one question because I think last fall we had the first the first analyst asked to then everyone decided as to so one question.

Speaker 3: Robbie, I'm certainly going to get to that. And if we don't jump in that queue, we'll answer that question. So thanks, Rock.

Ravi I'm struggling to get to that and if we don't jump in that queue or will answer that question. So.

Thanks, Ravi Thanks, guys.

Speaker 1: Thank you and your next question comes from the line up Scott group from Wolpe Research Churchill line is open.

Thank you and your next question comes from the line of Scott Group from Wolfe Research. Your line is open.

Speaker 5: Hey, thanks afternoon guys. So can you just give us some color on the revenue and OR for US Express in the quarter and where that goes from here? And how important is the market?

Hey, Thanks afternoon, guys. So can you just give us some color on.

The revenue in or for U S Express in the quarter and where that goes from here and how important is the market.

How important is it for the market to get better in pricing to get better to get the U S. Xpress.

Speaker 5: How important is it for the market to get better and pricing to get better, to get the US Express, OR better, or can you do it without, like can you get to the profitability that you want without?

Or better or can you do it.

Without like can you get to the profitability that you want without.

Getting the pricing up for the market.

Speaker 2: You know, Scotch, just give him where that business is.

You know Scott just given where that business started once we see.

Speaker 2: you know, started once we finalized the acquisition. I mean, there's going to need to be improvement in both the cost side and the revenue side of the business. Now, on the cost side, we don't really have to wait for the markets to change. We can move forward on a lot of activities there on the procurement side. We're working on building out the terminal network that we expect will help.

Finalize the acquisition I mean, theres going to need to be improvement in both the cost side and the revenue side of the business now on the cost side, we don't really have to wait for the markets to change. We can we can move forward on a lot of activities. There on the procurement side, we're working on building out the terminal network that we expect will help safety churn.

Good afternoon.

Judy: My name is Judy and I'll be your conference operator today. At this time, I would like to welcome everyone to the Knight-Swift Transportation 3rd quarter of 2023 earnings conference call. Online has been placed on mute to prevent any background noise. If at any time during this call you require immediate assistance, please press star zero for the operator.

Speaker 2: safety turnover, recruiting, and those all can be meaningful impact to the cost of the business.

Over recruiting and those all can be many have a meaningful impact to the cost side of the business. Now we've made probably I think we said mid single digit improvement in our cost per mile which we're excited for we know that there's more there on the revenue side, it's low single digits and that's in a market where most are taking hits on the revenue.

Speaker 2: Now, we've made, you know, probably I think we said mid-single digit improvement in our cost per mile, which we're excited for. We know that there's more there. On the revenue side, it's low single digits. And that's in a market where most are taking hits on the revenue per mile front. And we haven't had a bid season to be able to address where the current rates are for us.

Judy: Seekers from today's call will be Dave Jackson, President and CEO and Adam Miller, CFO.

On a per mile front, and we Havent had a bid season to be able to address where the current rates are for U S. Xpress.

Adam Miller: Mr. Miller, the meeting is now yours. Thank you, Judy. Appreciate that and a good afternoon everyone and thank you for joining our 3rd quarter 2023 earnings call. Today we plan to discuss topics related to the results of the quarter, provide an update on current market conditions and update our 2023 guidance. We have slides to accompany this call which are posted on our investor website. Our call is scheduled to last one hour today and following our commentary will answer as we answer questions related to these topics in order to get to as many participants as possible.

Speaker 2: You know, to get to the long-term profitability that, you know, a dollar of accretion, we're going to need both revenue and cost to support that. But I think that's just a matter of time before we have an opportunity to be able to do what we need to do on the revenue front, to really close the gap from a rate perspective between you expressing our other brand.

To get to the to the long term profitability that you know.

Adam Miller: We are going to limit the questions to one per participant. If you have a second question or follow up, please feel free to get back into the queue. We will answer as many questions as possible. We are not able to get to your question due to time restrictions. You may call 602, 606, 6349 following the call and we will answer as many questions as possible at that point. So to begin, I'll first refer you to the disclosures on slide to the presentation and I'll also note the following.

Dollar of accretion, we're going to need both revenue and cost to support that.

I think that's just a matter of time before we have an opportunity to be able to do we need to do on the revenue front to really close the gap from a rate perspective between use express and our other brands.

Yeah, maybe Scott I'll just add.

Speaker 3: Maybe Scott, I'll just add, you know, the logistics business is in a good place. It's contributing earnings. The dedicated business is contributing earnings.

The logistics business is in a is in a good place it's contributing earnings the dedicated business is contributing earnings.

Speaker 3: The subsidiary total is contributing some earnings.

The subsidiary total is contributing some earnings.

Speaker 3: And the wild part is that over the road component.

And the you know the wildcard is that over the road component.

Speaker 3: And it's made dramatic progress. And some of the things that we outlined on that slide.

And it's made dramatic progress and some of the things that we outlined on that slide.

Speaker 3: You know, those are things that we have experience at seeing driver turnover go down. We have experience at seeing.

Those are things that we have experience at seeing driver turnover go down we have experienced that scene.

Speaker 3: You know, the revenue on a per-truck basis improved and we have experience in seeing

Revenue on a per truck basis improve and we have experienced and seen a P&L accountability on the cost side drive to lower costs to improve margin and so.

Speaker 3: A P&L accountability on the CUSI drive to lower cost to improve margin and so

They're not very far as you could tell by the earnings for this quarter. They weren't they were not the early the drag.

Speaker 3: They're not very far as you could tell by the earnings for this quarter. They were not nearly the drag that frankly we would have expected and this early on. And so the idea of getting to break even.

Adam Miller: This conference call and presentation may contain forward looking statements made by the company that involve risks, assumptions, and uncertainties that are difficult to predict. Investors are directed to the information contained in item 1a, risk factors or part 1 of the company's annual report on form 10k filed with the United States SEC for a discussion of the risk that may affect the company's future operating results. Sure results may differ.

That frankly, we would've expected.

This early on and so.

And so the idea of getting to breakeven.

Speaker 3: without any help from the market, that is definitely within reach. And so, of course, that's not the goal. But to take them from the state, is that I'm alluded to, the state they were in coming out of the second quarter and into this, this has been dramatic and faster than we would have expected.

Without any help from the market that is that is definitely within reach and so of course, that's not the goal.

Dave Jackson: Before we get into the slides, I want to turn the call over today for a few opening remarks. Thank you, Adam and hello everyone and thank you for joining our call today. As has been widely reported, we continue to be in a depressed truckload freight market where rate expectations from shippers are often close to if not below operating cost. Spot rates are at or not at sustainable levels and are proving not to be survivable for those that are dependent on that type of freight.

But but to take them from the state as Adam alluded to the state they were in coming out of the second quarter and into this this has been dramatic and faster than we would've expected.

Thank you.

Thanks Scott.

Your next question comes from the line of Jack Atkins from J D. K. Your line is open.

Speaker 1: Your next question comes from the line of Jack Atkins from JTK. Your line is open. Okay.

Okay great.

Thanks, very much Jack Atkins from Stephens, but I guess you know.

Speaker 6: that thanks very much jack at kids from from Stevens but i guess uh... you know david adam i'd love to maybe ask you about the ltl business for a moment you said you said it exceeded your expectations in the quarter there's been further market disruption in October just just for the curious

Dave and Adam I'd Love to maybe ask you about the <unk> business for a moment you said you said it exceeded your expectations in the quarter Theres been further market disruption in October just sort of.

Dave Jackson: When we did our last call a quarter ago, there were rumors of yellow closing. Obviously, since that call, that has indeed taken place and the already resilient LPL market has seen more strength. On the truckload side, the announcements of failures and rumors of more seem to be increasing by the week as of late. It's taken a lot to get to this point so deep along the bottom of this current cycle. But the market is beginning to show signs of sensitivity to when supply leaves suddenly or a provider cannot perform with freight lanes that were awarded by offering the cheapest price. And a shipper may find themselves quickly seeking a quality provider at a higher price than the original award.

Curious.

Speaker 6: How did operating ratio trend in that business relative to normal seasonality? Did you incur any additional expenses as you were trying to sort of onboard?

How did operating ratio trend in that business relative to normal seasonality.

Did you did you incur any additional expenses as you were trying to sort of onboard some of the of the market share that was probably moving around and I guess.

Speaker 6: some of the market cheer that was probably moving around. And I guess...

Speaker 6: Just would be curious, you know, the opportunity to maybe grab some of the real estate that's up for auction here with the yellow estate over the next.

Would be curious.

<unk> to maybe grab some of the real estate that that's up for.

Dave Jackson: However, we are not seeing enough of that kind of activity or enough supply leave and or enough strength and volumes to move rates, to a meaningful inflection position right now, but it does appear that the stage is being set for positive rate pressure in the next bid season.

Per auction here with with the yellow state over the next.

Speaker 6: the next couple of weeks i know it's all a lot of questions in one at them so if you can excuse that just got a broader topic of a lot of you would be curious if you could expand on that for a minute

Couple of weeks I know its all its a lot of questions in one Adam. So if you can excuse there just kind of broader topic of LNG I would be curious if you could expand on that for a minute.

Speaker 3: Yeah, you know, Adam, the enforcer might shut this down before we get started with all those questions. Okay.

Yeah.

Adam the enforcer might shut this down before we get started with all those questions.

Speaker 3: But it is not typical, at least in the experience with the two LTL franchises that we own to see that sequential improvement from a second into a third, but we did. It was slight, but we saw slight improvement sequentially.

But but it is it is not.

Typical at least in the experience with the the two LTI franchises that we own to see that sequential improvement from the second into a third but we did it was slight but we saw we saw slight improvement sequentially.

Dave Jackson: In the meanwhile, here at Knight-Swift, we are focused on three specific objectives. The first one is improving the performance of our truckload businesses. There's much in our control that we can do including being better at cost, running more miles safely, and in hiring and retaining driving associates. Our people are digging in and working hard. We're grateful for that.

Speaker 3: from second to third quarter. In terms of, you know, varying an additional cost burden, I don't know that that was so much the issue. I think in the LTL space, as our customers had found themselves with some immediate need, our LTL group just jumped in to get those things covered. It's more of handling those shipments.

From second to third quarter in.

In terms of.

No bearing at additional cost burden I don't know that that was so much the issue I think in the <unk> space as our customers have found themselves with some immediate need our LTR group just jumped in to get those things covered.

It's more of handling those shipments.

Speaker 3: And preserving the service, then it is immediately talking about price.

And preserving the service than it is immediately talking about price.

Dave Jackson: The truckload operating ratio, excluding US Express, was 91.5%, and we are just simply not comfortable with an OR that starts with a 9. And our people are working with urgency to do all that we can.

Speaker 3: It works a little different in the truckload space when there's projects or things that are out of the norm. And so

It works a little different in the truckload space when there is projects or things that are out of the norm and so.

Speaker 3: Some of that volume that we've picked up, some of that volume that I think is in the process of being dispersed long-term throughout the LPL providers, you know, that'll be addressed in these bids that have already started and that will continue to happen to make sure that we price it appropriately as you kind of know how it fits the network. So I wouldn't say that that was a...

Some of that volume that we've picked up some of that volume that I think is in the process of being disbursed long term throughout the <unk> providers.

Dave Jackson: Another objective is to grow our LTL network, AAA Cooper and Midwest Motor Express seamlessly operate on one operating network while maintaining their local identities. We've opened 14 LTL service centers organically since the acquisition of AAA Cooper and MME in 2021. We've already purchased 11 additional terminals that have not yet been launched as service centers and will continue to pursue acquiring additional terminals that fit our nationwide plan in addition to other strategic forms of growth for LTL. We have found synergies between LTL and the truckload business while not getting in one and others away.

You know that'll that'll be addressed in these bids that have already started and that will continue to happen.

To make sure that we price it appropriately as you kind of know how.

It fits the network so.

I wouldn't say that that was a that that.

Speaker 3: that that was a, there was a cost headwind there. I would say that that sequential improvement was a very positive sign for us of where things are. You know, and the fact that we are seeing shipments turn positive on a year over your basis and to be able to see a revenue excluding fuel per 100 weight up in the double digits continue. That's a, those are very positive signs for us.

There was a cost headwind there I would say that.

But that sequential improvement was a very positive sign for us of where of where things are.

The fact that we are seeing shipments turned positive on a year over year basis and to be able to see.

Revenue excluding fuel.

Per hundred weight up into double digits continue that's a those are very positive signs for us.

Dave Jackson: And the third objective that I would point out is the turnaround of US Express. We feel like we had good momentum going into the close of the transaction with the goal of being able to hit the ground running and it feels like that's what's happened. We've had positive sequential rate improvement while lowering cost per mile in the first quarter of our ownership despite strong market pressure in the contrary.

Thank you.

Thanks Jack.

Speaker 1: Your next question comes from the line of pod watervicks from UBS your line is up.

Your next question comes from the line of Todd <unk> from UBS. Your line is open.

Yeah, Hey, Dave Hey, Adam, It's Tom water with Sir I wanted to.

Speaker 7: Yeah, hey Dave Adam, it's Tom Waterwood here. I wanted to ask you a little bit about kind of cycle view, Dave, you offered some thoughts of kind of constructive and bid season.

Ask you a little bit about kind of cycle view, David you offered some thoughts or kind of constructive on bid season.

Dave Jackson: That's still a long ways to go but we are ahead of schedule. The people at US Express have been great and we're so excited for where that business is headed and with some help from the market we'll get there even sooner.

Speaker 7: Do you need to see spot rates move up first in order to really see that improvement in contract? It continues to be a widespread between contract and spot.

Do you need to see spot rates move up first.

Order to to really see that improvement in contract continues to be a widespread between contract and spot and.

Speaker 7: I think the brokers take advantage of that and compete against you guys. So I'm just wondering is the kind of optimism on contract rates next year really contingent on seeing some momentum in spot rates ahead of that. And I don't know if you have a thought on just capacity exiting and when you get enough of that to take place to tighten the market as well. So thank you.

I think the brokers take advantage of that and compete against you guys. So I'm. Just wondering if is it kind of optimism on contract rates next year really contingent on seeing some momentum.

Adam Miller: Now we'll turn our overview to slide three. The charts on slide three compare our consolidated third quarter revenue and earnings results on a year over year basis. These results now include the results of US Express for the full quarter.

And spot rates are ahead of that and I don't know if you have a thought on just capacity exiting and you know when you get enough for that to take place to tighten the market as well so thank you.

Adam Miller: Revenue excluding fuel surge charge increased 7.6% while our adjusted operated income declined by 60.8%. Market conditions in the LTL business were strong while soft demand continues in the truckload space. Gap earnings per deluded share for the third quarter of 2023 were 37 cents per share and our adjusted EPS came in at 41 cents per share. These results were negatively impacted on a year over year basis by a 20.4 million dollar increase in interest expense and the 22 million dollar reduction in operating income in our third party insurance business with the non-reportable segments.

Speaker 3: Yeah, I would just, I'll jump in and then Adam can finish this off. I think that, you know, historically through these cycles, it's worked.

Yeah, I would just Oh I'll jump in and then Adam can finish this off I think that.

Historically through these cycles.

It's worked where that spot rate starts to climb and if you were to graph out spot rates and contract rates.

Speaker 3: where that spot rate starts to climb and if you were to graph out spot rates and contract rates.

Speaker 3: You find that intersection and when they intersect

You find that intersection.

And when they intersect that is the tell tale sign that that spot rates are just getting going in that it's the curve of the contractual rate is now.

Speaker 3: That is the tail, tail sign that spot rates are just getting going and that it's the curve of the contractual rate is now about to bend and turn to the positive again. And so, yeah, we have not seen that. We've really seen spot rates just kind of move sideways as time has gone on. You know, one disadvantage we have from cycle to cycle is the data set that we look at is constantly evolving. And it seems like increasingly the data set that we look at is...

About the band and turned to the positive again and so yes, we have not seen that we've really seen spot rates just kind of move sideways as time has gone on.

Adam Miller: Also the third quarter gap results were positively impacted by a 14.6 million income tax benefit from the partial release of a tax benefit valuation allowance held by US Express associated with net operating losses and the tax credit carry forward benefit at the time of the acquisition. This benefit was recognized post-closing due to the ability of night swift to utilize those tax attributes which had the effect of reducing the consolidated effective tax rate at night swift to negative 2.1% for the current quarter.

One disadvantage, we have from cycle to cycle as the data set that we look at is constantly evolving and it seems like increasingly the data set that we look at is is.

Speaker 3: is a magnifying glass into just broker and the smallest of carriers. That isn't necessarily where the majority of freight moves or how it moves. But nonetheless, we've got that corner of the market with a telescope right now. It feels like.

Magnifying glass into just broker and the smallest of carriers that that isn't necessarily where the majority.

Our freight moves or how it moves but.

But nonetheless, we've got that corner of the market with a with a telescope right now it feels like so.

Adam Miller: Our Adjusted EPS of 41 cents is calculated using a normalized 23.2% effective tax rate for the quarter and excludes the 9 cent per share benefit of the lower tax rate.

It's hard to always compare that to previous years, it's hard to think that we wouldn't see that kind of generally speaking that kind of mechanic happen again, where spot rates increased to a point, where they intersect contract and then now you know you're off to a different part of the cycle.

Speaker 3: It's hard to always compare that to previous years. It's hard to think that we wouldn't see that kind of, generally speaking, that kind of mechanic happen again where spot rates increase to a point where they intersect.

Adam Miller: Now on to slide four. Slide illustrates revenue and adjusted operating income for each of our segments. Freight demand in the third quarter remains stable at its soft levels for truckload but barely strong and building an LTL.

Speaker 3: And then now you know you're off to a different part of the cycle. The piece about that that's hard to predict is that it always, it happens so fast and it happens unexpectedly. And there's always a catalyst or a multitude of catalysts to bring it to bear, whether it be whether it be fuel prices. It feels like.

Piece about that Thats hard to predict is that it always.

It happened so fast and it happens unexpectedly and there is there is always a catalyst or a multitude of catalyst that bring it to bring it to bear whether it be weather, whether it be fuel prices.

Adam Miller: The truckload season will build usually seen in the late third quarter was subdued, and this has continued thus far in early October. Our insurance business performed worse than expected, but this was largely offset by LTL and US express performing ahead of our plan in the quarter while our existing truckload businesses were largely in line. Contractual bid rates are largely baked in at this point for the 2024-2023 in the truckload business while project opportunities are less prevalent than a normal peak season but are continuing to materialize.

It feels like the.

Speaker 3: the extreme aggressiveness that we have seen.

The extreme aggressiveness that we have seen.

Out of non asset based players.

Speaker 3: out of non-asset-based players, has reached a level...

He has his reached a level.

To where it.

Speaker 3: It's not only unsustainable, but when you add how expensive financing is and what might subsidize and allow that to happen, it just blows up. And now all of a sudden you have a lot of small carriers who...

It's not only unsustainable, but but but when you add how expensive financing is and what might subsidize and allow that to happen.

It it becomes it.

Adam Miller: After generally falling for much of the past few quarters fuel prices increased throughout the third quarter providing a new headwind to operating margins for truckload and intermodal, though our efforts to reduce costs largely offset the impact. Our existing logistics business did a great job navigating significant declines in volume and revenue per load year over year to maintain a low 90s adjusted operating ratio excluding US express logistics.

Just blows up and now all of a sudden you have a lot of small carriers who are.

So we are dependent on some kind of a model like that that now.

Speaker 3: who were dependent on some kind of a model like that that now are maybe in a little bit of trouble. So.

Now or maybe in a little bit of trouble so.

Speaker 3: So I think we're starting to see some of this. I mean, we are hearing of asset-based carriers that are closing the doors. Here just, I mean, just this month, we continue to hear, I think there was another one just heard about today to say nothing for...

So I think we're starting to see some of this I mean, we are hearing of asset based carriers that are closing the doors here just I mean, just this month, we continue to hear I think there was another one just heard about today to say nothing for you know.

Adam Miller: I'll now turn it over to Adam to discuss each segments operating performance starting with truckload on slide five. Dave, for the truckload segment the ongoing soft demand further rate pressure and a recent sustained increase in fuel prices were headwinds to operating margins in the third quarter. However, our actions to reduce cost offset these challenges to produce a slight sequential improvement in adjusted operating ratio for our existing truckload business excluding the results of US express.

Speaker 3: you know, a non-asset based player that seems to be stopping operations or something. So, things are breaking right now. Now, I don't know if that is enough to be this catalyst where you start to see this happen, but.

Asset based player that's that seems to be.

Stopping operations or something so.

Things are breaking right now now I don't know if that is enough to be this catalyst where do you start to see this happen, but but inevitably.

Speaker 2: but inevitably it is almost impossible to predict and when it does change, it's always been many, many, many months, if not many, many quarters in the making, so it doesn't just turn around all of a sudden. So that feels like we're pushing up against that level. Adam, any thoughts? Yeah, I think, as you see, some of these disruptions from the operations that it sees, we see immediate reactions in our business. They may be short-term.

It is almost impossible to predict and when it does change its always been many many many months if not many many quarters in the making so it doesn't just turnaround all of a sudden something that feels like we're right. We're pushing up against that level, Adam any thoughts I mean, I think you know as you see some of these disruptions from the op.

Adam Miller: The inclusion of US express negatively impacted the adjusted operating ratio for this segment by 340 basis points. On a year of year basis are truckload revenue excluding fuel surcharge increased 21.9% reflecting a 15.5% decline in the existing truckload business prior to the inclusion of US express. Revenue per loaded mile fell 14% in total or 11.8% before including US express truckload business as the spring bid activities now fully realized. Excluding the results of US express miles per tractor increased 1% for the first year over year increase in 2023.

Operations that are seasoning, we see immediate reactions in our business. They may be short term, so maybe longer term and we'll see how it plays out but I think that tells us there's not much slack in the supply chain right now and so any type of lift in demand or.

Speaker 2: So maybe longer term, I will see how it plays out, but I think that tells us...

Speaker 2: There's not much slack in the supply chain right now. And so any type of list in demand or exaggerated decline in capacity, I think we'll see the market turn very quickly. And again, we're predicting that will happen.

Exaggerated declining capacity I think we'll see the market turned very quickly and again were predicting that will happen.

Speaker 2: You know, in 2024, it's just a matter of win. And so as we approach bid.

2024, it's just a matter of when and so as we approach bids. We're looking at rates that we believe will be sustainable as the market shifts and those are the type of conversations we're having with our customers rather than just waiting for the spot market to turn which would then dictate that rates contract ratio Paul.

Speaker 2: We're looking at rates that we believe will be sustainable as the market shifts. And those are the type of conversations we're having with our customers rather than just waiting for the spot market to turn, which would then dictate that that rate contract rate should fall.

Adam Miller: Including the results of US express miles per tractor increased 5.1% year over year. The decline in race rates partially offset by the improvement in miles per tractor produced an 8.2% decrease in revenue per tractor year over year.

Yes.

Thank you. Your next question comes from the line of Chris Wetherbee from Citigroup. Your line is open.

Adam Miller: Now we'll move to slide 6. The benefits of our diversification into LTO really stood out as this segment continues to perform well aided by the recent disruption in the end.

Speaker 8: Thank you. Your next question comes from the line of Chris, whether be from City Group Your Line is open. Thanks, good afternoon, guys. I want to ask about the USX.

Hey, Thanks, good afternoon guys.

I wanted to ask you about the U S ex fleet and how you think about that relative to some of the cost synergies that you're realizing so I think you said about 100 million run rate may be moving up to 120 by.

Adam Miller: University. Our LTL Business Group revenue excluding fuel surge charge nearly 7% year over year and delivered an 84.9% adjusted operating ratio. Pricing growth strengthened as revenue per 100 weight excluding fuel surge charge increased 10.7% year over year. Volumes built throughout the quarter as shipments per day increased 4.8% year over year which reversed the trend of the client seen in the first half of the year. As Dave mentioned, we've brought on 14 new service centers online since entering the business in late 2021 and efforts are underway to continue growing this number with properties in various stages of procurement, development, or reconditioning.

By year end.

Is there a relationship between getting that cost synergy and then ultimately profit synergy and the size of that fleet I guess in other words do you need to call a little bit more to be able to generate profitability. What do you think you'll.

Speaker 8: Is there a relationship between getting that cost energy and then ultimately profit energy and the size of that fleet, they get some other words, do you need to call a little bit more?

You'll be able to hold on to you over the course of maybe the one year and maybe that 2026 target you have out there.

Speaker 3: Yeah, we don't think we have to shrink into profitability. You know, there's there are a few hurdles that they had already overcome that we, we hadn't on the swift merger on the swift merger. We had,

Yes.

We don't think we have to shrink into profitability.

You know the.

There is a there are a few hurdles that they had already overcome that we we hadn't done the swift merger on a swift merger we had.

Adam Miller: Filling out a super regional network in the short term and creating a national network in the long term will allow us to participate in more freight and enable us to find opportunities to further support our existing truck load customers with LTL capacity.

Speaker 3: Post the deal, we adopted hair follicle drug testing, for example, and we also made some adjustments to the owner operator program. In this case, we didn't have either one of...

Post the deal we adopted her.

Hair follicle drug testing for example, and we also.

Made some adjustments to the owner operator program.

In this case, we didn't have either one of those and so we are we're really battling to hold onto that fleet and to help them and to help them be more profitable on a per truck basis.

Adam Miller: This remains a key strategic priority for us.

Speaker 3: And so we are really battling to hold on to that fleet and to help them and to help them be more possible on a per-truck basis. If I look at...

Adam Miller: Now on to slide 7. The logistics be logistics markets in a difficult phase where freight demand has been soft for over a year is producing top line price pressure that is no longer being offset by corresponding declines in purchase transportation costs. Despite these challenges, our existing logistics business remains disciplined and nimble, maintaining a low 90s adjusted operating ratio before the inclusion of US Express.

If I look at.

Speaker 3: If I look at just sequentially, we've only, you know, owned them for a quarter here, but if I look at it, it the fleet size has remained. It's down just slightly, but it's almost the same. And so there is not a there's not a plan to to call.

If I look at just sequentially, we've only owned them for a quarter here, but if I look at it.

<unk> Sciences remains.

Its down just slightly but up but it's almost the same and so there is not a there's not a plan to to coal.

The fleet.

Okay I appreciate the comments thank you.

Adam Miller: The US Express logistics business is already showing sequential improvement in adjusted operating ratios since the acquisition, closing within 300 basis points of our existing logistics business as we improve the cost structure and pricing even in a difficult environment. Overall revenue was down 24.5% year-over-year as revenue per load declined 15.8% and low count declined 10.3.

It's Chris.

Your next question comes from the line of Ken <unk> from Bank of America. Your line is open.

Speaker 1: Your next question comes from the line of Ken Hoxer from Bank of America, Your Line is Up.

Great.

Speaker 9: Great, good evening and thanks for that thoughts on the right up against the wall on the rates. Hopefully, I think we've all been watching that waiting for the capacity to leave to get that rate up there. So hopefully that follows through. Maybe just Dave, your thoughts on Intermodal, you kind of talked about it getting to profitability. What's the confidence there? Is that the same thing? Is that just about rate and getting that up there? Is it about going through bid season? What's the operationally going on with Intermodal that you've been losing money?

Good evening and thanks for that thoughts on the on the right up against the wall on the rates you know hopefully I think we've all been watching that waiting for the capacity to leave to get that rate up there. So hopefully that follows through maybe just Dave you thoughts on intermodal you kind of talked about it getting to profitability what what's the confidence there is that the same thing is that just about right and.

Adam Miller: Excluding the US Express logistics volume, low count was down 29.7% year-over-year in the existing business.

Getting that up there is it about going through bid season, what what what's the operationally going on with intermodal that you've been losing money that you'd see a flip there.

Adam Miller: Now if you move to slide 8, I'll cover our intermodal segments. Revenue declined 22.6%, which was driven by a 26.6% decrease in revenue per load, which was partially offset by an increase of 5.5% in low count.

I'm going to let Adam answer that yes, yes, I think it's a combination of multiple things just like any business. That's operating at that level. It's not one thing that you have to get done.

Speaker 2: I'm gonna let Adam answer that. Yeah, yeah. So I think it's a combination of multiple things, just like any business that's offering at that level. It's not one thing that you have to get done. You know, I think there's gonna be some opportunity to pick up some additional volume in the bid season as we've got our...

Adam Miller: The operating ratio improved 190 basis points since the second quarter as a result of cost reductions, which offset a slight sequential reduction in revenue per load. This business improved during the quarter, reaching break even in September and we expect modest profitability in the fourth quarter.

I think theres going to be some opportunity to pick up some additional volume in the in the bid season as we've got our.

Speaker 2: you know, our rates with our rail partners adjusted based on the way our contract is structured with them. So I think that puts us in a better position to be aggressive there.

Our rates with our rail partners adjusted based on the way our contract is structured with them. So I think that puts us in a better position to be aggressive there.

Speaker 2: I think we've got some operational efficiencies we need to work through in terms of how we manage jacces and I think we've made some progress.

We've got some operational efficiencies, we need to work through in terms of how we manage chassis and I think we've made some progress there.

Adam Miller: Now onto slide 9. This slide illustrates our non-reportable segment, which includes insurance, maintenance, and equipment sales and rentals under the iron truck services brand, as well as equipmentally seen in warehousing activities. For the quarter, revenue declined 14.2% year-over-year largely as a result of our actions to address the recent challenges within our third-party insurance program, including significantly reducing the exposure basis.

Speaker 2: And, you know, we started the quarter out on a rough start, but we saw that sequential progress all the way through until we got to a level of profitability just slightly in September and we expect to continue that momentum. But it'll be something that just takes time to work through on services improving at both the West and the East. I think customers.

And we started the quarter out on a rough start, but we saw that sequential progress all the way through till we got to a level of profitability just slightly in September and we expect to continue that momentum, but it'll be something that just takes time to work through services improving at both the west and the east I think customers.

Speaker 2: that had moved freight off of the rail to Truplode because of the issues with service are looking at that again as an option. And I think we've got some great relationships on the Truplode side that we still don't do much with on the intermodal side.

That had moved freight off of the rail to truck because of the issues with service or are looking at that again as an option and I think we've got some great relationships on the truckload side that we still don't do much with on the intermodal side that I think we'll be able to open those doors. So it's going to be a culmination of all those.

Adam Miller: The 5.4 million operating loss within the non-reportable segment is modestly improved from the 7.1 million operating loss in the second quarter as improvement within other services provided greater offset to the ongoing losses within the third-party insurance. Business.

Speaker 2: that I think will be able to open up those doors. So it's gonna be a culmination of all those factors, can that we think will get us to a good position where that's a business that can compete with the top providers there and generate a margin in that hopefully high single digit, low double digit to pay no where we're in the cycle.

Adam Miller: We are evaluating strategic alternatives for the insurance business, including potential reinsurance strategies for the outstanding liabilities in order to help insulate our business from the volatility primarily arising from prior loss years. As noted previously, it will take some time for the changes in the insurance business to fully materialize in the results, but we are making progress raising premiums and improving the quality of risk as we work to mitigate volatility.

Factors, Ken that that we think will get us to the position where that's a that's a business that can compete with the with the top providers, there and generate a margin in that.

Hopefully high single digit low double digit depending on where we're at in the in the cycle.

Speaker 9: but i mean i can just clarify it sounds like those were you know working with customers that is that longer-term or because you said you're gonna get the profitability fourth quarter did i with something or that it's not already happened that's gonna happen

But I don't know if I can just clarify it sounds like those were working with customers that is that longer term or because you said youre going to get the profitability fourth quarter or did I Miss something or is that bid season that already happened and that's going to happen quickly I said as we got to slight profitability at the end of the third quarter and we expect that to continue into the fourth quarter.

Speaker 2: I said, as we got to fight profitability at the end of the third quarter, and we expect that to continue into the fourth quarter. So to be profitable there, but not where we're targeting to be. I mean, that's going to take a few more quarters as we work through.

Adam Miller: Now I'll turn it over to Dave for an update on the progress U.S. Express. Thanks, Adam. The team at U.S. Express is really rallied around the goal of making significant improvements to this business and is currently running ahead of plan, as previously mentioned, on our projected path to reach an operating profit within the first half of next year. As noted in previous slides, the U.S. Express truck load and logistics businesses have already made meaningful progress improving their operating ratios.

So to be profitable there, but not not were not where we are targeting to be I mean, that's going to take a few more quarters as we work through the operational efficiencies, we need to pick up as well as work through the bid season to pick up more volume in and address right.

Speaker 2: The operational efficiencies we need to pick up as well as work through the bidsies to pick up more volume and address rates. Thanks for that clarification.

Thanks for that clarification I appreciate it guys. Thanks.

Thanks Scott.

Speaker 10: Your next question comes from the line of Allison Poliniak from Wells Fargo, your line is open. Hi, Allison. Hey guys, James on for Allison. I wanted to actually kind of back to some question on the truck load rate.

Your next question comes from the line of Allison <unk> from Wells Fargo. Your line is open.

Adam Miller: Coming out of the third quarter, we have already reached a hundred million dollar annualized run rate of realized synergies with a target of increasing that to a hundred and twenty million run rate by the end of this year. We highlight some of the progress on this slide. You'll notice these are fundamental areas of the business, some of which are the most critical levers to pull through cycles. Ultimately, as we lower cost per mile and increase rate per mile, we will make operating ratio progress, and that has begun.

Hi, Allison.

Hey, guys James on for Allison.

I wanted to actually kind of look back to the question on the truckload rates.

Basically it seems that you said there is still under pressure you're still seeing cost elevated but there is a sort of an amount of capacity. That's still out there just wanted to get your thoughts.

What you thought was allowing that capacity to stay in there and sort of.

When do you think it might exit or if there's a particular type of event that needs to happen for it to exit.

Adam Miller: U.S. Express is rolling out a decentralized terminal-based operating model, similar to accountability at the local level, with far more personal driver interaction. Nine out of the ten locations have been converted from places to park to operating terminals. Understanding where rates need to be for a proper return has led to the elimination of brokers, as the business is now dealing directly with shippers, while significantly reducing exposure to spot rates versus contract rates, which is improved from approximately 45 percent at the beginning of the year to approximately 15 percent today.

Just wanted to kind of get your thoughts on sort of the pace of capacity exists.

Speaker 3: Yeah. Well, appreciate the question, James. I think we're, you know, what we're, what we're seeing is a pretty extreme resourcefulness on the part of small carriers to survive. And...

Yeah, well I appreciate the question James I think were you know what.

What we're saying is pretty extreme resourcefulness on the part of small carriers to survive and.

Speaker 3: You know, it's hard to say if it's the fact that the used equipment market hasn't completely collapsed, like sometimes it does at this stage of the cycle, perhaps it's kept folks on the financing side, maybe willing to make some accommodations. Don't know what degree that is the case.

You know, it's hard to say if if it's the fact that the used equipment market hasn't completely collapsed like sometimes it does at this stage of the cycle, perhaps it's kept folks on the financing side, maybe willing to make some accommodations don't know to what degree that is the case.

Speaker 3: but there could be that for sure.

But there could be that for sure.

Dave Jackson: This is an uphill battle as we close this transaction at the end of the spring bid cycle in July, but the team has made progress and will continue as we will soon begin the 2024 bid season. We are excited for this early progress and for how this consequential truckload business is positioning for the future. We have been impressed with the effort and attitude of our new fellow teammates at U.S.

You know you have individuals who if it's.

Speaker 3: You know, you have individuals who, you know, for the one or two truck operation that might be temporarily living out of a truck and just to get by through the, through the, to the bottom part here. We know through our exposure to small carriers that they're under extreme pressure and juggling.

So one or two truck operation.

Might be.

Temporarily living out of a truck and just to get by through the through to the bottom part here, we know through our exposure to small carriers that they are under extreme pressure and juggling kind of cost and low on cash flow and.

Speaker 3: kind of cost and low on cash flow. And in many cases deferring maintenance, for example, just routine oil change maintenance. And so it just feels like there's a lot of folks out there that are just barely getting by with credit cards maxed out, hoping that they don't have to buy a tire over the road or have any other kind of mechanical failure. And so that's...

In many cases deferring maintenance for example, just routine oil change maintenance and so it just feels like there's a lot of folks out there that are just barely getting by with credit cards maxed out hoping that they don't have to buy a tire over the road or have any other kind of mechanical failure.

Dave Jackson: Express and appreciate their hard work.

Adam Miller: Next to slide 11 for our outlook, while 11 contains our updated outlook on market conditions for the remainder of 2023. The LTL market should continue to cease all the demand as the recent capacity disruption in the industry continues to be sorted out over the next several months. This should support further yield improvement, and as the new business is increasingly reprised through bid activity.

And so.

So that's.

Speaker 3: you know that that's what it feels like it's to be honest with little puzzled as to why we haven't seen more capacity come out because if you look at spot rates on an absolute basis

That's what it feels like it's to be honest, we're a little puzzled as to why we haven't seen more capacity come out because if you look at spot rates on an absolute basis.

Uh huh.

Speaker 3: These levels on an absolute basis were enough to send...

Dave Jackson: In the truckload space, we believe we are moving past inventory destocking, those shippers caution about the direction of the U.S, consumer behavior is governing freight demand for the time being it feels. We continue to expect a modest peak season, including a return of some typical seasonal activity and project opportunities, with opportunities continuing to materialize. Spot rates seem to have bottomed, but have yet to inflict positively, as a result contract rates continue to be pressured.

These levels on an absolute basis were enough to send to the market in 2017 into a into a strengthening position because of the atrophy.

Speaker 3: the market in 2017 into a strengthening position because of the...

Speaker 3: atrophy of supply and so if you compare the cost structure on what inflation has done

Atrophy of supply and so if.

If you compare the cost structure on what inflation is done.

It's hard to imagine that you could have the same absolute spot rate and yet have higher cost and still get by so.

Speaker 3: It's hard to imagine that you could have the same absolute spot rate and yet have higher cost and still get by. So it feels like more survival than anything else, James. But...

Dave Jackson: The soft demand, unsustainably low rates, ongoing inflation and restrictive financing conditions will keep pressure on carriers, especially smaller and less well-capitalized carriers. These factors should serve to accelerate the ongoing capacity attrition and limit immediate capacity expansion upon recovery. The pace of cost inflation should ease, though plentiful work alternatives in the general economy will pressure hiring and utilization until freight conditions improve.

So it feels like more survival than anything else James but.

Speaker 9: But we're watching anxiously and trying to understand that better ourselves. Got it. Small fault. What?

But we're we're.

We're watching anxiously and trying to understand that better ourselves.

Got it. Thanks My follow up is there anything at the end of the year like maintenance events insurance renewals or anything else that might be sort of a catalyst over in the fourth quarter for exits.

Thank you for the time.

Yes, I don't know that Theres, one event I mean I.

Speaker 3: Yeah, I don't know that there's one event. I mean, those kind of renewals and registrations happen routinely. It does feel like they do get a little bit bunched up towards the end in the beginning of the year, but I don't really have a place I could point to validate that. That's just kind of a feeling. But I don't think there is one event like that.

Those kind of renewals and registrations happen routinely it does feel like they do get a little bit bunched up towards the end of the beginning of the year, but I don't really have a place I could point to to validate that that's just kind of a ceiling.

Dave Jackson: New equipment availability continues to improve, and the used equipment market begins further as small carriers struggle and capacity exits.

But I don't think there is one event like that.

Adam Miller: I will now turn it back to Adam to cover our 20-23 guidance on slide 12.

Okay.

Thank you. Your next question comes from the line of Bruce Chan from Stifel. Your line is open.

Speaker 1: Thank you. Your next question comes from the line of Bruce Chan from Stipple. Your line is open.

Adam Miller: All right, thanks, Dave, and this will be our final slide. For the full year 2023, we now expect adjusted EPS to be in the range of 210 to 220 per share, which is an update from our previous guidance to 210 to 230 per share. This is based on our expectations that truckload rates have stabilized at current levels for the fourth quarter. The truckload tractor count would be down modestly with miles declining sequentially similar to prior year in the absence of a strong peak.

Hey, good evening gents.

Maybe just wanted to ask one here on core demand I know, you've got a pretty diverse base of customers, but is there anything that you've been seeing in terms of end markets that may be worth calling out, especially anything around food and Bev and what you know at least one big ship are talking about with regard to lower spending.

Speaker 8: I just wanted to ask one here on Core Demand. I know you've got a pretty diverse base of customers, but is there anything that you've been seeing in terms of end markets that may be worth calling out, especially in...

It was that big.

Anything related to industrial and <unk>.

<unk> related to the UAW anything there.

Adam Miller: The LTL revenue, excluding fuel surcharge, increases in the mid-teens year over year with a relatively stable sequential margin profile. The LTL shipment count and revenue excluding fuel surcharge per hunter-weight improve a high single digit percentage year over year. The US Express EPS estimated diluted impact in the fourth quarter expected at less than or around five cents, I believe, as performance continues to improve. Logistics volumes and revenue per load remain under pressure in Q4 with OR stable in the low 90s.

Maybe be material enough to affect your outlook for the rest of the year.

So Adam and I are looking at each other on both kind of shaking our heads like no. So.

Speaker 9: Well, Adam and I are looking at each other and are both kind of shaking our heads like no. So, you know, I think what's been a little different this year is we have seen some a little more seasonality through the beverage season and a little bit of produce in the second quarter that we saw none of last year. Seeing a little bit around the holidays, which is more of a food and beverage play, but haven't seen any. Yeah, I think there's maybe.

Well, it's been a little different this year as we have seen some a little more seasonality through the beverage season in a little bit of produce in the second quarter that we saw none of last year.

<unk> seen a little bit around the holidays, which is more of a food and beverage play.

But that haven't seen any yes, I think there's I think there's maybe.

Speaker 2: some specific cussers who maybe have made more progress from inventory than others, that might see a different, you know, demand pattern than others, but I think that's more.

Some specific customers, who maybe have made more progress on inventory than others that might see a different demand pattern than others, but I think that's more.

Adam Miller: The intermodal operating ratio slightly profitable with volume stable sequentially. The non-reportable opt-income decline roughly 10 to 15 millions sequentially as third-party insurance stabilizes and other businesses experience their typical seasonal slowdown in the fourth quarter. We expect some easing cost pressure in the fourth quarter as we realize further cost containment efforts around some of our cost initiatives.

Specific to their strategy versus something that's brought us to a certain sector.

Speaker 2: you know specific to their strategy versus something that's broader to a certain sector.

Okay. That's good news thank you.

Speaker 1: Your next question comes from the line of John Chappell from Evercore ISI Your Line of Zoot.

Your next question comes from the line of Jon Chappell from Evercore ISI. Your line is open.

Speaker 11: Thank you, good afternoon. Adam, maybe better for you. I know it's not.

Thank you good afternoon.

Adam maybe better for you I know, it's not a core business, but it does tend to move the needle pretty significantly the insurance business just looking for a little bit of clarity. There I mean, if we take the midpoint, what you've kind of guided to for the fourth quarter that looks like a $40 million EBIT drag I know, you're evaluating strategic alternatives, but as we think about how that plays.

Adam Miller: We do expect gain on sale to range from 8 to 12 million which includes now disposal that US Express and we expect a minimal increase in interest expense from Q3 assuming the rate hiking cycle is largely complete and our net cap cash cap cash cap X is expected to be between 770 750 million for the full year 2023 and that we expect our cash rate to be approximately 26% for the fourth quarter.

Speaker 11: core business, but it does tend to move the needle pretty significantly The insurance business just looking for a little bit of clarity there. I mean if we take the midpoint

Speaker 11: What you've kind of guided to for the fourth quarter, that looks like a 40 million EBITRAC. I know you're evaluating strategic alternatives, but as we think about...

Speaker 11: how that plays in the 2024. It seems like it's pretty cycle independent, first and foremost, is that a business that goes back to break even in 2024? Is it the first half drag that maybe you get a bit of a second half recovery, or is it just kind of a lesser loss line item for 20?

Into 2024, and it seems like it's pretty cycle independent.

First and foremost is that a business that goes back to kind of breakeven in 2024 is it a first half drag that maybe you get a bit of a second half recovery or is it just kind of a lesser last line item for 'twenty four.

Judy: So that now concludes our prepared remarks and so Loody will now turn it to you to open the line for questions. Thank you and at this time I would like to remind everyone in order to ask a question please press far then the number one on your telephone keypad. Again that is a star one on your telephone keypad. We'll pause for just a moment to compile the Q&A roster.

Speaker 2: Yeah, so hey, that's a business that obviously has been challenging over the last, I think, now four quarters. And, you know, we're working on what we can do to kind of mitigate those losses. And there's several things that we're working on. It's in probably improving or tightening our underwriting standards in the near term.

Yeah, So hey that that's a business that obviously has been challenging over the last I think now four quarters and we're working on what we can do to kind of mitigate those losses and there are several things that we're working on it and probably improving or tightening our underwriting standards in the near term.

Ravi Shanker: Your first question comes from the line of Ravi Shanker from Morgan Stanley, your line is open. Thanks, good evening, everyone. So, Dave, I think you said at the top of the call that you do expect to see some positive pricing momentum going into 2024. It seems hard to fathom with spark and contact rates where they are right now, but you also have spoken of cost inflation a fair bit. Can you unpack that a little bit more, kind of, what's the early signs on on bid season looking like?

We're looking at some reinsurance opportunities that could help with just eliminating some of the the volatility or the outstanding liabilities. We have currently on the balance sheet. So that that is underway.

Speaker 2: We're looking at some reinsurance opportunities that could help with just eliminating some of the volatility or the outstanding liabilities we have currently on the balance sheet, so that is underway.

Speaker 2: And really, I think everything's on the table to be able to kind of work through mitigating our losses there. And hey, do we expect to see a lesser loss into the 2024 certainly from where we are? And I think there's measures we've taken to do that, but we needed to move a bit quicker than it currently is.

And really I think everything's on the table to be able to kind of work through mitigating our losses, there and hey, we do we expect to see a lesser loss into the 2024, certainly from where we are and I think you know there's there's measures we've taken to do that but we needed to move a bit quicker than it than it currently is and you know we we.

Ravi Shanker: Are we looking at flats first half, positive second half or something even better than that? Yeah, I would say that that comment is largely based on the economic position of the providers of full truckload transportation today. I think, you know, we've seen in the reports between second quarter and what we've already seen reported out for third quarter, I mean, you have really record tight margins in the full truckload space, and this is all while driver wages, which are by far our largest expense have not increased since 2021, and we likely will have some pent-up increase to work through as perhaps truckload is losing pace in recruiting vocational labor in the economy, and so it feels like we don't we don't have the benefit or opportunity to be aggressive in pricing.

Speaker 2: You know, we in a difficult cycle, and this is the last thing that we need as a business that, you know, has been a bit challenging for us. And we've got a lot of people working towards that and looking at every different alternative to approach it. And...

In a difficult cycle and this is the last thing that we need is a business that you know there's been a bit challenging for us and we've got a lot of people working towards that and looking at every different alternative to approach it in.

Speaker 2: And we think we'll see some progress here, both in the fourth quarter and as we get into 2024. And hey, if we find some of these strategies that help us eliminate that liability sooner rather than later with the reshure option, we'll move quickly on that if we find it to be appealing.

And we think we will see some some progress here both in the fourth quarter and as we get into 2024, and if we find some of these strategies that help us eliminate that liability sooner rather than later with with the the reinsurance option will move quickly on that if we if we found it to be appealing.

Got it thanks Adam.

Your next question comes from the line of Amit Mehrotra from Deutsche Bank. Your line is open.

Speaker 1: Your next question comes from the line up. I made my root wrap and I'm going to bend your line is open.

Thanks, Operator, Hi, David Hi, Adam.

Speaker 12: Thanks operator, David, hi Adam. Excuse me, I guess there's an expectation that earnings can be up meaningfully next year. And I know you guys do an exceptional job kind of pivoting to where maybe the opportunities present themselves. So there's obviously that opportunity or potential next year. But.

Excuse me I guess.

There is an expectation that earnings.

It can be up.

Meaningfully next year and I know you guys do an exceptional job kind of pivoting to where.

Maybe the opportunities present themselves. So so theres, obviously that opportunity or potential next year, but.

Ravi Shanker: In fact, we need we need a little bit of help, and as we noted last quarter, you know, this is a unique freight recession or trough of a freight cycle in that normally when we've seen it so prolonged, so pronounced, we're in a broader economic recession, and so we naturally get cost concessions in the areas of fuel and labor and equipment, and in this case, we've seen the opposite, and now fuel is kind of turned from being more neutral into now being more of a headwind on the truckload side, and so that's how this is being set up. It feels like there are, and what what I referenced in my comment is we've seen some situations where it appears that pricey or lanes and meaningful bid awards were awarded to carriers that levels that we just don't understand how that would be possible from a rate perspective, and what we have found is some of that has made its way back through often it's done through a mini bid, as we call them, where perhaps the service level wasn't where it needed to be, or they just couldn't deliver on it, and so we're starting to see some of those signs, that tells us that maybe things have been pushed to the limit, and so we're here hunkered down, just working as hard as we can to be as efficient as we can, we have virtually no margin for error on the truckload side of the business right now, and we don't think that we're alone in that.

Speaker 12: I guess the question, David, I want to understand how you're thinking about

I guess the question, David I want to understand how youre thinking about.

Speaker 12: how expectations are calibrated for next year, how you think the slope of the recovery from here, can it be more muted? Is there an opportunity to see gaps higher? As if you think those opportunities are likely to show up, we're just kind of late in this year now and demand doesn't seem to be there. And I'm just trying to understand, kind of getting your head a little bit and how you're thinking about the recovery paths from where we are today.

How expectations are calibrated for next year, how you think the slope of the recovery from your can it be more muted is there an opportunity to see gaps higher.

If you think those opportunities are likely to show up we're just kind of late in this year now in demand it doesn't seem to be there and I'm just trying to understand kind of getting your head a little bit and how youre thinking about the recovery path from where we are today.

Speaker 3: Yeah, well, thanks a bit. As you know, and I think we've referenced in previous calls that...

Yeah, well thanks Amit.

As you know and I think we've referenced in previous calls it.

Speaker 3: These kind of recoveries on the truckload side start with some volume increases and then volume begets a little bit of rate improvement and then volume and rate improvement beget earnings. And so this will be a gradual process, our comparison.

At these kind of recoveries on the truckload side start with some volume increases and then volume begets, a little bit of rate improvement and then volume and rate improvement be get earnings and so this will be a gradual a gradual process our comparisons.

Speaker 3: You know, to start the year are not going to be as easy, but they'll get a little bit easier as we go into, we hope in the next year on the truckload side. Now, if you look at our business,

To start the year are not going to be as easy but that they.

They will they'll get a little bit easier as we go into we hope in the next year on the truckload side now if you look at our business. So we've got this LTM business thats going to continue to chug away, we expect that to be very predictable, we expect that to be very positive and then we've got this.

Speaker 3: So we've got this LTL business that's going to continue to chug away. We expect that to be very predictable. We expect that to be very positive. And then we...

Speaker 3: maybe large call option if you will on the truckload space with us express the business that's

Maybe large call option, if you will on the truckload space with U S Express business, that's very close to breakeven and that is there is some as.

Speaker 3: very close to break even and that as there's some, as we have another bid season to work with, to work on the network and a little bit of strength, all of a sudden that does give us quite a significant sale, if you will, if the wind decides to blow that we have not had in the past. And so I,

Ravi Shanker: Now, I would guess that The our optimism of what could happen and what would need to happen in a bid season might not be the same as as the shippers might view right now. Truckload doesn't do cost-based pricing. That's more common in the LPL space as we've learned, but it isn't the case for truckload, but that really is what's driving this is this is not this is not elective. This is this is just essential.

As we have another bid season to work with us to work on the network and a little bit of strength all of a sudden.

That does give us quite a significant sale. If you will if the wind decides to blow that we have not had in the past and so.

I think.

As we mentioned a couple of quarters ago. This is somewhat of a.

Speaker 3: As we mentioned a couple of quarters ago, this is somewhat of a try and make sure that are you know, we're trying to make sure that are cycles that are peaks in the cycle in terms of earnings performance.

Try and make sure that our.

To make sure that our cycles that our peaks in the cycle in terms of earnings performance.

Ravi Shanker: So we'll have to see how it plays out if the bid season began right now today. We would really have a tough time seeing it be positive. But as things continue to materialize, I think that the natural conditions are going to lead us in that direction. And Robbie, I just add to that, you know, again, the business and hasn't kicked off. We've had some maybe just early discussions with some of the shippers that, you know, would have a bid coming out in the, you know, the next quarter or so.

Speaker 3: outperform the previous cycle. And so as far as the timing to predict that, that's a little bit beyond our control. And very difficult to do so in the truckload space. But.

<unk> outperformed the previous cycle and so.

As far as the timing to predict that that's that's a little bit beyond our control.

And very difficult to do so in the truckload space, but.

For us, we're just heads down preparing ourselves to be ready for that to be ready in terms of how our business has committed the kind of relationships we have on the truckload side.

Speaker 3: For us, we're just heads down preparing ourselves.

Speaker 3: to be ready for that, to be ready in terms of how our business is committed, the kind of relationships we have on the truckload side, and just kind of where the operation is. So...

And and just kind of where the operation is so.

Ravi Shanker: You know, the sentiment is, you know, a lot of our customers have enjoyed the low rates that they've had in the spot markets, even some of the contract rates. And I think they probably moved a disproportionate amount of their volume and they historically have to brokers where they're able to capture some of that that discount. And our shippers know just like carriers know that the market it's not if it will turn its when and they, you know, they're concerned about ensuring that they're going to have sustainable capacity.

So where are these next quarter, we'll put out our guidance for 2024 and I'm grateful that we can do that in three months and I don't have to do it today because a lot could change frankly in the next three months now.

Speaker 3: So where are this next quarter? We'll put out our guidance for 2024. And I'm grateful that we can do that in three months, and I don't have to do it today, because a lot could change, frankly, in the next three months.

Speaker 3: Our posture in terms of running the business is, hey, we're going to, we're heads down working hard as if nothing's going to change and nothing's going to be given to us and we're not going to have any wind at our back. We're just not going to wait for that to happen to try and control what we can control. But

Our posture in terms of running the business is hey, we're going to we're heads down working hard as if nothing's going to change and nothing is going to be given to us. So we're not going to have any wind at our back we're just not going to.

Ravi Shanker: And so, you know, some of the commentary is even though the market may not bear it today, they know six months, they could be in a tough position if they don't have capacity with asset base carriers, especially in light of some of the failures that we've seen as of recently. So we're in, you know, dialogue with our customers. We want it. We're partners with them. We know what we need for a sustainable capacity and, you know, we feel like we'll be able to work through what we believe would be fair rates moving forward.

Wait for that to happen to try and control what we can control but.

Speaker 3: But we will be prepared and to move when the market, when the wind blows will be prepared. So.

But but we will be prepared and to move.

When the market when the wind blows we will be prepared so.

It's the best I could answer that right now for you Matt Yeah. That's very fair. Thank you wish you guys. The best Thank you. Thank you excellent.

Speaker 12: The best I could answer that right now for you, Amit? Yes, that's very fair. Thank you. Wish you guys the best. Thank you. Thank you.

Your next question comes from the line of Baskin majors from Susquehanna. Your line is open.

Speaker 1: Your next question comes from the line of Baskin majors from Tsuskiana, your line is open.

Dave Jackson: Very helpful, very quick follow up, kind of speaking of failures on the logistics side. We did hear headlines that a large digital player may have paused our stock operations today.

Yes, going back to the insurance business and the boom bust cycle, you've managed through there.

What have you learned from that both about how you would incubate future business at night and grow it internally and also just dealing with some of your small trucking competitors.

Dave Jackson: What kind of impact do you think that has a market place and kind of what do you think this tells us about where we are on the cycle and kind of for the brokerage model going forward? Like is this a good thing or a bad thing kind of what does mean for the industry? So here's what I said, we'll answer that Robbie because I think everybody on the public would like to appreciate a comment, but it's one question because I think a lot of time we had the first, the first analyst has two of everyone decided as to. So one question. Robbie, I'm sure we get to that and if we don't jump in that queue, we'll answer that question. So. Thanks Robbie. Thanks guys.

Customers there what have you learned about the market that will help you manage cyclically going forward. Thank you.

Well, that's kind of a few things for one it's it is difficult to find small carriers, who care about safety. The way that we do and are willing to do things to change behavior, such as hair follicle drug testing to have cameras in vehicles.

Speaker 2: to find small carriers who care about safety the way that we do and are willing to do things.

Track your scoring that then indicate whether you are a safe driver or not it's difficult to find a carrier who is willing to do that at a consistent level and that's part of the underwriting process and I think what we found is we had to be more disciplined on the compliance around around.

Scott Group: Thank you and your next question comes from the line up Scott group from will research real line is open. Hey, thanks afternoon guys so can you just give us some color on the revenue and an OR for us express in the quarter and where that goes from here and how important is the market. How important is it for the market to get better and pricing to get better to get the US express OR better or can you do it.

Some of those factors I think were also found that this is a difficult environment and so one of the first deals that may not get paid maybe the the monthly insurance Bill and so we have to do a better job getting the.

Speaker 2: I think we're also found that, you know, this is a difficult environment. And so one of the first bills that they not get paid, maybe the monthly insurance bill. And so we have to do a better job getting the

Scott Group: Without, like, can you get to the profitability that you want without getting the pricing up for the market? You know, Scott, just given where that business, you know, started once we, once we finalized the acquisition. I mean, there's going to need to be improvements in both the cost side and the revenue side of the business. Now, on the cost side, we don't really have to wait for the markets to change. We can, we can move forward on a lot of activities there on the procurement side.

Probably a couple of months or some larger deposit on the front end to protect ourselves from any bad debt that we may incur should you have a carrier that that doesn't make a payment appropriately.

We've learned quite a bit of just how we manage claims what the.

Speaker 2: the development looks like, and when you know that and understand it and understand how different it is, then...

The development looks like and when you when you know that and understand it and understand how different it is then.

Speaker 2: you know, company drivers or owner operators that operate for us, we can be more effective at how we price that business. So...

Company drivers or owner operators that operate for us we can be more effective in how we price that business. So I think we made some I think some missteps in terms of assuming that claims who developed the same way they do with our own business and maybe in price the business as effectively as he should so we're in the process of of <unk>.

Scott Group: We're working on building out the terminal network that we expect will help safety turnover recruiting and those all can be me have a meaningful impact to the cost side of the business. Now, we've made, you know, probably I think we said mid single digit improvement in our cost per mile, which we're excited for. We know that there's more there on the revenue side. It's it's low single digits and that's in a market where most are taking hits on the revenue per mile front and we haven't had a bid season to be able to address.

Speaker 2: I think we made some missteps in terms of assuming that claims would develop the same way they do with our own business.

Speaker 2: and maybe didn't price the business as effectively as he should. So we're in the process of moving pricing up as quickly as we can. And that affects any...

Moving pricing up as quickly as we can and that affects any.

Speaker 2: renewals, we're not writing any new business now until we can really understand what the right mix of carrier is and what the underwriting qualifications should be. And we'll determine through that process whether we think it's a business that we can't grow and develop proactively. So there's still more that we're working through in this process. It's relatively new to us.

Renewals were not writing any new business now until we can really understand what the what the right mix of carrier is and what the underwriting qualification should be and we will determine to that process, whether we think it's a it's a business that we can't we can't grow and develop.

Scott Group: Where the current rates are for us express, you know, to get to the long term profitability that, you know, you know, dollar of accretion, we're going to need both revenue and cost to support that. But I think that's just a matter of time before we have an opportunity to be able to do what we need to do on the revenue front to really close the gap from a rate perspective between us expressing our other brands.

<unk> so there's still more that we're working through in this in this process is relatively new to us.

Speaker 2: and, and, and hey, we're again open to a lot of different approaches to make this business work if we can.

And and in Hayward, We're again open to a lot of different approaches to make this business work if we can.

Scott Group: Yeah, maybe Scott, I'll just add, you know, the logistics business is in a good place. It's contributing earnings the dedicated businesses contributing earnings. The subsidiary total is contributing some earnings and the, you know, the wild card is that over the road component and it's made dramatic progress and some of the things that we outlined on that slide. You know, those are things that we, we have experience that seeing driver turnover go down, we have experience that seeing, you know, revenue on a per truck basis improved and we have experience and seeing a P and L accountability on the cost side drive to lower cost to improve margin.

Thank you Adam.

Speaker 1: And this ends our Q&A session. I would like to turn it back to our speakers for closing remarks.

And this ends our Q&A session I would like to turn it back to our speakers for closing remarks.

Okay well.

Speaker 3: Okay, well, thanks you. Thank you, Ludi. We are grateful for your interest today. I think we hit a record number of questions today. So if we did not get to your question, please feel free to call us at 602-606-6349. Thanks for joining the call today, take care.

Thank you Louis.

We are grateful for your interest today, I think we hit a record number of questions today. So.

We did not get to your question. Please feel free to call us at 602 600 66349, thanks for joining the call today take care.

Ladies and gentlemen, this concludes today's conference call. Thank you for participating you may now disconnect.

Speaker 1: And ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.

Scott Group: And so they're not very far. As you could tell by the earnings for this quarter, they were, they were not nearly the drag that frankly, we would have expected and this early on. And so, and so the, the idea of getting to break even without any help from the market, that is, that is definitely within reach. And so, of course, that's not the goal, but, but to take them from the state that I'm alluded to the state they were in coming out of the second quarter and into this, this has been dramatic and faster than we would have expected.

Scott Group: Thank you. Thanks, Scott.

Jack Atkins: Your next question comes from the line of Jack Atkins from JDK, your line is open. Okay, great. Thanks very much, Jack Atkins from from Stevens, but I guess, you know, Dave and Adam, I'd love to maybe ask you about the LTL business for a moment. You said you said it exceeded your expectations in the quarter. There's been further market disruption in October, just sort of curious. How did operating ratio trend in that business relative to normal seasonality?

Jack Atkins: Did you, did you incur any additional expenses as, you know, you were trying to sort of onboard some of the market cheer that was probably moving around. And I guess just would be curious, you know, the opportunity to maybe grab some of the real estate that's up for.

Jack Atkins: For auction here with the with the yellow estate over the next, the next couple of weeks, I know it's a lot of questions in one atom, so if you can excuse the just kind of broader topic of LTL would be curious if you could expand on that for a minute.

Dave Jackson: Adam, the enforcer might shut this down before we get started with all those questions. But it is not typical, at least in the experience with the two LTL franchises that we own to see that sequential improvement from a second into a third. But we did, it was slight, but we saw slight improvement sequentially from second to third quarter.

Dave Jackson: In terms of varying an additional cost burden, I don't know that that was so much the issue. I think in the LTL space, as our customers had found themselves with some immediate need, our LTL group just jumped in to get those things covered. It's more of handling those shipments and preserving the service than it is immediately talking about price. It works a little different in the truckload space when there's projects or things that are out of the norm.

Dave Jackson: And so some of that volume that we've picked up, some of that volume that I think is in the process of being dispersed long terms throughout the LTL providers. You know, that will be addressed in these bids that have already started and that will continue to happen to make sure that we price it appropriately as you kind of know how it fits the network. So I wouldn't say that that was a cost headwind there.

Dave Jackson: I would say that that sequential improvement was a very positive sign for us of where things are. You know, in the fact that we are seeing shipments turn positive on a year over your basis and to be able to see a revenue excluding fuel per hundred weight up in the double digits continue. Those are very positive signs for us.

Jack Atkins: Thank you.

Unknown Executive: Thanks, Jack.

Tom Wadewitz: Your next question comes from the line of pod Vitavix from UBS.

Dave Jackson: Your line is open. Yeah, hey, Dave Adam. It's Tom water with there. I wanted to ask you a little bit about the kind of cycle view. Dave, you offered some thoughts of, you know, a kind of constructive and bid season. Do you need to see spot rates move up first in order to really see that improvement in contract. It continues to be a widespread between contract and spot. And, you know, I think the brokers take advantage of that and compete against you guys.

Dave Jackson: So I'm just wondering is the kind of optimism on contract rates next year. I think they're really contingent on seeing some momentum in spot rates ahead of that. And I don't know if you have a thought on just capacity exiting and, you know, when you get enough of that to take place to tighten the market as well. So thank you.

Dave Jackson: Yeah, I would just I'll jump in and then Adam can finish this off. I think that, you know, historically through these cycles. It's worked where that spot rate starts to climb. And if you were to graph out spot rates and contract rates, you, you find that intersection. And when they intersect, that is the tail tail sign that spot rates are just getting going and that it's the curve of the contractual rate is now, you know, about to bend and turn to the positive again.

Dave Jackson: And so, yeah, we have not seen that. We've really seen spot rates just kind of move sideways as time has gone on. You know, one disadvantage we have from cycle to cycle is the data set that we look at is constantly evolving and it seems like increasingly the data set that we look at is, is, you know, a magnifying glass into just broker and the smallest of carriers. That, that isn't necessarily where the majority of freight moves or how it moves, but, but nonetheless, we've got that corner of the market with a, with a telescope right now it feels like so.

Dave Jackson: Um, It's hard to always compare that to previous years. It's hard to think that we wouldn't see that kind of generally speaking that kind of mechanic happen again where spot rates increase to a point where they intersect contract and then now you know you're off to a different part of the cycle. The piece about that that's hard to predict is that it always it happens so fast and it happens unexpectedly and there's there's always a catalyst or or a multitude of catalysts to bring it to bear whether it be weather, whether it be fuel prices.

Dave Jackson: It feels like the extreme aggressiveness that we have seen out of non-asset based players has reached a level to where it's not only unsustainable but when you add how expensive financing is and what might subsidize and allow that to happen, you know, it becomes, it just blows up and now all of a sudden you have a lot of small carriers who were dependent on some kind of a model like that that now are maybe in a little bit of trouble. So I think we're starting to see some of this, I mean we are hearing of asset based carriers that are closing the doors here just I mean just this month we continue to hear I think there was another one just heard about today to say nothing for you know a non-asset based player that seems to be stopping operations or something.

Dave Jackson: So there are things are breaking right now now I don't know if that is enough to be this catalyst where you start to see this happen but but inevitably it is almost impossible to predict and when it does change it's always been many many many months if not many many quarters in the making so it doesn't just turn around all of a sudden.

Adam Miller: So that feels like we're right we're pushing up against that level Adam. Yeah I think you know as you see you know some of these disruptions from you know the operations that I see so I mean we see media reactions in our business they may be short term so maybe longer term and we'll see how it plays out but I think that tells us you know there's not much slack in the supply chain right now and so any type of list in demand or you know exaggerated decline and capacity I think we'll see the market turned very quickly and again we're predicting that will happen you know in 2024 it's just a matter of when and so as we approach bids we're looking at rates that we believe will be sustainable as the market shifts and those are the type of conversations we're having with our customers rather than just waiting for the spot market to turn which would then you know dictate that that rate contract rate should follow.

Chris Wetherbee: Thank you your next question comes from the line of Chris whether be from city group your line is open. Thanks good afternoon guys I want to ask about the USX fleet and how you think about that relative to some of the cost energy that you're realizing so I think you said about on. 100 million run rate, maybe moving up to 120 by year end.

Adam Miller: Is there a relationship between getting that cost energy and the ultimately profit energy and the size of that fleet, I guess in other words, do you need to call a little bit more to be able to generate profitability? What do you think you'll be able to net hold on to over the course of maybe one year and maybe that 2026 target you have out there? We don't think we have to shrink into profitability.

Adam Miller: There are a few hurdles that they had already overcome that we hadn't on the swift merger, on the swift merger. We had posted the deal, we adopted hair follicle drug testing, for example, and we also made some adjustments to the owner operator program. In this case, we didn't have either one of those, and so we are really battling to hold on to that fleet and to help them and to help them be more profitable on a per-truck basis. If I look at just sequentially, we've only owned them for a quarter here, but if I look at it, the fleet size has remained down just slightly, but it's almost the same.

Chris Wetherbee: There's not a plan to call the fleet. Appreciate the comments. Thank you.

Ken Hoexter: Chris. Your next question comes from the line of Ken Hoxster from Bank of America. Your line is open. Great. Good evening, and thanks for that thoughts on the right up against the wall on the rates. Hopefully, I think we've all been watching that waiting for the capacity to leave to get that rate up there, so hopefully that follows through. Maybe just Dave, your thoughts on Intermodal, you kind of talked about it getting to profitability. What's the confidence there? Is that the same thing? Is that just about rate and getting that up there? Is it about going through bid season?

Adam Miller: What's the operationally going on with Intermodal that you've been losing money debt that you see a flip there? I'm going to let Adam answer that. Yeah, I think it's a combination of multiple things, just like any business that's operating at that level. It's not one thing that you have to get done. I think there's going to be some opportunity to pick up some additional volume in the bid season as we've got our rates with our rail partners adjusted based on the way our contract is structured with them.

Adam Miller: I think that puts us in a better position to be aggressive there. I think we've got some operational efficiencies we need to work through in terms of how we manage chassis and I think we've made some progress there. We started the quarter out on a rough start, but we saw that sequential progress all the way through until we got to a level of profitability just slightly in September. We expect to continue that momentum, but it'll be something that just takes time to work through services improving at both the west and the east.

Adam Miller: I think customers that had moved freight off of the rail to truckload because of the issues with service are looking at that again as an option. And I think we've got some great relationships on the truckload side that we still don't do much with on the intermodal side that I think we'll be able to open up those doors. So it's going to be a culmination of all those factors can that we think we'll get this to a good position where that's a business that can compete with the top providers there and generate a margin in that, you know, hopefully high single digit low double digit to pay no where we're at in the cycle.

Adam Miller: Adam, if I can just clarify, it sounds like those were, you know, working with customers. That's, is that longer term or, because you said you're going to get the profitability fourth quarter? Did I miss something or is that mid season that already happened? That's going to happen quickly? I said, as we got to, to fight profitability at the end of the third quarter, and we expect that to continue into the fourth quarter.

Adam Miller: So, so to be profitable there, but not, not where we, not where we're targeting to be. I mean, that's going to take a few more quarters as we work through the operational efficiencies. We need to pick up as well as work through the bidsies to pick up more volume and address rates. Thanks for that clarification. Appreciate it, guys. Thanks.

James: Thanks again. Your next question comes from the line of Allison Poliniac from Wells Fargo. Your line is open. Hi, Allison. Hey guys, James on for Allison. Just wanted to actually kind of back to some question on the truck load rate. Like, basically, as you said, they're still under pressure. You're still seeing cost elevated, but there is a sort of an amount of capacity that's still out there. Just wanted to get your thoughts on what you thought was allowing that capacity to stay in there and sort of. When you think it might exit or if there's a particular type of event that needs to happen for it to exit, just wanted to kind of get your thoughts on sort of the basic capacity exists.

Dave Jackson: Yeah, well, appreciate the question, James. I think we're, you know, what we're, what we're seeing is a pretty extreme resourcefulness on the part of small carriers to survive. And, you know, it's hard to say if it's the fact that the used equipment market hasn't completely collapsed, like sometimes it does at this stage of the cycle, perhaps it's kept folks on the financing side, maybe willing to make some accommodations. Don't know what degree that is the case, but there could be that for sure.

Dave Jackson: You know, you have individuals who, you know, for the one or two truck operation that might be temporarily living out of a truck. And just to get by through the, through the, to the bottom part here, we know through our exposure to small carriers that they're under extreme pressure and juggling kind of cost and low on cash flow. And in many cases deferring maintenance, for example, just routine oil change maintenance. And so it just feels like there's a lot of folks out there that are just barely getting by with credit cards maxed out, hoping that they don't have to buy a tire over the road or have any other kind of mechanical failure.

Dave Jackson: And so that's, you know, that's what it feels like. It's, to be honest, we're a little puzzled as to why we haven't seen more capacity come out. Because if you look at spot rates on an absolute basis, these levels on an absolute basis have were enough to send the market in 2017 into into a strengthening position. Because of the atrophy of supply. And so if you compare the cost structure on what inflation has done, it's, it's hard to imagine that you could have the same absolute spot rate and yet have higher cost and still get by so.

Dave Jackson: So it feels like more survival than anything else, James, but. But we're watching anxiously and trying to understand that better ourselves. Got it? Actually, small fallout, is there anything at the end of the year like a maintenance events, insurance, reels, or anything else that might be sort of a catalyst over in the fourth quarter, four exits? And thank you for the time. Yeah, I don't know that there's one event. I mean, I think those kind of renewals and registrations happen routinely.

Dave Jackson: It does feel like they do get a little bit punched up towards the end and beginning of the year. But I don't really have a place I could point to validate that. That's just kind of a feeling. But I don't think there is one event like that. Thank you.

Bruce Chan: Your next question comes from the line of Bruce Chan from Stipple. Your line is open. Hey, good evening, Jens. Maybe just wanted to ask one here on core demand. I know you've got a pretty diverse space of customers, but is there anything that you've been seeing in terms of, you know, and markets that may be worth calling out, especially anything around, you know, food and what, you know, at least one big ship are talked about with regard to lower spending due to olympic, anything related to, you know, industrial in TL or LTL related to UAW. Anything there, just, you know, maybe be material enough to affect your outlook for the rest of the year.

Dave Jackson: Well, Adam and I are looking at each other are both kind of shaking our heads like no. So, you know, I think what's been a little different this year is we have seen some a little more seasonality through the beverage season and a little bit of produce in the second quarter that we saw none of last year seeing a little bit around the holidays, which is more of a food and beverage play.

Dave Jackson: But, but haven't seen any. Yeah, I think there's maybe some specific customers who maybe have made more progress on inventory than others that might see a different, you know, demand pattern than others, but I think that's more, you know, specific to their strategy versus something that's broader to a certain sector.

Unknown Executive: Okay, that's good news. Thank you.

Jonathan Chappell: Your next question comes from the line of John Chappell from Evercore, ISI. Your line is open. Thank you.

Unknown Executive: Good afternoon.

Adam Miller: Adam, maybe better for you. I know it's not a core business, but it does tend to move the needle pretty significantly the insurance business just looking for a little bit of clarity there. I mean, if we take the midpoint, what you've kind of guided to for the fourth quarter that looks like a 40 million ebit drag.

Adam Miller: I know you're evaluating strategic alternatives, but as we think about how that plays in the 2024 seems like it's pretty cycle independent. And first and foremost, is that a business that goes back to kind of break even in 2024 the first half drag that maybe you get a bit of a second half recovery or is it just kind of a lesser loss line item for 24. Yeah, so hey, that's a business that obviously has been challenging over the last I think now four quarters and, you know, we're working on what we can do to kind of mitigate those losses and other several things that we're working on, it's in probably improving or tightening our underwriting standards in the near term.

Adam Miller: We're looking at some reinsurance opportunities that could help with just eliminating some of the volatility or the outstanding liabilities we have currently on the balance sheet, so that that is underway. And really, I think everything's on the table to be able to kind of work through, you know, mitigating our losses there and hey, do we expect to see a lesser loss into the 2024 certainly from where we are. And I think, you know, there's there's measures we've taken to do that, but we needed to move a bit quicker than it than it currently is.

Adam Miller: And, you know, we in a difficult cycle, and this is the last thing that we need is a business that has been a bit challenging for us. And we've got a lot of people working towards that and looking at every different alternative to approach it. And we think we'll see some progress here, both in the fourth quarter and as we get into 2024. And hey, if we find some of these strategies that help us eliminate that liability sooner rather than later with the reinsurance option, we'll move quickly on that if we find it to be appealing.

Adam Miller: Thank you.

Adam Miller: Thanks, Adam.

Amit Mehrotra: Your next question comes from the line of Amit Mehrotra from Deutsche Bank.

Dave Jackson: Your line is open. Thanks, operator. Hi, David. Hi, Adam.

Dave Jackson: Excuse me. I guess there's an expectation that earnings can be up, you know, meaningfully next year. And I know you guys do an exceptional job kind of pivoting to where maybe the opportunities present themselves. So there's obviously that opportunity or potential next year. But I guess the question, David, I want to understand how you're thinking about how expectations are calibrated for next year. How you think the smoke with the recovery from here.

Dave Jackson: Can it be more muted? Is there an opportunity to see gaps higher? If you think those opportunities are likely to show up. We're just kind of late in this year now and demand doesn't seem to be there. And I'm just trying to understand kind of getting your head a little bit and how you're thinking about the recovery path from where we are today. Yeah. Well, thanks, Amit. As you know, and I think we've referenced in previous calls that these kind of recoveries on the truckload side start with some volume increases and then volume begets a little bit of rate improvement and then volume and rate improvement, be get earnings.

Dave Jackson: And so this will be a good example. To be a gradual gradual process are comparisons. You know, to start the year are not going to be as easy, but they, you know, they'll get a little bit easier as we go into, we hope in the next year on the truckload side. Now, if you look at our business. So we've got this LTL business that's going to continue to chug away. We expect that to be very predictable.

Dave Jackson: We expect that to be very positive. And then we've got this maybe large call option if you will on the truckload space with us express the business that's very close to break even and that as there's some as if we have another bid season to work with to work on the network and a little bit of strength. All of a sudden, that does give us quite a significant sale if you will, if the wind decides to blow that we have not had in the past.

Dave Jackson: And so I think as we mentioned a couple of quarters ago, this is somewhat of a try and make sure that our, you know, we're trying to make sure that our cycles that are peaks in the cycle in terms of earnings performance outperform the previous cycle. And so as far as the timing to predict that, that's that's a little bit beyond our control and very difficult to do so in the truckload space.

Dave Jackson: But for us, we're just head down preparing ourselves to be ready for that, to be ready in terms of how our business is committed, the kind of relationships we have on the truckload side. And, and just kind of where the operation is.

Dave Jackson: So, so where are this next quarter, we'll put out our guidance for 2024 and I'm grateful that we can do that in three months, and I don't have to do it today because a lot could change, frankly, in the next three months. Now, our posture in terms of running the business is, hey, we're going to, we're head down working hard as if nothing's going to change and nothing's going to be given to us.

Dave Jackson: And we're not going to have any wind at our back. We're just not going to wait for that to happen to try and control what we can control. But, but we will be prepared and to move when the market, when the wind blows will be prepared. So, it's the best I could answer that right now for you, I met. Yeah, that's very fair.

Amit Mehrotra: Thank you, wish you guys the best. Thank you.

Bascome Majors: Your next question comes from the line of Bascome Majors from Fiskiana.

Adam Miller: Your line is open. Yes, going back to the insurance business and the boom bus cycle you've managed through there. What have you learned from that both about how you would incubate a future business at night and grow it internally and also just dealing with some of your small trucking competitors as customers there? What have you learned about the market that will help you manage particularly going forward? Thank you. We'll ask a few things.

Adam Miller: For one, it is difficult to find small carriers who care about safety the way that we do and are willing to do things to change behavior such as hair follicle truck testing to have cameras in the vehicles that track your scoring, that then indicate whether you're a safe driver or not. It's difficult to find a carrier who's willing to do that at a consistent level. That's part of the underwriting process and I think what we found is we had to be more disciplined on the compliance around some of those factors.

Adam Miller: I think we've also found that this is a difficult environment and so one of the first bills that may not get paid may be the monthly insurance bill and so we have to do a better job getting probably a couple of months or some larger deposit on the front end to protect ourselves from any bad debt that we may incur should you have a carrier that that doesn't make a payments appropriately. I think we've learned quite a bit of just how we manage claims, what the development looks like and when you when you know that and understand it and understand how different it is than companies drivers or owner operators that operate for us, we can be more effective at how we price that business.

Adam Miller: So I think we made some I think some missteps in terms of assuming that claims would develop the same way they do with our own business and maybe in price to business as effectively as he should. So we're in the process of moving pricing up as quickly as we can and that affects any renewals.

Adam Miller: We're not writing any new business now until we can really understand what the what what the right mix of carrier is and what the underwriting qualifications should be and and we'll determine through that process whether we think it's a it's a business that we can't we can't grow and and develop properly. So there's still more that we're working through in this in this process. It's relatively new to us and and hey we're again open to a lot of different approaches to make this business work if we can.

Adam Miller: Thank you Adam.

Unknown Executive: And this ends our Q&A session.

Unknown Executive: I would like to turn it back to our speakers for closing remarks. Okay well thanks you thank you Ludi. We are grateful for your interest today. I think we hit a record number of questions today. So if we did not get to your question please feel free to call us at 602 606 6349.

Unknown Executive: Thanks for joining the call today to take care.

Unknown Executive: And ladies and gentlemen, this concludes today's conference call.

Unknown Executive: Thank you for participating. You may now disconnect.