Q3 2024 Schneider National Inc Earnings Call

Thank you for standing by and welcome to the Schneier 3rd Quarter 2020 Ford earnings conference call. All lines have been placed on mute to prevent any background noise.

After the speakers' remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star, followed by the number 1 on your telephone keypad. If you would like to withdraw your question, again, press the star 1.

Speaker Change: Thank you. I now like to turn the call over to Steve Bindas, Director of Investor Relations. You may begin.

Steve Bindas: Thank you, operator, and good morning everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer, Darrell Campbell, Executive Vice President and Chief Financial Officer, and Jim Filzer, Executive Vice President and Group President of Transportation and Majesty.

Steve Bindas: Earlier today the company issued an earnings press release. This release and an investor presentation are available on the investor relation section of our website at Schneider.com.

Our call will include remarks about feature expectations, forecasts, plans, and prospects for Schneider. These constitute forward-looking statements for the purposes of the safe, hard-look evasion under applicable federal security law.

Or looking statements involving risk and uncertainties that could cause actual results differently from current expectations.

Steve Bindas: The company urges investors to review the risk sensor and he's discussed in our FDC filing, including but not limited to our most recent annual report on form centae and those risks identified in today's earnings release.

Steve Bindas: All former looking statements are made as of the day of this call and Schneider displays any duty to update such statements except as required by law.

Steve Bindas: In addition, pursuant to regulation G, a reconciliation of any non-gap financial measures referenced during today's call, and we found in our earnings release and investor presentation, which includes reconceliations to the most directly comparable gap measures.

Steve Bindas: Now I'd like to turn the call over to our CEO, Mark Rourke.

Mark Rourke: Thank you, Steve, and hello everyone. Thank you for joining the call today. For our prepared remarks this morning, I'll be sharing my perspective on the overall freight market and discuss segment positioning and performance across our multimodal platform of truckload, intermodal, and logistics.

Speaker Change: Following that, Darrell will provide a financial overview of third quarter results and share our full year 2024 EPS and Net Capital Expenditures Guidance.

Then we will be pleased to take your questions.

Last quarter, we outlined a framework designed to drive ongoing structural improvements in our business.

Steve Bindas: Deliver increased enterprise value, and allow us to seize the opportunities ahead, enhancing financial returns as the freight market recovers.

Steve Bindas: Optimizing our capital allocation across our strategic growth drivers.

Steve Bindas: and managing costs across all expense categories.

Steve Bindas: In the third quarter, the market continued its path toward recovery with seasonality becoming more prevalent, but on trend, not yet proven.

Steve Bindas: When we updated our expectations for the second half of 2024 on our last earnings call, we had experienced a solid quarter end in June from a traditional seasonality standpoint, and our visibility into July at that time suggested more of the same.

Steve Bindas: However, the improved seasonality trend did not sustain mid-August through quarter-end and were further impacted by the hurricanes and East Coast port strike in the short term.

Steve Bindas: Let me highlight a few key areas that best illustrate the quarter's framing in the setup going into 2025 by segment.

Starting the truck load.

Steve Bindas: The network truck business is by far the most challenged from a performance and return standpoint, as more than 100% of the earnings in the truckload segment are currently in the dedicated sector.

Steve Bindas: We are seeing capacity steadily exiting the industry, as our channel checks into the truck lending community are indicating that defaults and repossessions are growing, and in some cases rivaling the financial crisis levels from 2008 and 2009.

Steve Bindas: Carriers are not being adequately compensated for the value provided and the cost to deliver.

Steve Bindas: While we are prepared to pivot quickly, we are minimizing capital allocation to network.

Steve Bindas: Despite the current freight environment, we are not waiting for market correction to improve results.

Steve Bindas: In addition to our cost reduction and productivity actions, there are two other primary focus areas that will drive an improvement in truckload network results.

Steve Bindas: rate restoration, and growth of owner-operator capacity.

Steve Bindas: The first action is rate restoration, where we remain disciplined.

Steve Bindas: As of the end of September, we were 85% through our network contract renewals, with third-quarter renewal rate improvements in the mid-single-digit percentage range.

Steve Bindas: As customers seek to prepare for a market correction and move to asset-based carriers, we anticipate growth opportunities, which in turn creates the ability to address the lowest performing freight in our network.

Steve Bindas: The second self-help opportunity for the truckload network is to grow our owner-operator fleet.

Steve Bindas: But we have seen a number of owner-operators shrinking for Schneider, and in the industry, we believe we have an opportunity to change that trajectory.

Steve Bindas: We have recently launched Schneider's Freight Power for Owner-Operators.

Steve Bindas: an updated consumer-grade platform that now provides owner-operators visibility to more freight opportunities across the Schneider portfolio of services.

Steve Bindas: Freight Power provides business owners increased choice and time-saving features while delivering a higher level of service to customers, especially in brokerage.

Steve Bindas: Moving now to Dedicated. Average truck count was down 66 sequentially, but we exited the quarter with tractor count 17 units higher as startup and current account growth activity accelerated through the quarter.

Steve Bindas: Overall, our account churn is down 50% from 2023 levels, and we expect this high-level retention to continue in 2025.

Steve Bindas: Finally, two large greenfield startups originally slated for the back half of 2024 have been pushed into 2025 due to customer launch delays.

Steve Bindas: While the exact start-up timing for these awards is to be determined, our new business pipeline is strong, with several meaningful opportunities in the latter stages.

Steve Bindas: As of the end of September, Dedicated represented 64% of our truckload fleet.

Steve Bindas: We have strategically grown our dedicated fleet on average by 9% per year since our initial public offering through quality organic new business growth and acquisitions.

Steve Bindas: Our dedicated offering serves a wide range of customer verticals and creates differentiated supply chain value.

Steve Bindas: We are confident about the opportunities ahead.

Steve Bindas: Moving to the intermodal segment, earnings improved sequentially and grew over 40% compared to last year, mostly through execution and structural internal cost improvement actions.

Steve Bindas: All of our intermodal book has gone through the annual renewal process.

Steve Bindas: Third quarter win rates and incumbent lane retention outcomes improved from the second quarter renewal season as we maintain pricing discipline in a highly competitive environment.

Steve Bindas: with another quarter of contractual pricing remaining flat.

Steve Bindas: Year-over-year Intermodal Group Volume and Maintained Revenue per Order.

Steve Bindas: We experienced double-digit percentage order growth year-over-year in the West and Mexico. However, we experienced offsets in the East and a very competitive truckload and intermodal market.

Steve Bindas: We remain disciplined in allocation events and use the opportunity to heal the network by improving network flows and balance.

Steve Bindas: Our intermodal offering is differentiated by our asset model, which utilizes owned equipment and company-drained drivers, and our strong relationships with rail providers focused on mutual growth.

Steve Bindas: As the truckload market rationalizes, we will leverage this differentiation. We are pleased with the STP approval and the connection between the CPEKC and CSX, creating service between Mexico and Texas to and from the southeastern United States.

Steve Bindas: We eagerly await the publication and initiation of this new corridor, which will further advance our intermodal offering.

Steve Bindas: Transitioning to our logistics segment, we remain solidly profitable in the very competitive brokerage market by leveraging our differentiated freight power platform for shippers and carriers.

Steve Bindas: We experienced minimal year-over-year volume shrink of just 1% while maintaining effective gross margin management as carrier costs increased through the quarter.

Steve Bindas: In addition, shippers are increasingly favoring asset-based brokerage in this stage of the trade cycle.

Steve Bindas: The brokerage and spot markets move the fastest, and we are well-positioned to pivot across both our traditional live load, live unload brokerage business, as well as our highly adaptable and flexible power-only solution.

Speaker Change: And I'll turn it over to Darrell for his summary comments on the quarter and a look ahead before we get to your questions. Darrell?

Darrell Campbell: Thank you, Mark, and good morning, everyone. I'll review our enterprise and segment financial results for the third quarter, along with our year-to-date cash flow trends and capital allocation actions.

Darrell Campbell: Additionally, I'll provide insights on our upgraded full-year 2024 EPS and NetCapEx guidance.

Darrell Campbell: Summaries of our financial results and guidance can be found on pages 21 to 26 of our investor presentation available on our investor relations section of our website.

Steve Bindas: As the industry navigates ongoing freight market conditions, I want to reiterate our objective of positioning the business for structural resiliency and being advantaged during the freight market correction.

Steve Bindas: While we're actively addressing the short-term, our focus remains on enhancing long-term value.

Steve Bindas: Through all cycles, we remain disciplined on commercial actions, cost management, and resource optimization across our enterprise.

Steve Bindas: We continue to implement margin and capital restorative actions.

Steve Bindas: which are positively impacting every segment of our business and positioning our multimodal platform of services for resiliency, growth, and long-term value creation.

Steve Bindas: In the third quarter, revenues excluding fuel surcharge were $1.2 billion, essentially a flat year-over-year.

Steve Bindas: Our third quarter adjusted income from operations was 44 million dollars compared to 48 million dollars a year of loan.

Steve Bindas: Adjusted diluted earnings per share for the third quarter was $0.18 and $0.20 a year ago.

Steve Bindas: Compared to the third quarter of last year, lower net gains in equipment sales and equity investments in aggregate represented a 4 cent headwind to earnings per share.

Darrell Campbell: Increased auto liability insurance costs year-over-year were also a 4-cent headwind.

Steve Bindas: Despite our ongoing investments and favorable safety performance, we continue to operate in an environment of increased litigation, higher settlement costs, and rising insurance premiums.

Steve Bindas: From a segment perspective, truckload revenues, excluding fuel surcharge, were $532 million in the third quarter.

Steve Bindas: 1% below the same period of year load.

Steve Bindas: This decline was primarily due to lower network volumes, which were mostly offset by growth in our dedicated sector.

Steve Bindas: Truckload operating income was $24 million, about 3% year-over-year, impacted by the same factors that affected revenues, as well as increased insurance costs and lower year-over-year gains in equipment sales.

Steve Bindas: Despite lower network volumes, truckload operating ratio was flat to the same period a year ago, as our dedicated business continues to show resiliency.

Steve Bindas: And the modal revenues, excluding fuel surcharge, were $265 million in the third quarter, 1% higher than third quarter of 2023, primarily due to volume growth.

Steve Bindas: Intermodal Operating Income was $16 million, a $5 million increase compared to the same period last year.

Steve Bindas: Intermodal Operating Ratio improves 170 basis points year-over-year, benefiting from volume growth, internal cost actions, network optimization, and enhanced trade performance.

Steve Bindas: The DREA improvement was supported by an increase in the percentage of our freight moved with company assets and improvements in DREAs per day.

Steve Bindas: Logistics revenue, extended fuel surcharge, was $314 million in the third quarter, down 4% year-over-year, primarily due to lower revenue per order.

Steve Bindas: Logistics operating income was $8 million compared to $9 million a year ago, reflecting lower volume and net revenue per order.

Steve Bindas: Third quarter 2024 logistics operating ratio was essentially flat compared to the same period a year ago, showcasing our ability to operate profitably through all market cycles.

Steve Bindas: Charter to Capital Adaptation

Steve Bindas: Net capex in September was $154 million below the prior year.

Steve Bindas: This reduction is due to enhanced asset productivity, an improved driver-to-tractor ratio, great network optimization, and an ongoing capital allocation discipline.

Steve Bindas: These actions have primarily driven a corresponding $154 million year-to-date improvement in our free cash flow compared to last year.

Steve Bindas: Along with the strength of our banshees, this facilitates our continued ability to allocate those dollars to our strategic priorities, including organic and inorganic growth opportunities.

Steve Bindas: As we execute actions to improve our free cash flow conversion, we remain prudent in positioning our assets for the future while managing our fleet age objectives.

Steve Bindas: Our full year 2024 updated Net CapEx guidance is within our previously communicated range at approximately $330 million.

Steve Bindas: During the quarter, we advanced our share repurchase program with approximately $4 million in opportunistic purchases.

Steve Bindas: At the end of September, we had approximately $54 million remaining on our $150 million share repurchase authorization established in February last year.

Steve Bindas: In September, we also returned $50 million in dividends to our shareholders, which is 5% higher than it seemed to be a year ago.

Steve Bindas: Finally, our net debt leveraged stood at .15 times at the end of the quarter.

Steve Bindas: In addition, the previously mentioned delays in dedicated implementations will impact fourth quarter results.

Steve Bindas: While we continue to operate in uncertain environments,

Steve Bindas: and our expectations regarding the timing of a more sustained free market improvement have shifted, we've seen signs of economic and free market stabilization.

Steve Bindas: During the fourth quarter, we expect year-over-year earnings improvements.

Steve Bindas: Our guidance anticipates continued stabilization across most of our businesses, as well as improved seasonality, particularly within truckload network and logistics.

Steve Bindas: Based on these factors, we've updated our 4-Year 2024 Adjusted Diluted Earnings Brochure Guidance to $0.66 to $0.72, which assumes a 4-Year Effective Tax Rate of 24%.

Steve Bindas: With that, we'll open the call for your questions.

Speaker Change: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again. We ask that you please limit yourself to one question and one follow-up.

Speaker Change: Your first question comes from a line of Tom Waterwitz from UBS. Your line is open.

Speaker Change: Hey, this is my trianalyst for Tom.

Speaker Change: So I want to ask on the full year guide, so it implies slight sequential improvement in earnings 3Q to 4Q at the midpoint. Just walk us through your assumptions there based on what you're seeing in the market, your views on peak season, and if there were any pull-forward effects from the container imports off the West Coast that we should be keeping in mind.

Speaker Change: I'm sorry, I don't know if I caught the very first part of that question. Would you just mind repeating that?

Speaker Change: Yeah, just on the 4Q guide, just kind of the assumptions behind it based on what you're seeing in the market, you know, views on peak season and then if there were any pull-forward effects from container imports that we should be keeping in mind.

Speaker Change: Sure, sure. From a seasonality standpoint, we do expect improvement from the third quarter and the fourth quarter.

Speaker Change: We assess that through not only what we expect on typical seasonality for the holiday season, but some of the project work that we have secured.

Steve Bindas: which is at an improved margin performance from an expectation so that rather

Steve Bindas: solutions secured, obviously demand will derive how much of that actually gets utilized.

Steve Bindas: and so we feel that both in the retail and the e-commerce markets.

Steve Bindas: seem to be performing at expectation. And so that's how we see the third to fourth quarter improvement. Certainly, we...

Steve Bindas: As we look back on the quarter, there has been some pull forward. Every customer has a slightly different strategy to that, but there have been effects. Certainly in the intermodal business on the West Coast, it saw some improved volumes in the third quarter, and we would attribute some of that certainly to some pull forward activity.

Speaker Change: Okay, and then just as a follow-up on the 2Q to 3Q bridge and the trucking segment operating income.

Speaker Change: Could you just walk us through the moving parts there that drove it down sequentially? There seem to be some puts and takes there with the network fleet countdown, higher insurance expense offset by the rate increases that you're getting there on the network side.

Speaker Change: Yeah, I think that's a very good summary of the effects second to third quarter.

Speaker Change: As we kind of outlined in our prepared comments, we did not see that the seasonality sustained the second half of August and through the month of September to the same degree that we experienced at the end of the second quarter of June period and what we experienced from the seasonality, which we were very encouraged by through the month of July. So some of that is moderating.

Speaker Change: and完美聯合署았餐廳Made in China,chaotix.com

Speaker Change: As Mark said, we saw some declines in volume sequentially in the network side of the business, but dedicated.

Speaker Change: showed resiliency.

Speaker Change: So some of that resiliency, obviously, we're looking ahead.

Speaker Change: when we're positioning our guidance for the fourth quarter. So it's kind of a tale of two portions of the segment. And the model also showed resiliency. We did see sequential improvement from the second going into the third, which also informed some of our guidance.

Speaker Change: Okay, thank you.

Speaker Change: Your next question comes from a line of Ariel Rosa from Citigroup. Your line is open.

Speaker Change: Hi, yes, good morning. Thanks for taking our questions. This is Ben Moore on for ARI. Hi, can you hear me?

Speaker Change: Yes, absolutely. Okay, great. Yes, I wanted to ask, for both your dedicated and network segments, you've had two quarters now of sequential decline in truck count.

Speaker Change: current account of startup activity accelerated through the quarter so we actually finished up about 17 units and as noted we had a couple of fairly large

Speaker Change: Greenfield opportunities and dedicated that we expected to start up in the second half of the year that the customers through their product launch delays has pushed into 2025. So there's some moving parts there but we do have remained disciplined on our pricing and

Speaker Change: Both on contract renewals, obviously, and dedicated, you have some built-in modifiers as contracts renew. But in network, we've had our third consecutive quarter of improved pricing contract renewals.

Speaker Change: with the third quarter being our highest since, I believe, the first quarter of 2022.

Speaker Change: At some point, and some customers that's trading off for volume, others you're just upgrading the bottom of the portfolio and that's really our focus on rate restoration is to continue to lean into opportunities to improve our overall yields because we need to do that particularly in the truckload network side.

Speaker Change: Great. Thanks so much for the insights there. Maybe as a follow-up...

Speaker Change: shifting to the cost side and Darrell you'd touch this

Speaker Change: I touched on this in your prepared remarks, it looks like

Speaker Change: historically, the later, understandably, we've got higher premiums due to the growth in nuclear verdicts, but how should we think about these.

Speaker Change: as a percentage of revenue in terms of a range going forward, should we expect kind of roughly that elevated range for the next year or two on average?

Speaker Change: Yep, so good questions. I guess if we start with insurance.

Speaker Change: I think you laid it out pretty well. From our perspective, the biggest impact that we can have on insurance costs

Speaker Change: is reducing exposures, right? So we've been focused on investments in our business and processes that have been driving down, you know, frequency of incidents over time over the past several quarters.

Speaker Change: but as you recognize, we're in an environment where there's increased litigation, there's nuclear verdicts.

Mark Rourke: Mark Rourke

Speaker Change: But, you know, not to lose sight of the fact that our frequency is coming down.

Speaker Change: As it relates to operating supplies, you know, that's primarily a function of the denominator, right, so we would say that our revenues are not normalized, so we would use our revenue this quarter as a normal baseline.

Speaker Change: We did see increases in that line item. That's where our gains on sale of equipment sit. So we've had lower year-over-year gains on equipment sales. And as we mentioned in the second quarter,

Speaker Change: you know, our leasing business results.

Speaker Change: which we're driving other down. The cost of goods sold associated with the leasing business is reflected in operating supplies, so just a consideration of the environment that we've seen as pressured owner operators coming through in the results.

Speaker Change: I just want to maybe reinforce the safety of the insurance line. First, our number one, job one, is to reduce overall exposure and incidents. And as we look at the third quarter of this year, we actually had a 30% reduction in our DOT reportable accidents.

Speaker Change: which are ones that could have, based upon circumstance, the higher severity and cost.

Speaker Change: Job one is just lower the top of the funnel. We're doing a terrific job And I'm really proud of our driver community our operations and safety teams who are really leaning in and improving our overall performance to include a 9% reduction year-over-year on anything related to injuries of our

Speaker Change: associate base. So again, as those trends continue, and that's a multi-quarter trend for us, it ultimately lowers the overall exposure and settlement, anything else that comes with.

Speaker Change: this volatile area.

Speaker Change: Great, great. Really appreciate the time and your time. Thank you.

Speaker Change: Your next question comes from a line of Ravi Shankar from Morgan Stanley. Your line is open.

Speaker Change: Hey, great. Thanks. Good morning. This is Christina Zarbi on for Ravi. I want to circle back to the one-way operating seemingly at a loss. It seems like you guys are taking some actions to improve that, but I just want to get your thoughts on what the, you know, path of profitability looks like, both in terms of magnitude and the slope.

Speaker Change: Of that, I imagine the cycle, you know, could be more or less helpful, but would just love to get your thoughts on how that can play out over the next couple quarters.

Speaker Change: Great. Thank you, Christine.

Speaker Change: Right, maybe just frame this within our strategic objectives of what

Speaker Change: We are positioning the company and certainly we would expect our network business to be

Speaker Change: the most commoditized and the most volatile as you look at both sides of a market up or down. And so what we're trying to do is minimize the impact of that through growing our strategic growth drivers of Dedicated, which we've made great progress on at 64% of our units, and we're continuing to look at both organic with a very strong pipeline and inorganic opportunities to continue that.

Speaker Change: In addition, as we leverage our differentiators and are recovering, truckload market also has great benefits to our intermodal business and bringing more variable capacity to play in our network business with solutions like power only.

Speaker Change: and putting more owner-operators at play into that segment. So that's our strategy to isolate and minimize the...

Speaker Change: volatility effects.

Speaker Change: of the network offering.

Speaker Change: In the short term, though, we...

Speaker Change: need to get a compensable rate and continue to lean in and improve the book of business.

Speaker Change: in the network, and we've made progress in the last three quarters doing that, and we would expect it will continue as we turn the page in the 2025 on the rate restoration activities.

Speaker Change: We think we have the right amount of core company drivers around our core network and then how do we augment that with some increased

Speaker Change: owner-operator performance there particularly as you've seen not only with us but across the industry have

Speaker Change: More shrinkage there

Speaker Change: I think almost at any time since the 2008 and 2009 financial crisis. So we're doing that through some additional investments in technology with our owner-operator freight power.

Speaker Change: application which ultimately provides more access to freight and more visibility to freight across our portfolio.

Speaker Change: of all the freight generation activities we have as an enterprise.

Speaker Change: So, it has both a...

Speaker Change: a top line, a cost, and a rate restoration activity to move us to a more sustainable position within the network.

Speaker Change: Great, that's really helpful, Collar. Maybe we can ask one in a slightly different direction, but obviously we've had some pull forward related to some supply chain disruption this year, but as we look forward, is there any talk amongst your customer base about another potential pull forward ahead of

Speaker Change: possibly tariffs in light of the election results? And what do you think that might look like? Has enough capacity come out that that could be a more structural tightening event? Or how are you thinking through some of those dynamics?

Speaker Change: Thanks, Christine. This is Jim. I would say at this point, we haven't had many discussions with our customers about an additional pull forward relative to tariffs. Not that that won't happen.

Speaker Change: But that would happen at a little bit faster pace than what we would normally see as currently our customers are really operating just on their normal replenishment cycle preparing for this this holiday push. So it is something that still could be out there ahead of us.

Speaker Change: Great, appreciate the time very much.

Speaker Change: Thank you.

Speaker Change: Your next question comes from the line of Chris Wollert from Wells Fargo. Your line is open.

Speaker Change: Hey, good morning guys. It's Rob on for Chris. Could you, taking a step back here, like, how should we be thinking about the opportunity for margin expansion next year? Obviously, it remains a very competitive environment. It sounds like you guys are getting some rate restoration within the network business. But just curious how you think about the puts and takes given cost inflation to, to improve margins looking out to next year.

Speaker Change: We won't have a whole lot of guidance, obviously, at this juncture for 2025, but on trend, certainly we continue to believe capacity is exiting the marketplace, it's been a slow grind to do. I mentioned it in my opening comments, as you look at the lending community and the quality of where we are.

Speaker Change: The loan portfolio is in perhaps its toughest spot since the financial crisis, which means we're increasingly, I think, out of levers, and they're out of levers to continue to allow that capacity to continue. So I think that's a key area to watch, which will help on the...

Speaker Change: Supply side of the equation

Speaker Change: We, in our most recent customer discussions, I think we've...

Speaker Change: walked away with the sentiment that

Speaker Change: They're looking towards a market recovery of some sort themselves and being, I think that's why you're seeing some more favorability to asset-based carriers and certainly asset-based brokerage. I think that trend continues and I think that builds, at least in our mind, as a positive contributor to a 2025 scenario.

Speaker Change: Your next question comes from a line of Daniel Imbrough from Stevens. Your line is open.

Speaker Change: and Mark Rourke.

Speaker Change: Hey, thanks guys. This is Reid on for Daniel.

Reid: Kind of a follow-up on the other intermodal questions that we've had earlier.

Reid: If you could provide some color on your expectations for intermodal pricing going forward, given

Reid: We had some outperformance in the quarter, at least versus our expectations.

Speaker Change: What do you, do you see this as sustainable in the fourth quarter and are you expecting to be able to grow pricing in 2025? Kind of along the same lines, OR has been improving. Do you see that as continuing in the fourth quarter and going forward just any color that would be helpful?

Speaker Change: sequentially, year over year, just as a result of that improvement, as well as a little bit of aid here from just improved network dynamics of where we're growing our business.

Speaker Change: Got it. Thank you. And just real quick on the CAPEX guidance as well. You basically kept it flat with the report.

Speaker Change: while there are some challenging...

Speaker Change: dynamics in the backdrop if you could just provide some color in your thoughts there.

Speaker Change: Yeah, so as a recap, in the second quarter, we were guided to $300 to $350 million for the full year. We're coming in at $330, so we're in the middle of what we had expected. There are a number of actions that were taken, right? Our productivity has improved.

Speaker Change: We've tightened our truck-to-tractor, our driver-to-tractor ratios.

Speaker Change: which obviously has an impact on what our cap expense has to be with maintaining capital discipline in terms of allocating to the sectors that are demonstrating the most growth.

Speaker Change: So that's been a continuation of an exercise that's been going on for several quarters. So the guidance really confirms a lot of what we've been doing to this point. And that's a NET-CAPAX guidance, which also has the proceeds from a disposal of equipment, and that's moderated a bit.

Speaker Change: that still puts us right in the middle of the range as we look forward.

Speaker Change: margin improvement and as well as not having to invest capital to get after those improvements so it will be more

Speaker Change: specific as we get into 2025, but that's an area that I think we can leverage to the benefit of our shareholders.

Speaker Change: Got it. Appreciate the color, guys.

Speaker Change: Your next question comes from a line of Ken Hoekstra from Bank of America. Your line is open.

Ken Hoekstra: Hey, great. Good morning. Mark, you mentioned earlier that

Ken Hoekstra: for the best level in a few years. I believe that you might have thrown there topping some contract levels but yet market is still not investable. So I guess one it's a little odd given there were 30,000 net orders placed last month I'm still trying to wrap my head around why we keep getting those.

Speaker Change: What does that tell us about the backdrop in an environment where you're getting spot to improve yet you're still looking, and you and Darrell taking that fourth quarter down to basically flat, I guess, to $0.16, $0.22. How do you think about the environment given the spot rates are improving?

Speaker Change: Yeah, and I believe, Ken, that's mostly a network question. And a couple of things, we have taken actions to arrest some of the inflationary impacts, but we still, from a rate recovery standpoint, for

Speaker Change: a complete margin recovery into the path that we think we need to be on to reinvest in the business. We still have work to do and so certainly encouraged by the last three quarters of at least starting to turn that into the positive category and even more so here.

Speaker Change: in the third quarter renewals from a lift standpoint. Again, that's in front of us, right? Third quarter renewals doesn't mean we've experienced that in the third quarter. It depends on the implementation of those.

Speaker Change: or Zard until you get a chance to yield those benefits.

Speaker Change: Spot pricing has improved and certainly the contract, excuse me, the project work helps us with that. Those are generally more short-term.

Speaker Change: in Nature Solutions. And so, again, what we want to watch is through this whole fourth quarter, how's the second half, particularly a December play, how far can the econ trend and the retail trend carry through the quarter? I think that'll determine where we are in the range from

Speaker Change: to the high end of the range, to the mid part of the range, or the lower part of the range is really how strong that last couple three weeks of December are.

Speaker Change: Yeah, but I guess as a sign you're starting to see that spot, which does that mean enough capacity is coming out and you're getting a better balance? Is that because of the storms and because of pre-shipping and potential pre-shipping added tariffs? Is there a way to pinpoint it or it doesn't matter to you, you're just seeing the backdrop improve?

Speaker Change: Yeah, I think what we're really trying to assess, Ken, to be more specific on that is how we can sustain those trends.

Speaker Change: We certainly saw that in June, we saw that in July, which were really encouraging, and then mid-August, you know, through the end of the quarter, that same trend tempered. Now we're back into a more favorable October seasonality piece.

Speaker Change: spot pricing and so how that sustains itself I think is more instructive to when we feel we can move the dial fast enough and far enough to be investable in our network business.

Speaker Change: And Mark, just to wrap up for me, the intermodal versus the spot truckload business, is there one?

Speaker Change: versus the other that you start to see that that tightening or the improvement impact a little bit first faster Obviously, you've got the pre-shipping that moved the volumes up double-digit in the West But I don't know if that's just a signal of real

Speaker Change: Service improving or is there one that you would look to first? Is it rail or truck on seeing that tightening?

Speaker Change: Yeah, this is Jim, Ken, and...

Speaker Change: Part of this also is, as Mark had tightened said, customers aren't...

Speaker Change: and they're comparing a interval contract rate to a spot price. They start to look at a contract to contract to lock in.

Speaker Change: capacity and so as you see that tightening you know there's a little bit different comparison and we have seen in our truck pricing increasing a little bit faster rate than over the road and and that would really be what will start to tighten and start to change that market.

Speaker Change: historically truck pricing moves before the intermodal pricing moves

Speaker Change: Great. Thanks, guys. Appreciate it. Thanks, Ken.

Speaker Change: Your next question comes from the line of Basco Majors from Susquehanna. Your line is open.

Basco Majors: Mark, we're seeing the large national network carriers for the most part, you know, do what

Basco Majors: We would think they need to do to restore balance in the one-way market by walking away from non-competitory business, raising pricing on what's retained.

Basco Majors: I guess from the brokerage results across the space, it doesn't feel like that business is going into the small carriers aggregated by brokers. So I don't know if you have a strong view on this, but internally, where do you think the people that are walking away from

Basco Majors: Large national carriers in the one-way business are going right now and ultimately You know, what does it take to force that segment of the markets hand and really restore, you know, a compensatory Returns driven framework to the industry. Thank you

Basco Majors: Great.

Speaker Change: I totally understand the question there, Bascom, and I think historically the network business

Basco Majors: both on a recovery and on a downturn, reacts the fastest. And in our historical perspective, a couple percentage points of demand increase, a few percentage points of

Basco Majors: supply decrease starts to change the dynamics fairly quickly. And we've just been in this long slog on the slow erosion of supply, and I think

Basco Majors: You know, eventually...

Speaker Change: What is the timing? We're trying not to...

Speaker Change: to totally predict that, but it does feel that we are.

Speaker Change: at the bottom or close to the bottom that allows, I think, for those reactionary measures to start happening. I think our customers are also baffled a bit that it's taken this long, and particularly the sophisticated shipper that relies on trailer pools, that looks at their network for long-term sustainable performance, are also trying to hedge. I think that's part of why we're starting to see our ability to move price even ever so slightly.

Speaker Change: is the realization that they're having as well that we're pretty long into this cycle.

Speaker Change: Do you have a sense within the competitive landscape what type or class of carrier is taking on, you know, flat to down rates at this point in the cycle?

Speaker Change: You know our view to a third party is really similar to our brokerage group and again that's a much smaller in general carrier community versus a mid-sized mid-sized carrier. So I don't think it's the difficulty of our industry being so fragmented to have

Speaker Change: terrific visibility into all of those but you know I think it calls for being disciplined and really that's our focus is enough.

Speaker Change: approach their allocation season. We're having more strategic discussions with them, and the longer this cycle goes on, they're starting to ask more questions, and listening, trying to understand.

Speaker Change: You have the ability of the financial health of the ship, the carriers that they're working with.

Speaker Change: and as they're making those questions, they're trying to put together solutions, looking to companies like us to have a broad portfolio, long stability, to put those pieces together to be able to position their business wherever they need to go.

Speaker Change: Thanks, Jim. Thanks, Mark.

Speaker Change: Thank you.

Speaker Change: Your final question comes from a line of Bruce Chan from Steeple. Your line is open.

Bruce Chan: Hey, thanks and good morning guys. Maybe just coming back to the east side, I was interested to hear your comments about the volumes in the local east just

Bruce Chan: you know, maybe participate in the competitive market. But, you know, maybe any detail there, comments around, you know, whether there's something inherent in your asset based strategy that makes the returns there less interesting and, you know, I guess ultimately why you're seeing the decline there relative to others.

Speaker Change: I would say I see opportunities in the east going forward is really with the STB approval of this new connection between the CSX and CBKC. That's exciting for us because we really have an anchor position with both of those railroads.

Speaker Change: The connection between Texas and the Southeast, it's one of the largest.

Speaker Change: rail opportunities that we have out there in the network. It is competitive with truck, but as we've been having discussions with customers, they're excited to have an option that they can start to look at that from an intermodal perspective, so I would say that's where we're expecting that we'll be able to grow the East.

Speaker Change: And we've been using this interim timeframe to really understand what that potential is in that marketplace through our insights.

Speaker Change: into the fray.

Speaker Change: and our experience with our shippers over a multiple-year period and so that we can hit the ground running and already, you know, prepared once all of that becomes clear and we're ready to go, that we won't have much of a delay to get out in front of our customers on what value we can create by that new opportunity.

Speaker Change: Okay, maybe just to continue on that opportunity theme, you know, we've heard about maybe some service disruptions from, you know, some of your peers or one of your peers. Wondering if that's anything you're seeing and then, you know, as you think about the potential for PSR, one of the big real service providers, you know, any thoughts around, you know, how the competitive or pricing dynamic maybe changes as you go forward?

Speaker Change: Yeah, I'll start in the east. You think about what they've gone through with...

Speaker Change: potential changes in the West with competing railroad and and bring in Ed Harris

Speaker Change: I think it's a little bit too soon to tell, clearly they have some work to do from a margin management that could create opportunities for our partner in the West Union Pacific.

Speaker Change: Okay, great. Appreciate that.

Speaker Change: And this concludes today's conference call. Thank you for your participation. You may now disconnect.