Q4 2024 Schneider National Inc Earnings Call

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Speaker Change: Thank you for standing by and welcome to the Schneider's 4th Quarter 2024 Earnings Conference Call. All lines have been placed on mute to prevent any background noise.

Speaker Change: After the speaker's 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'd 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 Filter, Executive Vice President and Group President of Transportation and Logistics.

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

Steve Bindas: Overlooking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations.

Steve Bindas: The company urges investors to review the risks and uncertainties discussed in our SEC filings, including, but not limited to, our most recent annual report on Form 10-K and those risks identified in today's earnings release.

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

Steve Bindas: In addition, pursuant to Regulation G, a reconciliation of any non-GAAP financial measures referenced during today's call can be found in our earnings release and investor presentation, which includes reconciliations to the most directly comparable GAAP 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. Thanks for joining the Schneider Call today.

Mark Rourke: For our prepared remarks, I will provide an overview of our framework to drive structural improvements in our business Enable us to seize the opportunities ahead

Mark Rourke: Then I will share insights on our recent dedicated acquisition of Cowen Systems, offer my perspectives on the freight market, and discuss our results and positioning across our multimodal platform of truckload, intermodal, and logistics.

Mark Rourke: Darrell will then provide a financial overview of our fourth quarter results and discuss our assumptions for 2025 full-year earnings per share and net capital expenditures guidance. Then we'll take your questions.

Mark Rourke: Let me begin by emphasizing that we remain committed to driving ongoing structural improvements in our business by restoring margins, improving resiliency, enabling growth, and enhancing financial returns.

Mark Rourke: To accomplish that, we continue to follow a framework that includes four tenets, all equally important.

Mark Rourke: Our first tenet is optimizing capital allocation across our strategic growth priorities, which include dedicated, intermodal, and logistics.

Mark Rourke: The second tenant is managing the customer freight allocation process with purpose and discipline.

Mark Rourke: By carefully selecting and managing our freight, we can ensure that we are serving our customers effectively and profitably.

Mark Rourke: Next is delivering an effortless customer experience. We aim to make it easy for customers to work with us by providing optionality and value across our multimodal portfolio.

Mark Rourke: The fourth tenet is containing cost across all expense categories. Cost containment is critical to our overall business strategy as it enables us to reinvest in growth initiatives and enhance our competitive position.

Mark Rourke: Turning to the fourth quarter, programmatic acquisitions complement our organic growth objectives, and on December 2nd, we were pleased to announce the completion of our acquisition of Talon Systems.

Mark Rourke: Cowan is our third and largest dedicated acquisition in as many years.

and aligns with our long-term strategic objectives.

Mark Rourke: of providing customer-centric dedicated solutions as the cornerstone of our truckload segment, while broadening our vertical market reach to provide greater value to our customers and shareholders.

Mark Rourke: With the acquisition of Cowan, 70% of our truckload fleet is now in dedicated contract configurations.

Mark Rourke: This compares to 33% in 2017, our first year as a public company.

Mark Rourke: Callan fits our inquisitive profile as a successful, well-run, family-owned enterprise with a highly compatible culture and a track record of providing excellent customer experience that drives deep loyalty.

Mark Rourke: In keeping with our proven acquisition playbook, Talon will retain its brand, operating independence, and leadership.

Mark Rourke: has primarily a dedicated contract carrier with a portfolio of complimentary services.

including brokerage, port and intermodal dredge, and warehousing.

Mark Rourke: Cowan utilizes a 100% lightweight equipment model and serves the attractive end markets of specialty retail, food and beverage, and construction and building supplies, all of which take advantage of the increased payload capability.

Mark Rourke: The transaction price was $421 million, including $31 million of related real estate. In 2024, its pro forma operating revenues were $629 million.

Mark Rourke: primarily composed of Dedicated, which operates approximately 1,900 trucks and 7,600 trailers.

Mark Rourke: Cowen was accretive to earnings per share in December. We expect between $20 and $30 million of annual synergies after year one.

Mark Rourke: The synergies are largely from the integration of administrative and support functions, including equipment purchasing, maintenance, and fuel.

Mark Rourke: We expect to benefit from these synergies as early as the first half of 2025, with the benefits accelerating in the second half of the year.

Mark Rourke: With the Cowan Acquisition, we see ample opportunities for growth across multiple verticals and geographies, and we will allocate capital to organically grow the business and enhance returns to shareholders.

Speaker Change: Now let me give you my perspective on the freight market and what we are seeing from our vantage point here at the end of January.

The fourth quarter largely played out to our expectations.

Mark Rourke: Seasonality, which began in the second quarter, was even more evident in the fourth.

Mark Rourke: Carriers are still not being adequately compensated for the value provided and the cost to deliver, resulting in continued attrition of supply.

Mark Rourke: Declining capacity across current demand that more closely aligns to seasonal expectations is bringing the supply and demand condition closer to equilibrium.

Mark Rourke: In the quarter, we experienced solid retail and consumer product-driven volumes that were partially offset by extended seasonal auto production shutdowns.

Mark Rourke: While there were pockets of pulled forward import volumes to address concerns with tariffs and potential poor labor strides, this was not universal across our customer base, so the impact this will have in 2025 is difficult to quantify.

Mark Rourke: Starting around Thanksgiving, spot price exceeded contract price and accelerated through the end of the year and into 2025.

Mark Rourke: While the trend is encouraging, we are far from satisfied with our results.

Mark Rourke: We continue to take actions to restore performance within our long-term margin targets.

Mark Rourke: These actions include executing the allocation season with purpose and discipline for profitable growth.

Mark Rourke: Reducing our cost to serve and growing our variable cost network capacity.

Mark Rourke: We are very early in the freight allocation season, but we are finding that customers are more receptive to rate restoration than they have been the last two years.

Mark Rourke: In addition to recovering market conditions, the fourth quarter benefited from the cumulative effects of the action we have taken throughout the year to expand margins, which resulted in year-over-year improvement in earnings across all reportable segments for the first time since the second quarter of 2022.

Mark Rourke: Our actions also position us for outsized leverage in an improving freight market.

Mark Rourke: Turning to our segment results, and I'll start with Dedicated in our truckload segment. Our Dedicated business has demonstrated resilient earnings profile over freight cycles and is an important part of our strategy to create enduring shareholder value.

Mark Rourke: As we expected, there was limited organic startup activity in the fourth quarter. We have line of sight to several hundred trucks of new business awards slated for startup in the first half of 2025.

Mark Rourke: Our new business pipeline remains strong, and we are adding additional commercial resources to advance the opportunities we have in front of us.

Mark Rourke: In addition to overall truck growth, we expect enhanced dedicated revenue per truck per week due to two separate influencing factors.

Mark Rourke: The first is that we are tightening our truck-to-driver ratios in our three acquired companies and redeploying the underutilized capital to new startups.

Mark Rourke: Second, we had trucks at the ready for a few large startups that were customer-delayed from 2024 into 2025, which we can now effectively deploy.

Mark Rourke: Our truck network business continues to be challenged. We are on a path to restore profitability in this business through internal cost control and productivity actions, adding variable cost capacity, and rate restoration that aligns the value we provide and the cost to deliver our exceptional service.

Mark Rourke: In the quarter, we achieved sequential earnings improvement driven by cost reductions and rate performance that was at expectations as we continue to work to attract more variable cost capacity.

Mark Rourke: This improvement was achieved while overcoming the impact of insurance expense, which I'll talk to you in a moment. Looking forward, as freight conditions recover, our network business, which is more sensitive to market cycles, will benefit from a supportive pricing environment and enhanced asset productivity.

Mark Rourke: Enterprise results for the quarter include seven million dollars of prior year accident reserves, an impact of three cents per share, most of which resides in truckload.

Mark Rourke: In 2024, Schneider achieved significant reductions in our DOT reportable accidents, attaining an all-time low accident frequency.

Mark Rourke: At the same time, the industry has seen a surge in litigious activity, including litigation funding, nuclear verdicts, and inflated settlements, which have increased the cost and volatility of claim reserves, as well as insurance premiums.

Mark Rourke: Our number one goal is to lower the frequency as this is the first line of defense against rising settlement costs.

Mark Rourke: I am proud of our driver community, our operations and safety teams, whose actions continue to reduce frequency of claims, therefore lowering our overall risk profile.

Mark Rourke: In our intermodal segment, we hit the trifecta with year-over-year growth in orders, revenue per order, and improved productivity.

Mark Rourke: Year-over-year, intermodal orders were up 3%, revenue per order was up 2%, and margin improved 380 basis points.

Mark Rourke: Our disciplined and balanced approach during our customer service period drove enhanced operating leverage into our business, and it resulted in an exceptional service experience for our customers.

Mark Rourke: continued intermodal cost reductions, network optimization, and improved rate productivity all positively impacted the quarter and our position as we enter 2025.

Mark Rourke: In the quarter, hurricanes created sporadic service interruptions in the east.

Mark Rourke: In the West, the Union Pacific experienced disruption for a few weeks early in the quarter. However, we were pleased with their recovery and ability to surge volumes with improved service consistency.

Mark Rourke: Turning to our logistics segment, we delivered another profitable quarter. Logistics continues to manage net revenue effectively. While conditions in the brokerage market are challenged from an overall available volume and carrier cost perspective, an order volume count contraction of only 5% was mitigated in part through our Schneider Freight Power platform and our people.

Mark Rourke: Our power-only offering continues to resonate with customers, and our industry-leading technology has allowed us to lower our cost of service.

Mark Rourke: In summary, the freight market is continuing its path toward recovery, and we are playing the long game.

Mark Rourke: We are committed to driving structural improvements across our enterprise by restoring margins and enhancing financial returns.

Mark Rourke: In 2024, we took a balanced and disciplined approach towards positioning our business for through-cycle leverage, growth, and resiliency, and our actions gained traction as the year progressed.

Mark Rourke: Following our framework and focusing on our strategic priorities enables us to drive improvements in our business and seize the opportunities ahead.

Mark Rourke: Let me now turn it over to Daryl to discuss fourth quarter financial results and our 2025 guides.

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

Daryl: Additionally, I'll provide insights on our 4-Year 2025 EPS and Net CapEx Guidance.

Daryl: I want to reiterate our objective of positioning the business of structural resiliency and profitable growth in cycles.

Daryl: While we're actively addressing the short-term, our focus remains on positioning a multimodal platform of services for enhanced financial returns and long-term value creation.

Daryl: Through all cycles, we remain disciplined on commercial actions, cost management, and resource optimization across our enterprise, and these ongoing actions are positively impacting every segment of our business.

Daryl: In the fourth quarter, revenues excluding fuel surcharge were $1.2 billion, up slightly year-over-year. Our fourth quarter adjusted income from operations was $45 million, an increase of 40 percent compared to a year ago.

Daryl: Adjusted diluted earnings per share for the fourth quarter was $0.20 and $0.16 a year ago.

Daryl: Our current acquisition was immediately accreted to EPS in the corner.

Speaker Change: As Mark mentioned, refinement of reserve estimates, primarily related to three accident claims from prior years, resulted in $0.03 per share of expense in the fourth quarter.

We're operating in an inflationary litigation environment.

Speaker Change: From a segment perspective, truckload revenues excluding fuel surcharge were $560 million in the fourth quarter, 2% above the same period a year ago.

Speaker Change: This increase was primarily due to dedicated organic new business growth, the acquisition of collins.

Speaker Change: and higher network revenue per truck per week, partially offset by lower network volumes.

Speaker Change: Truckload operating income was $20 million, up 5% year-over-year due to the same factors that shaped revenues and was partially offset by increased safety reserve estimates.

Speaker Change: Truckloads operating ratio of 96.5% was essentially exactly the same period a year ago.

Speaker Change: And to Motor Revenues, excluding fuel surcharge, were $276 million in the fourth quarter.

Speaker Change: 6% higher than the fourth quarter of 2023, primarily due to volume growth and higher revenue per order.

Speaker Change: Intermodal operating income was $17 million, an $11 million increase compared to the same period last year, due to both volume and revenue per order growth, in addition to enhanced operating leverage due to internal cost reduction actions and improved DRE productivity.

Speaker Change: Intermodal's operating ratio improved to 93.8% compared to 97.6% a year ago.

Speaker Change: Statistics revenue is excluding food surcharge worth $324 million in the fourth quarter, down 5% year-over-year, primarily due to lower brokerage revenue per order and volumes.

Speaker Change: Despite lower year-over-year revenues, logistics trend of profitability continued, with operating income of $9 million, up nearly 40% compared to the fourth quarter of 2023. This was primarily due to effective net revenue management.

Speaker Change: Fourth Quarter 2024 Logistics Operating Ratio was 97.4% and 80 Basis Points Year-over-Year Improvement.

Terms of Capital Allocation

Speaker Change: We paid $67 million in dividends during 2024, which was 5% above 2023, and we continued to strategically repurchase shares, with total activity of $30 million for the year.

Speaker Change: We recently announced that we will maintain our quarterly dividend at $0.095 per quarter, which represents a commitment to returning value to our shareholders.

Speaker Change: We end the 2024 with net CapEx of $380 million, which is above our most recent guidance of $330 million.

Speaker Change: This was due to real estate purchase and replacement equipment cathetics, both in connection with our recently acquired Coexistence business.

Speaker Change: Net CapEx for 2024 was $194 million below the prior year, primarily due to our efforts to enhance asset productivity, as well as focusing on growth CapEx.

Solely in our strategic, dedicated, and intermodal businesses.

Speaker Change: These actions translated into a $200 million year-over-year increase in our free cash flow and more than doubling of our free cash flow conversion.

along with using our strong band sheets.

Speaker Change: We've utilized our free cash flow to further our strategic inorganic growth priorities through the acquisition of common systems.

Speaker Change: In November 2024, we executed a $400 million delay-draw term loan facility and used $300 million of the proceeds to partially fund the acquisition of co-assistance and related real estate assets.

Speaker Change: Our net debt leverage was 0.7 times at the end of the year.

Speaker Change: While our guidance for 2025 does not contemplate specific inorganic groups, we continue to explore opportunities to further our strategic priorities.

Speaker Change: Organic growth continues to be our highest capital allocation priority, and our guidance assumes continued growth capital investments in dedicated and intermodal tractors.

Speaker Change: We will also continue to manage our fleet age within our targeted ranges and invest in technology to drive business insights and associate productivity.

Speaker Change: In addition, we anticipate proceeds from equipment sales to be slightly lower than 2024.

Speaker Change: As a result of these considerations, we expect Net Cap Ex to be in the range of $400 million to $450 million for the full year of 2025.

Moving to our earnings guidance.

Speaker Change: Our adjusted earnings per share guidance for the full year 2025 is $0.90 to $1.20.

This assumes an effective tax rate of 23% to 24%.

Speaker Change: Based on what we would consider our normalized fourth quarter 2024 EPS run rate of approximately 23 cents.

will persist throughout 2025.

Speaker Change: The upper end of our range considers enhanced freight market conditions, starting in the second quarter and building throughout the year.

Speaker Change: This upper range also factors in incremental costs associated with incentive compensation.

Speaker Change: In 2025, we anticipate returning a truckload network to profitability in the second half of the year by improving price, growing variable cost capacity, and continuing to execute cost and asset efficiency actions.

Speaker Change: For Truckload Dedicated, we look forward to top-line and earnings growth driven by a strong new business, increasing the number of tractors on existing accounts, and the creative impact of Cowen, including synergies.

Speaker Change: For Intermodal, our expectation is a volume boost, particularly where Schneider differentiated from competitors, and we anticipate increased overload conversion along with a modest increase in net price from the first half to the second half of the year.

Speaker Change: In the logistics segment, we expect to continue capitalizing on digital automation investments and leveraging our leading power-only offering to augment our truckload network business.

Speaker Change: Our guidance also considers minimal net cost inflation year-over-year and similar equipment gains based on a stable used equipment market.

Speaker Change: We believe that our actions to arrest inflationary costs and lower costs to serve will benefit our 2025 results, along with increased price and volume.

Speaker Change: As these efforts have taken hold, we remain vigilant in identifying incremental opportunities across the business through 2025.

Speaker Change: Let me close by providing an update on our Long-Term Strategic Targets by segment.

Speaker Change: For the truckload segment, our dedicated business delivers resilient results through all cycles.

Speaker Change: As we continue to grow our dedicated business organically and through strategic acquisitions, combined with the actions we've outlined to restore truckload network business to profitability, we're maintaining our long-term margin target range at 12% to 16%.

Speaker Change: For the intermodal segments, volumes continue to show strength, with total orders for the fourth quarter of 2024 at the highest level since the third quarter of 2022.

Speaker Change: Considering our volume outlook, ability to grow around 30% without additional investments in containers and chassis, and our differentiated real partnerships, we're maintaining our long-term target of 10 to 14 percent.

Speaker Change: As it relates to our logistics segment, two years ago, we updated our long-term target range to 5% to 7% from the previous range of 4% to 6%, primarily due to the rapid growth of our part-only offering, which has a higher margin profile than traditional brokerage.

While we continue to grow our power-only earnings contribution,

Speaker Change: The overall margin weighting has shifted to our traditional brokerage, including the common logistics operations.

Speaker Change: We consider this weighting, as well as the current broker's market landscape, in refining our long-term margin targets to 3 to 5 percent.

With that, we will 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.

Speaker Change: We ask that you please limit yourself to one question only. Your first question comes from the line of Daniel Imbro from Stevens. Your line is open.

Yes. Hey, good morning, everybody. Thanks for taking our questions.

Tyalion, maybe FFK.

Speaker Change: Squeeze one in here. I guess I'll start on the broader truck backdrop, you know revenue per truck per week did increase a bit sequentially and Mark I think you mentioned customers are more receptive to rate restoration more so than any time in the last couple of years

Speaker Change: I guess with the market tightening, when would you expect organic truck count to begin to grow again on both, maybe the network side?

Speaker Change: And the dedicated, if we back out the cow and growth, it still looks like dedicated trucks, maybe step down a little bit. When would you expect that to begin to grow again, and any help on just thinking about the cadence or magnitude of growth as we move through this year with a market that seems to be getting better? Thanks.

Speaker Change: Thank you. As we've talked throughout the year, we started to see some positive contract renewals on contract pricing starting as early as the second quarter, and we have increased conviction that we're going to be more successful as we head into 2025.

As you indicated in your question

Speaker Change: We're happy where we are in the company driver side. We've been quite stable there now for several quarters and our growth and we are pursuing that growth in network presently with that variable cost capacity. So we would expect to start to see that in 2025.

and particularly as we get into the second quarter.

Speaker Change: As it relates to dedicated, very much feel confident that our new business pipeline and the startup activity that we have already on the docket will start to show increases in truck count, but also very importantly, as we outlined in our prepared comments, Daniel, we expect

Speaker Change: to see more growth in revenue per truck per week as we can get tighter on capital allocation and taking higher ratios and getting some underutilized equipment redeployed more effectively within dedicated and particularly coming out of our inquisitive

Speaker Change: companies and Cowan is a great opportunity for that because one of our synergies is our maintenance infrastructure.

Speaker Change: That allows them not to have as much safety stock equipment because how quickly we can turn equipment, how we can keep equipment up more effectively. So it's going to be a combination next year and dedicated to both growth of units, but also

Speaker Change: I think accelerated growth of net revenue per truck per week.

Got it. I appreciate that. Thanks.

Speaker Change: Your next question comes from the line of Robbie Shanker from Morgan Stanley. Your line is open.

Robbie Shanker: Can you help quantify what you are seeing in those rate renewals right now? One of your peers spoke about mid-single digits with high singles in some pockets. Are you seeing something similar? And also, how do you quantify or how do you qualify some of the strength in the data points you've been seeing the last few weeks?

Robbie Shanker: transitory because of a noisy January or do you think that can be sustained through one cue? Thank you.

Speaker Change: Robbie, as it relates to renewal discussions, we're very very early in that process, but as is typical, we through the fourth quarter and early part of the year, we start to have early discussions, particularly around our large strategic customers, around preparing for the forward periods, and so we

Speaker Change: Again don't have any a great deal in the barn yet, but those discussions. I think have been very constructive and been

Speaker Change: If you look at the spot pricing, which I think sometimes we get over emphasized as an industry on, but clearly, as we mentioned in our prepared comments, that we had a

Speaker Change: A step level change there, starting in Thanksgiving all the way through, really until very recently here in January increased year over year dramatically, and we got above contract quite handsomely for that period. So I think all of those things in combination with.

The right sizing of capacity puts...

Speaker Change: I think the entire pricing mechanism or the pricing environment in a more constructive state into 2025.

Speaker Change: Yeah, Robbie, I'll just, this is Jim Pilcher, I'll add on a little bit here in terms of what we're seeing and why those discussions with customers are a little bit more constructive this year on a baseline where like Mark said we were taking increases

Mark Rourke, Steve Bindas

Speaker Change: And customers understand, you know, the need to be able to assist us to be able to continue to provide great service and then ultimately to start to regrow our fleets. And so they understand what's required there and our...

Great, thank you.

Speaker Change: Your next question comes from the line of Brian Ossenbeck from J.P. Morgan. Your line is open.

Speaker Change: Actually leave the market, and if you have got any view, maybe on the brokerage side in terms of what the small fleets are doing.

are stacked, and I'm sure there's been a bit of...

Speaker Change: reconfiguration that needs to be done here for the network into next year. So, if you can comment on box capacity as well, and then what you kind of expect the net impact from, what I would assume would be more normalized imports into the Gulf and East Coast after this big surge out West. So, thank you.

a single breath. Thank you, Brian.

Speaker Change: As you look across the landscape, there aren't a lot of large carriers that are exiting, but you also don't see anybody expanding their capacity.

Speaker Change: And, you know, that's the challenges our shippers are looking at that and have some expectations that they're going to see some small amount of growth and capacity is still exiting the marketplace here.

Speaker Change: In terms of our box capacity, we have about 10% of our boxes that are stacked right now. We have

Speaker Change: Darrell had mentioned that. So we feel like we're in a really great position to be able to grow that business and, you know, we did see growth in a couple of the markets. We saw very nice growth in Mexico. Our Mexico growth was

Speaker Change: And we took a little bit of a step back there, that's where we're competing most directly with over the road. We'd expect that as that market begins to tighten, we're going to see more opportunities there and especially with our differentiation.

Speaker Change: We want to be able to grow where we have that differentiation and continue on our growth path.

Speaker Change: you know, just the different types of actions that shippers are taking.

Speaker Change: I'm very good about that position, and what we'd say is that, you know, the supply chains are really complex. They're difficult to unwind. You don't make dramatic changes there. Any opportunity to see more domestic manufacturing, that's absolutely a great thing for Schneider.

All right. Thanks for all that, Jim. Appreciate it.

Thank you. Bye.

Speaker Change: Your next question comes from the line of Jason Suttle from TD Cowen. Your line is open.

Jason Suttle: Is this something that you could adopt elsewhere or is that more geared towards...

Jason Suttle: some of the end markets that Cowen serves. Also, you know, they have a distinct use of a bunch of owner-operators, which I don't think you guys really utilize much in your legacy dedicated, and I was wondering if that's something...

Jason Suttle: that you thought over the long term that you could turn to where it might fit.

Steve Bindas, CFO Alphabet and Google

Speaker Change: Great. Thank you, Jason. Maybe just a correction. Cowan's Fronthound is predominantly and a dedicated, almost exclusively, company driver. We do have owner-operated support port.

Speaker Change: and Intermodal Dre in a separate part of their logistics business. So as it relates to the opportunity that we see in front of us, they do have a terrific lightweight model that resonates with customers who are looking to take advantage of payload.

Speaker Change: consistent with our other acquisitions, what we're able to do is really just unlock potential for them in other geographies because they're concentrated predominantly

Speaker Change: in the Northeast, in the Mid-Atlantic, and access to capital that they could take those.

Speaker Change: and they have great capabilities and apply them in different geographies and against different verticals. And so we're excited about what that lightweight expertise provides and we think we can organically do that across multiple geographies and help them achieve their full potential which is great.

absolutely are priority one for them.

Speaker Change: Secondly, as it relates to, and I'll turn it over to Darrell for his commentary, we're still incredibly bullish on the non-asset portion of our portfolio and as mentioned

Speaker Change: Power only now who's been through both an up cycle and a down cycle. It's been quite resilient terrific customer acceptance and third-party carrier acceptance

Speaker Change: So what we're really talking about here it's such a high return on invested capital model because of the limited capital we put in there. We want to put more growth objectives against that.

and grow our return on invested capital by growing.

Speaker Change: And not have to have so much margin to do that, more consistent growth, is what we're looking for there. And it's, I think it's a recognition in the short term, we have some synergy opportunities that we could do at Cowen to help improve overall results. So they're going to be a little bit of a drag in the short term.

Speaker Change: But long term, we're still very bullish on the platform and what we can accomplish in concert with our assets.

Speaker Change: Hi, this is Darrell. So as it relates to your question on logistics, long-term margin targets, just as a recap, about two years ago we were at 4 to 6 percent in terms of our range.

Speaker Change: We're up that range of five to seven percent primarily due to growth in power only We're still excited obviously about the power only offering

Speaker Change: Thank you so much for joining us today, and we hope that the results for this year would indicate the strength of that offering. But as you said, this is more of a mix consideration, so we have more of our mix that is in traditional brokerage, and that was obviously amplified with a common acquisition.

Speaker Change: So, as we think about the weighting that's more skewed towards traditional brokerage that has a lower margin profile, we thought it was just prudent to refine that mix and the margin weight to three to five percent.

That makes sense. Appreciate the call, gentlemen.

Let's do Jason.

Speaker Change: Your next question comes from a line of David Hicks from Raymond James. Your line is open.

David Hicks: Morning, thanks for taking the questions. I actually want to kind of hit on what you guys are seeing in retail inventories from your customers. We've kind of seen those grow quite a bit above kind of the historical trend line here in recent months.

Speaker Change: We'd just love to hear how kind of they're positioning themselves ahead of kind of any potential tariff threats.

Speaker Change: Yeah, I'll let Jim take this just on an overall kind of mix of our exposure here. We're highly diversified within...

Speaker Change: The retail sector for everything from the extreme value of retail to home improvement, big box retail. And so we really touch on everything except for department store type of retail, Jim. So I don't think we've seen any massive trend up in inventories from our customers.

Thank you.

Did see here that there was

Speaker Change: There were some customers that were brand, it was a relatively small amount of freight.

Speaker Change: in advance of a potential port disruption on the East Coast.

in front of them.

Great. Appreciate it. Thanks, guys.

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

Speaker Change: Maybe Darrell any thoughts on on seasonality and margin shifts from fourth quarter to first quarter. Maybe can you provide? historical averages for each of the the three segments just

Speaker Change: As we flip in 4Q, 1Q, just wondering if there's anything you think would stand out here.

Speaker Change: Mark, on intermodal, CPE actually talked a lot about you in particular yesterday in terms of Schneider about growing lanes from Mexico to the US southeast on

Speaker Change: on Intermodal. So any thoughts on the cross-border opportunity and in particular with with kind of tariffs tariff potential over the next couple of days your thoughts on growth and the sustainability of that growth in that in that lane even without with or without the tariffs.

Speaker Change: Yeah, so this is Darrell. So I'll start on the seasonality question.

Speaker Change: I think probably the most important thing to note is that we did see some return of seasonality in the fourth quarter, which is something that we've all been looking forward to. So that started in the second quarter. I think we all know what happened in the third, but the persistence in the fourth quarter was encouraging.

Speaker Change: particularly in our network businesses where we saw more project seasonal work and also in intermodal.

Speaker Change: where we did see some premium there. So with the return of seasonality, you would expect that from the fourth quarter going into the first quarter, you'd see more of that seasonality adjustment or decline, which we would normally see. So when we're talking about our guidance for the full year, we talked about improvement.

Speaker Change: are going throughout the year. We did say, you know, starting in the second quarter because there's some recognition that with the return of seasonality, the first quarter obviously would be seasonally adjusted as it relates to the fourth.

Speaker Change: Yeah, this is Jim. I'll just touch on what we're seeing in Mexico here.

Speaker Change: Obviously, I already talked about our growth here in the fourth quarter, but we really have seen that continue on here into the first quarter. And the growth that we're seeing, it's a lot of conversion, and we're taking share in that space.

Speaker Change: as we feel we have a really competitive product there working with the CPKC.

Speaker Change: Both of those are performing very well and we'll continue to grow on both of those. Just as we look at what's being produced in Mexico,

Speaker Change: I talked earlier about supply chains being complex and difficult to unwind. A lot of these products are really products that we don't necessarily see being produced anywhere else except Mexico, and so we expect to see continued growth there.

Speaker Change: And we're looking forward to the first full allocation season to have the new service between the southeast of Mexico and the southwest

Speaker Change: So, we've been priming the pump with most of the discussions through the back half of the year in anticipation of that, and as usual, the execution of our partner down there is just first-rate. So, I think we have a great service product, and we have a great opportunity to convert.

Speaker Change: from Over the Road to Roehl. And that's what we've been talking to our customers about really the last four to five months.

Speaker Change: Is it, you know, a normal seasonal increase, like a 400 basis point OR increase, just looking back at your history and avoiding some of those one-timers?

Speaker Change: Yeah, so it's difficult to give specific quantification but I would say

Speaker Change: We're seeing more of a trend towards normal seasonality, but we're not back to kind of pre-COVID.

I guess, a pre-COVID normal level.

Speaker Change: So, you know somewhere in between where we are now and I guess what you would define as normal is probably what we'd see When we compare the fourth quarter to the first so yeah, we don't all the way back to we don't provide quarterly guidance But can I think we would sit here suggesting as we here at the end of January that the truck

Speaker Change: volumes have been what we would have expected and maybe where we're seeing a little bit of more positive

Speaker Change: The Typical's intermodal has been very strong coming out of the fourth quarter and it's maintained some unseasonal strength, at least in my view, the first few weeks of January.

Great. Appreciate the thoughts, guys. Thanks.

Chris Weatherby: Your next question comes from a line of Chris Weatherby from Wells Fargo. Your line is open.

Chris Weatherby: Hey, good morning, guys. It's Rob on for Chris. Appreciate you taking our questions. Could you give us a little bit more of a sense of what you have built into the full-year guidance from a rate perspective at the low end and at the high end of the range?

Thank you for listening. See you next time.

Speaker Change: As we as we kind of laid out in our early comments that we do believe we're entering a more constructive pricing

Speaker Change: market and building upon some of the progress, although modest progress that we had in 2024. So and I do believe that's what's necessary to get to the various elements of our range. Price will play an important part. We believe we've done a very good job of arresting the inflationary costs and we don't believe that we'll have

Speaker Change: a lot of inflation into next year, excuse me, into 2025 here. And so what's important from a margin restoration standpoint is the price line. And we're going to pursue that consistent with the value that we provide in the marketplace. So

Speaker Change: So, I don't have a number I'm going to share with you, but it is the difference between where we find ourselves in the range that we provided.

Speaker Change: Yeah, at least, you know, as early as the low end of our guidance, we try to give some

Speaker Change: perspective with reference to the fourth quarter of 2024. So we adjusted that rate obviously for some of the seasonality or premiums I should say that we saw. So if you kind of strip out the premium and look at you know the fourth quarter on a normalized basis that will give you some indication of the low end but the high end you know and includes everything that we talked about in terms of restoring margin.

Thank you.

Um

You've grown dedicated quite a lot

Speaker Change: How should we think about your truckload margin performance looking out given Dedicated's now 70% of the mix? Like how much of an improvement do you guys see?

as rates begin to recover here.

Yeah, we believe we can continue to advance and

Speaker Change: and improve our margins across the board, including dedicated. One of the great opportunities we have in an improving freight market is in just about all of our configurations that we do in support of customers, if there is a backhaul component.

Speaker Change: that we can have a better choice and better paying freight that fits better. Anything that gives us more options there and improving marketplace benefits dedicated. So that's a margin enhancer. We've also talked about improving our asset productivity and our capital allocation there by.

Speaker Change: improving our ratios between trucks to drivers, and so there's a number of initiatives within there, both market driven and self-help driven, that can drive margin improvement.

Appreciate the time.

Speaker Change: Your next question comes from a line of John Chappelle from Evercore ISI. Your line is open.

John Chappelle: Thank you. Good morning. Jim, I'm surprised it hasn't come up yet, but your intermodal revenue per load sequentially pretty meaningfully seeming to bucking the trend across the industry, and that obviously translates.

John Chappelle: Thanks, John. So yes, as we went through the quarter, there was obviously a lot of demand out of our head hall markets, and we've remained disciplined. Absolutely, our objective is to grow this business.

John Chappelle: And, you know, I talked about the capacity to be able to grow, but we're not going to grow just to grow. And so...

John Chappelle: The good deal of that was due to project work that we were involved in and out of the head of all markets.

John Chappelle: So do we, just to clarify, do we think of that at the new starting point off of which to build 25 or do we think of more of an average of 24 for normalized price? I would think of it as, yeah, thanks Sean, I would think of it as normal seasonality as what we saw in the fourth quarter for Intermold.

Okay. Thanks, Jim.

Thank you.

Speaker Change: Your next question comes from a line of Scott Group from Wolfe Research. Your line is open.

Speaker Change: Hey, thanks morning guys, let me try that a little different. So as as we approach bid season

Speaker Change: Whatever increases you're trying to get in truckload or you think you'll get in truckload, do you think the intermodal increases...

Speaker Change: Key pace and are similar or do you think intermodal lags on price relative to whatever truckloads going to get this year?

Speaker Change: Yes, Scott, this is Jim. I'll take that. And, you know, just looking at historically, intermodal generally tends to trail. And so that's exactly what we've seen so far. I'd anticipate that we're not likely to see the same rate of increases for intermodal that we'll see within the truckload market. Truckload is where we need to see the largest increase because that's also where we saw the largest decline in the industry.

Speaker Change: I'd expect that we'd see bigger increases in the over-the-road market than intermodal as we go through the course of the year.

Okay

If you look at 2024, we mostly, in 2024, we...

Speaker Change: We had relatively flat pricing in intermodal on our renewals while we were increasing on the network side, so I think consistent with our experience there. We have an improved efficiency, cost position, and

Speaker Change: I think we'll grow our margins more through volume early in the year particularly.

Speaker Change: Okay, and then if I can just, one more thing, I think last quarter you talked about mid-single digit renewals and network. Can you talk about what they were in Q4?

Speaker Change: Very little activity in the fourth quarter, Scott, so nothing to really highlight there. A lot of discussions and preparation for 2025 is really the focus there, but we were virtually through both intermodal and truck completely done with renewals at the end of the third quarter.

Thank you, guys. Appreciate the time.

Speaker Change: Your next question comes from a line of basketball majors from Susquehanna. Your line is open.

Speaker Change: Thanks for taking my questions. You know, if we hear from a lot of players in the industry, you know, dedicated has been a particular challenge with this extended down cycle and

Speaker Change: You guys' commentary and outlook has been, and it sounds like it continues to be, a bit more positive. Can you talk a little about either how you're targeting the market or your mix of customers that is generating that perceived outcome?

Speaker Change: Is that something that you think can continue into a greater upcycle as well on a relative basis? Thank you.

Speaker Change: Yeah, thanks Pasco, and this is Jim, I'll take that one. So, you know, really it's...

Speaker Change: We're not seeing competition between dedicated providers as much as dedicated solutions turning over and becoming really network solutions as customers were seeking lower cost options. And so specifically what we've done to be able to defend against that is just ensuring that when we're putting together a dedicated solution, it's truly dedicated.

Speaker Change: that it is a multi-year agreement, it's structured in a way that has teeth in it for both sides, that we're providing great service, that it's not going to be able to be easily replicated with a network-type solution, and certainly not something that is

are going to be replaced by Laura.

Speaker Change: cost spot pricing and then specifically there's there's verticals where we have differentiation where we build some specific skills to be able to grow our into specialty dedicated into reapers Much broader than just the standard dry BAM

Speaker Change: And one of the things we're most excited about with the targeted acquisitions that we made the last three years, they introduced us each one of those to different verticals. For example, we have more exposure now to the automotive production side, particularly through the.

Asian transport and overseas manufacturers.

Speaker Change: different specialty retail now with Cowan in the more the lightweight space and so

Speaker Change: It gives us just a much more diversified play in the marketplace.

Speaker Change: what Jim was referencing there, we haven't seen the overall turn because of that focus.

Thank you.

Speaker Change: Your next question comes from a line of Bruce Chan from Stiefel. Your line is open.

Speaker Change: Hey, good morning team. This is Andrew Cox on for Bruce.

Speaker Change: We wanted to follow up on the kind of capacity and rate questions from earlier, you know, we are seeing some signs either through some of the data and, you know, through channel checks that there may be some early signs that a backlog and disruption is occurring kind of on a regional, on a local market level. We just kind of wanted to, you know, understand if you're seeing any of that, if you're seeing any backlogs or disruptions regionally, if you've seen any localized tightness in the spot market and how that's maybe shifted over the past couple of weeks. Thanks.

Speaker Change: Yeah, thanks. This is Jim. I'll take that one. So certainly we've seen some different weather events as we've gone through the fourth quarter and then into January. So

Jim: For the fourth quarter, obviously we had a series of hurricanes and then we had wildfires and now we've had snow in parts of the country that don't typically get snow. And so there were some disruptions, especially with the snow events.

Jim: to our operations, but also to our customers. And so you have this displaced capacity and demand that needs to work itself out, especially in those markets we've seen some capacity that just wasn't available, and of course the corresponding market impact.

Jim: Okay, thank you. If I can just quickly follow up, have you seen anything that may be related to pre-inventory buildings, pre-tariff, or potentially on the supply side with changes in immigration and changes at the border? Thanks.

Jim: Yeah, I don't think we have anything to really report of...

Jim: Any significant changes in trend so as most of our customers and the least the ones we've been in Dialogue with here the last several weeks of the year and in part in the 2025

Jim: feel almost to a customer about where they want to be from an inventory standpoint and so You know, we do have cases where certain customers have done some action to pull forward, but that's not

Jim: consistent or representative all across the customer base so it's been very specific and and not universal.

Okay, appreciate the insight and the time. Thanks.

Speaker Change: Your next question comes from the line of Aero Rosa from Citigroup. Your line is open.

Ben Moore: Hi, good morning guys. Thanks for taking the question. This is Ben Moore on for ARRI. It looks like a key driver of your operating expense growth

Ben Moore: Yeah, this is Darrell. So in our prepared remarks, you know, we did talk about, you know, three prior accident claims that were driving, you know, the increase, I guess, of $7 million or three cents in the quarter. So we wouldn't characterize that activity as normal. I think as Mark said in his remarks,

Ben Moore: We've been very active in reducing our frequency, which is the number one line of defense. And if you look at our frequency by any measure, we've been at record levels in terms of the ability to manage that. Outside of that, there are things that we don't directly control.

Ben Moore: But in the quarter, I would say, you know, the refinement of those reserves is not something that we'd expect to happen every quarter.

Ben Moore: And those are older claims that we felt was prudent to refine the reserve.

largely in the truckload sector.

Ben Moore: Great, appreciate that. And maybe as a follow-up back to the dedicated truck count question, just for clarification, you ended 3Q at about 6,600. Adding Callan at 1,900, that should be about 8,500 after. Maybe we model slightly a step down from 8,500, from a step down from your legacy truck count. You mentioned earlier that you see a line of sight to several hundred

Ben Moore: pushed a Greenfield new product launch from second half of 24 into 25. So should we expect maybe that 8,500 to quickly approach 9,000 in the middle of 2025?

Ben Moore: I don't pack all that in there succinctly So what's in our number obviously is one month of the quarter on an average basis with the cow in addition

So we exited the year

Ben Moore: Roughly at 8,500 dedicated units and some of those we are had staged for startups to your point that Delayed from fourth quarter to end of 20 or second half into 2025 here so we can get

Ben Moore: which is my comments about getting higher revenue per truck per week when we get those underutilized assets deployed against revenue.

Ben Moore: in 2025. So we won't see one-for-one truck count growth there, but we will see improved results because we'll be putting that capital to play. So coming into the year around 8,500 and we would expect to obviously build through our commercial success throughout the year.

Really appreciate that. Thanks so much.

Speaker Change: Your final question comes from a line of Jordan Ellinger from Goldman Sachs. Your line is open.

Andre: Hey, thanks for squeezing us in here. This is Andre on for Jordan.

Andre: I just want to clarify a little bit on the truckload operating ratio comment into the first quarter. Just given that we're coming from the elevated level, the 96.5, I know historically margins do deteriorate, but could we hold the OR sequentially into the first quarter?

Andre: Again, we don't guide by segment and we don't guide by quarter, but certainly, you know, because we had some return of seasonality in some of the project work.

There was some enhanced

Andre: It was great to see the seasonality. We won't probably experience that to the same degree in the first quarter, but it doesn't mean that we don't have other opportunity to improve the business in other ways. So we're not gonna give guidance to that, but.

Andre: Rest assured, we're leaning into every opportunity to continue to advance our margin profile. We've talked about pricing, we've talked about asset utilization, and we've talked about cost containment. And this is Darrell, just also keep in mind that

Andre: You know, the see-through reserve refinement that we did talk about primarily impacted the truckload segment. So wouldn't expect that in the first quarter either

Got it. Thanks, everybody.

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

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