Ryder System, Inc.

Please stand by, we're about to begin. Good morning and welcome to the Rider System first quarter 2023 earnings release conference call. All lines are in a listen-only mode until after the presentation. Today's call is being recorded. If you have any objections, please disconnect at this time. I would now like to introduce Ms. Kayleen Candela, Vice President, Investor Relations for Rider. Ms. Candela, you may begin.

Thank you. Good morning and welcome to RIDER's first quarter 2023 earnings conference call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political, and regulatory factors. More detailed information about these factors and a reconciliation of each non-GAAP financial measure to the nearest GAAP measure is contained in this morning's earnings release, earnings conference call presentation, and in writer's filings with the Securities and Exchange Commission which are available on RIDER's website. Presenting on today's call are Robert Sanchez, Chairman and Chief Executive Officer, and John Diaz, Executive Vice President and Chief Financial Officer. Additionally, Tom Havens, President of Global Fleet Management Solutions, and Steve Sensing, President of Global Supply Chain Solutions and Dedicated Transportation, are on the call today and available for questions following the presentation. At this time, I'll turn the call over to Robert.

Good morning, everyone, and thanks for joining us. I'm pleased with the strong first quarter results delivered by the team, despite a weaker freight environment. We're continuing to demonstrate meaningful progress on our balanced growth strategy, which I'll highlight on our call this morning. I'll begin today's call by providing you with a strategic update. John will then take you through our first quarter results. We'll then discuss our outlook. Let's begin on slide four. Longer-term secular trends, including escalating demand for supply chain resiliency, increasing nearshoring activity, and ongoing demand for e-commerce fulfillment solutions, provide significant opportunity for long-term growth. Regardless of near-term freight headwinds, we view these long-term growth drivers as intact. We continue to execute on our initiatives to increase returns, de-risk our business, and drive long-term profitable growth. Executing on these initiatives not only benefits results in the quarter, but more importantly, positions us to outperform prior cycles. Our strategic investments remain focused on opportunities for long-term profitable growth and are focused primarily on accelerating growth in our higher return, supply chain, and dedicated businesses. We generated ROE of 27% for the trailing 12-month period, which is well above our high team's target. reflecting elevated market conditions and FMS, as well as benefits from our initiatives. These initiatives include pricing and cost recovery actions, which benefited returns in all segments. We're also executing on our enhanced asset management strategy, which we shared during our investor day. This strategy is focused on positioning the business to generate higher earnings in each phase of the cycle. Our strong balance sheet and solid investment-grade credit rating provides us with ample capacity to pursue targeted acquisitions and investments, as well as return capital to shareholders. Our full-year 2023 free cash flow forecast remains unchanged at $200 million. We continue to make meaningful progress on our balanced growth strategy, which allows us to balance top-line growth with returns and free cash flow and, ultimately, increase shareholder value. Our key strategic priorities are focused on de-risking our business model, improving returns and free cash flow over the cycle, and positioning the business for long-term profitable growth. As it relates to de-risking and optimizing the model, several years ago we lowered the residual value estimates used for lease pricing to historically low levels. This action reduces our reliance on used vehicle proceeds, to achieve target returns and improves the return profile of our lease portfolio. We've also exited underperforming businesses and geographies as we continue to optimize our model. Last year, we substantially completed the exit of our FMS business in the UK and redeployed the proceeds to higher return opportunities. We also discontinued our lease insurance product line in 2021. In late 2021, We began adjusting our dedicated contracts in order to better insulate us from labor cost variability. We negotiated rate increases with our customers, which are benefiting current results, and also began to adjust contract terms upon renewal to facilitate quicker, more efficient cost pass through in the future. This is a multi-year initiative with approximately half of DTS revenue under the new contract structure. We also executed important initiatives to increase returns and free cash flow. Our lease pricing initiative continues to be a key contributor to higher returns in FMS, with incremental benefits expected as the remaining 35% of the portfolio is priced at higher returns. This initiative is expected to be fully implemented by 2025 with an estimated total annual benefit of $125 million. Pricing actions and dedicated and supply chains to address higher labor and other costs are benefiting returns in both segments. We're also exercising enhanced capital allocation discipline by targeting moderate growth in our capital intensive lease business and investing rental growth capital in trucks due to more favorable trends in this asset class relative to tractors. Accelerating supply chain and dedicated growth is a key driver to achieving long-term profitable growth. 54% of riders' 2022 revenue was from supply chain and dedicated, up from 37% in 2015, reflecting secular trends and our initiatives to accelerate growth in these higher return businesses. Supply chain and dedicated also generated strong sales of new long-term customer contracts in 2022, which we expect will continue to contribute to profitable growth. Our strong balance sheet has enabled us to fund organic growth as well as strategic acquisitions. M&A and investments focused on expanding our capabilities continue to be a key part of our strategy to accelerate growth in our higher return, supply chain, and dedicated businesses. Overall, we continue to demonstrate significant progress on our balanced growth strategy with plenty of opportunity ahead for increased returns, cash flow, and shareholder value. Turning to page six, a key secular trend favoring logistics outsourcing is escalating demand for supply chain resiliency. Nearshoring in Mexico is a strategy that supply chain decision makers are increasingly pursuing to reduce the risk and increase the resiliency of their supply chains. Market data shows meaningful increases in cross-border activity between Mexico and the U.S., as well as increased investments in nearshoring. Number of truck border crossings has increased more than 20% per year since 2020, and approximately 40% of new industrial space in Mexico was attributed to nearshoring activity in 2022. As a leading provider of logistics solutions in North America, Rider Mexico is well positioned to meet the increased demands. With 30 years of operating experience, Rider Mexico currently manages about 250,000 border crossings annually between the U.S. and Mexico and also manages more than 40 distribution centers. The company has a long presence in key entry ports as well as the Golden Triangle, which encompasses Mexico City, Monterey, and Guadalajara. A key differentiator for Rider Mexico in the marketplace is its ability to offer a full range of supply chain services through highly integrated distribution and transportation operations in Mexico, the US, and Canada. Rider Mexico also benefits from longstanding relationships with local carriers, customs brokers, as well as US parent companies. Proprietary technology leveraged in country provides visibility and security to all shipments. Rider Mexico has the proper credentials and distinctions to perform secure and efficient border movements and support export activity for foreign-based manufacturers. Rider Mexico has over 120 customers, which are primarily US-based Fortune 500 companies. We continue to see increases in our sales pipeline for Rider Mexico, with approximately 20% influenced by nearshoring. Current pipeline activity related to nearshoring is largely from the automotive and industrial verticals. With its ability to leverage demonstrated operational expertise, customer relationships, and nearshoring trends, we're excited about the long-term growth opportunities available to Rider Mexico. I'll turn the call over to John to review our first quarter performance.