Ryder System, Inc.

Good morning and welcome to the Rider System third quarter 2023 earnings release conference call. All lines are in 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 third quarter 2023 earnings conference call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements within the meeting 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 call presentation, and in RIDER'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 Fleet Management Solutions, and Steve Sensing, President of Supply Chain Solutions and Dedicated Transportation Solutions, 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 am very proud of our team for delivering another quarter of strong performance despite continued challenges in the freight market. Our operating results continue to demonstrate that the transformative changes we've made to de-risk our business model, enhance returns and free cash flow, and drive long-term profitable growth have significantly increased the earnings and return profile of the business versus prior cycles. Results for the quarter were above our forecast, reflecting better-than-expected performance in used vehicle sales, lower truck maintenance costs, and better performance in our supply chain automotive business. I'll begin today's call by providing you with a strategic update. John will then take you through our third quarter results. We'll then discuss how we're managing through the down cycle while positioning the business for the cycle upturn. We'll also discuss our outlook. Let's begin on slide four. Execution of our balanced growth strategy is continuing to drive strong operating performance. The transformative changes we've made to the business model have increased our earnings and return profile versus prior cycles and provide us with additional opportunities for long-term value creation. In support of our strategy to expand capabilities and accelerate profitable growth in supply chain, We recently announced an agreement to acquire Impact Fulfillment Services, or IFS. The transaction is expected to close in early November, subject to antitrust approvals and customary closing conditions. IFS specializes in contract packaging and contract manufacturing, new capabilities for Rider, in addition to warehousing. These new capabilities will enable us to expand and strengthen relationships with our existing customers, particularly in our CPG industry verticals, as well as attract additional customers across other industry verticals, such as retail, health, and beauty. IFS also brings its Blue Chip customer base, which will benefit from access to Rider's capabilities as a fully integrated port-to-door logistics provider. I look forward to welcoming IFS employees and customers to Rider very soon. Our initiatives remain focused on enhancing returns. Adjusted ROE of 21% for the trailing 12-month period remains above our high teens target and reflects strong market conditions in FMS, as well as our initiatives. These initiatives include pricing and cost recovery actions, which benefited returns in all segments. Our outlook for ROE remains strong, and we expect to end 2023 at the high end of our high-teens target despite ongoing weakness in the freight environment. All three business segments achieved target EBT margins for the second consecutive quarter, and our enhanced asset management playbook is enabling us to generate higher earnings in each phase of the cycle. Our strong balance sheet and solid investment grade credit rating continue to provide us with ample capacity to pursue targeted acquisitions and investments as well as return capital to shareholders. During the quarter, we repurchased 1.5 million shares under our repurchase programs and completed the 2 million share discretionary program authorized in February of this year. Our board recently approved a new 2 million share discretionary repurchase program, as well as a new 2 million share anti-dilutive program that replaces a recently expired program. Since the beginning of 2021, we have repurchased approximately 15% of our outstanding shares. Our full year free cash flow forecast remains at approximately $100 million and reflects high lease replacement activity and the accelerated timing of OEM deliveries. Turning to slide five, I am very proud to share the results of this slide because they clearly illustrate the increased earnings and return profile that has resulted from the actions we've taken to de-risk and optimize the model, enhance returns and free cash flow, and drive long-term profitable growth. In 2018, prior to the implementation of our balanced growth strategy, we generated comparable earnings per share of 595 and ROE of 13%. This was during peak cycle conditions. At the time, the majority of our $8.4 billion of revenue was from FMS. Supply chain revenue had a three-year growth rate of 16%. Operating cash flow was 1.7 billion. Now let's look at Rider today. In 2023, during a freight cycle downturn, Our transformed model is expected to generate meaningfully higher earnings and returns than it did during the 2018 peak. Comparable earnings per share is expected to be between 1260 and 1285 compared to 595 in 2018. And ROE is expected to be at the high end of our high teens target, well above the 13% generated in 2018. Through organic growth, strategic initiatives, and innovative technology, we've shifted our revenue mix towards supply chain and dedicated with 55% of 2023 revenue expected to be from these asset-light businesses compared to 44% in 2018. Supply chain three-year growth rate is currently forecasted to be 24%. As a result of profitable growth in our contractual lease, supply chain, and dedicated businesses, Operating cash flow is expected to grow from 1.7 billion in 2018 to 2.5 billion this year. As shown here, the business is outperforming prior cycles, even when comparing prior peak to current downturn conditions. I'm proud and encouraged by the results of our transformation thus far, and I'm confident that with continued execution of our balanced growth strategy, there will be incremental benefits well beyond 2023 for our customers, employees, and shareholders. Slide six highlights four key attributes of our transformed business model that we believe position Rider for long-term value creation and a more resilient earnings and return profile. First, we continue to operate in large addressable markets with secular trends that favor the outsourcing decision. Only approximately 5 to 25% of the U.S. markets in which we operate are currently outsourced, providing us with plenty of runway for growth. Increased market demand for supply chain resiliency, nearshoring and reshoring trends, labor challenges and complex vehicle technology all make it more difficult for companies to continue performing the services we provide on their own and therefore create new opportunities for logistics, and transportation outsourcing. Second, over 85% of our operating revenue is recurring and supported by a high-performing portfolio of long-term contracts for lease-dedicated transportation and supply chain services. We have de-risked our Choice Lease portfolio by lowering pricing residuals from where they were in 2017. This significantly reduces the reliance on used vehicle proceeds needed to achieve targeted lease returns and results in higher cash flows coming from more stable and predictable lease payments. Returns on our choice lease portfolio have also been enhanced by expanding pricing spreads that are better aligned with customer segmentation. Approximately 70% of our lease portfolio has already been priced under this updated model. and an additional 10% is under contract and waiting vehicle delivery. This initiative is expected to be fully implemented by 2025 with an estimated total annual benefit of $125 million. We've also diversified our supply chain revenue base through strategic acquisitions and organic growth, increasing our portfolio and industry verticals with favorable long-term trends such as CPG and omnichannel retail. We remain focused on managing costs and leveraging scale to drive efficiencies. By the end of 2022, we had generated over $100 million in annualized savings from our multi-year maintenance cost savings initiative compared to 2018. In 2023, we implemented additional actions that have provided incremental earnings benefits. Across all segments, we continue to evaluate ways to leverage our scale and overhead costs. and we continue to utilize the zero-based budgeting process to prioritize spending decisions and fund strategic initiatives. Finally, our capital allocation discipline focuses on investments that support our balanced growth strategy. This includes moderate FMS lease growth at higher returns, which has increased our expected free cash flow profile with positive free cash flow expected in most years and over the cycle. Over the past five years, We've completed approximately $1 billion in strategic acquisitions, primarily in SES, which have added or expanded capabilities in targeted growth areas such as e-commerce fulfillment, last mile delivery of big and bulky goods, and multi-client warehousing. In addition, we've invested in innovative technologies such as RiderShare, our visibility and collaboration platform. RiderShare brings value and increased efficiencies to our customers, and has been a key differentiator in winning approximately 35% of new sales in supply chain and dedicated. Overall, we believe these attributes result in a more resilient model with ongoing growth momentum. I'll turn the call over to John to review our third quarter performance.