Ryder System, Inc.

Good morning and welcome to the Rider System First Quarter 2024 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 2024 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'm extremely proud of our team for delivering solid results again this quarter, despite freight conditions that remain challenging. Our operating performance continues to demonstrate that the transformative changes we've made to de-risk our business model, enhance returns, and drive long-term profitable growth have significantly increased the earnings and return profile of the business versus prior cycles. I'll begin today's call by providing you with key strategic updates, as well as an update on the integration of Cardinal Logistics. John will then take you through our first quarter results, which exceeded our expectations, reflecting better than expected used vehicle sales results and benefits from our maintenance cost savings initiative. I'll then review our outlook and discuss how we have positioned the business to benefit from the cycle upturn. Let's begin on slide four. Turning to slide four, executing on our balanced growth strategy continues to drive out performance relative to prior cycles. Across all phases of the current freight cycle, Our earnings and return profile have been higher than prior cycles, demonstrating the effectiveness of our strategy. The integration of our recent acquisitions of Cardinal Logistics and Impact Fulfillment Services, or IFS, is on track. As you may recall, we completed the acquisition of Cardinal Logistics on February 1st, enabling growth and further strengthening our position as a leading provider of customized, dedicated transportation solutions. I'll provide some additional information on this integration shortly. November 1st of last year, we completed the acquisition of IFS, which added co-packaging and co-manufacturing capabilities in supply chain, primarily supporting our CPG business. We continue to see long-term growth opportunities in all three of our business segments, supported by secular trends that favor outsourcing decisions, large addressable markets, and the value our solutions bring to our customers. Our initiatives remain focused on enhancing returns. Adjusted ROE of 17% for the trailing 12-month period is in line with our long-term target and reflects our expectations given where we are in the cycle. The impact on ROE from weakening market conditions and used vehicle sales and rental has been partially offset by our initiatives. These initiatives include pricing and cost recovery actions which benefited returns in all segments. FMS and SES are expected to achieve their target EBT margins for the full year 2024, reflecting our initiatives as well as execution in our enhanced asset management playbook in FMS. We continue to expect DTS EBT margins to be just below the segment's long-term target in 2024, reflecting acquisition integration and other related costs. Our strong balance sheet and solid investment grade credit rating continue to provide us with capacity to pursue targeted acquisitions and investments, as well as return capital to shareholders. During the quarter, we repurchased 120,000 shares under our discretionary repurchase program. We currently have authorization for a 2 million share discretionary program, as well as a 2 million share anti-dilutive program with approximately 3 million in total shares remaining under these programs. Since 2021, we have repurchased approximately 16% of our shares outstanding. We also increased our dividend by 15% in mid-2023. Our full year 2024 forecast for free cash flow is negative 175 to 275 million, higher than our prior forecast of negative 275 to 375 million, primarily due to lower rental capital expenditures. We're encouraged by our solid performance in the first quarter and believe that executing on our balanced growth strategy will continue to enable us to deliver higher highs and higher lows over the cycle. Slide five shows a comparison of key financial and operating metrics for 2018 and for our 2024 forecast. In 2018, prior to the implementation of our balanced growth strategy, we generated comparable EPS of 595 and return on equity of 13%. This was during peak freight cycle conditions. At that time, the majority of our $8.4 billion of revenue was from FMS. Supply chain revenue had a three-year growth rate of 16%, and operating cash flow was $1.7 billion. Now let's look at what we're expecting from Rider today. In 2024, a year that we expect will represent trough conditions in used vehicle sales and rental, we expect our transformed business model to generate meaningfully higher earnings and returns than it did during the 2018 peak. 2024 comparable EPS is expected to be $1,175 to $1,250 compared to 595 in 2018, and ROE is expected to be 15.5 to 16.5 percent, well above the 13 percent generated in 2018. Through organic growth, strategic acquisitions, and innovative technology, we have shifted our revenue mix towards SCS and DTS, with 60 percent of 2024 revenue expected to come from these asset-like businesses compared to 44% in 2018. Supply chain three-year growth rate is also expected to increase to 20%. 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 2.4 billion this year. As shown here, the business is outperforming prior cycles, even when comparing prior peak to expected trough conditions. I'm encouraged by the results of our transformation thus far, and I am confident that the solid execution and momentum from multi-year initiatives position us well for 2024 and beyond. Moving to slide six, on February 1st, Rider completed the acquisition of Cargo Logistics. This acquisition further advances our balanced growth strategy by accelerating profitable growth in our dedicated business. BTS continues to be an important part of Rider's strategy to create shareholder value. Secular trends, including the driver shortage and demand for business intelligence and freight visibility technology, such as RiderShare, continue to drive private fleets to pursue an outsourced dedicated transportation solution. Our dedicated business has demonstrated a resilient earnings profile over the cycle, as shown during the current freight downturn as well as during prior cycles. Finally, our dedicated business benefits from sales and operational synergies with FMS. Upselling FMS pipeline and lease customers to dedicated has been the largest driver of new sales activity for DTS for some time. DTS also benefits from access to equipment, asset management, and maintenance services from FMS, enabling DTF to deliver increased value to their customers and drive incremental cost savings. As we reach full integration in year three, we expect net synergies realized to be between $40 and $60 million. The expected synergies largely belong in three categories. The first category is related to vehicle maintenance costs. Prior to the acquisition, Cardinal procured maintenance services from various third-party providers. Consolidating maintenance and asset management activities with Rider is expected to generate significant cost savings and efficiencies going forward. The second category is cost savings related to vehicles financed under third-party operating leases. Approximately one-third of Cardinal's fleet is financed through operating leases with various banks and financing companies. As these leases mature, vehicles will be replaced with Rider-owned vehicles which will benefit from riders' lower vehicle acquisition costs and financing. The majority of synergies are expected from these maintenance and equipment cost savings. In addition, we expect to benefit from operating efficiencies as we integrate the business into our existing operations and leverage management and overheads. We expect these synergies to begin in the second half of 2024 with benefits accelerating in 2025. Our integration of the Cardinal acquisition is on track. 2024 integration costs are estimated to be approximately $10 million and represent the majority of total expected integration costs. In 2024, we expect DTS EBT percent to be mid-single digits, reflecting integration and other related costs. Our legacy DTS portfolio is expected to operate at the segment's high single-digit target EBT percent, in 2024. By 2025, realization of cardinal synergies is expected to drive the DTS EBT percent back to the segment's high single-digit target. On an annualized basis, the transaction is expected to add approximately $1 billion of total revenue and approximately $800 million in operating revenue, which excludes fuel and subcontracted transportation. As a reminder, approximately 85% of operating revenue will be reflected in DTS, approximately 15% in supply chain, and FMS will include intersegment revenue from equipment leases and maintenance. DTS fleet count at quarter end reflects the inclusion of 2,900 power vehicles and 6,900 trailers from the acquisition. We continue to expect the transaction to be marginally accretive in 2024, and more meaningfully accretive in 2025 after achieving synergies and completing integration efforts. We're very excited about the opportunities ahead and believe that Dedicated will continue to be an important driver of value creation for Rider. The team is focused on a successful integration and realizing the synergies and benefits we are confident are achievable. I'll now turn the call over to John to review our first quarter performance.