Schneider National, Inc.

Greetings. Welcome to Schneider First Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to Steve Bittes, Director of IR. Thank you. You may begin.

Thank you, Operator, and good morning, everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer, and Steve Bruffet, Executive Vice President and Chief Financial Officer. Earlier today, the company issued an earnings press release, which is available on the investor relations section of our website at Schneider.com. Our call will include remarks about future expectations, forecasts, plans, and prospects for Schneider, which constitute forward-looking statements for the purposes of the safe harbor provisions under applicable federal securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations. The company urges investors to review the risks and uncertainties discussed in our SEC filings, including, but not limited to, our most recent Form 10-K and those risks identified in today's earnings release. 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. 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, which includes reconciliations to the most directly comparable GAAP measures. Now I'd like to turn the call over to our CEO, Mark Rourke.

Mark? Thank you, Steve, and good morning, everyone, and thank you for joining the Schneider call today. We recognize as we sit here on April 30th amid these unprecedented times that the results in the first quarter are perhaps a bit less instructive than normal. Our approach today will balance Q1 commentary while flexing a bit from normal protocol to provide visibility into the impacts of the health crisis, both from a humanitarian and a business implication standpoint in the current period. Schneider has approximately 19,000 associates and owner-operators across the globe, and nearly four out of five of these great individuals fill essential roles. Roles that must report to work daily to fulfill our promises to our customers. They are drivers, owner-operators, shop, warehouse and driver services personnel and in short, they've been outstanding in their commitment to keep the nation's goods moving. We recognize and thank them for their professionalism and commitment. Since the onset of the COVID-19 health crisis, we've had 26 associates who have experienced a confirmed diagnosis. Another 200 plus associates have been tested and instructed to quarantine by a health professional due to a potential exposure. The company has responded with emergency paid time off support and in the more advanced cases provided additional benefits support assistance so they could fully focus on their recovery. The efforts of continued sourcing of protective face masks, hand sanitizers, and disinfectant wipes is now and very appropriately the new business normal. Our support functions in the areas such as customer facing, driver leadership, route planning, tech and back office functions in a matter of days converted to a work from home model consistent with best health practices. Today, with some new tools and processes, the business continues to operate very effectively. And in my view, these experiences will certainly drive lasting change in where and how work is structured and executed that will ultimately benefit the business, our associates, and our customer base. While the impacts of COVID-19 on our daily work lives are pronounced, it's also proving to be another demonstration of our company's resolve and adaptability. We entered this condition operating from a position of strength, financially strong, a strong and diverse customer base, and a purposefully constructed portfolio of services. These advantages enable us to play the long game and take a balanced approach that includes prudent elements of defense and the near-term actions regarding cost and cash flows while positioning the company on the offensive for an economic and freight recovery. As part of the lasting change on how work is accomplished, we've continued our investments in AI-driven automation, and we've advanced those efforts through the first quarter. For instance, in our for-hire truckload business, 80% of orders now go through an AI-driven enrichment process where the Quest platform completes missing or incorrect data elements from the customer tender so that it can pass through our algorithm for an acceptance or rejection decision. If accepted, the order is automatically created in the system, making the entire process touchless. This enables our people to focus on higher customer value elements and will increasingly be a driver of productivity into our business. Another example is Intermobile. We're in the early stages of implementation of company Dray fleet dispatch automation. The Quest platform takes in the rail grounding data, balances the order appointment process by company Dray availability and then automatically dispatches the Dray driver through an optimization algorithm and the Dray dispatch is executed in a touchless fashion. In April, we will surpass 30% automated company drain dispatch. In addition, we've improved our variable cost position through improving our performance in areas of safe operations, driver recruiting mix, fuel efficiency gains, and equipment maintenance efficiencies, many of which we consider to be sustainable variable margin gains. We believe that we are at the height of the crisis-driven business impacts. Across the enterprise, I think it's helpful to look at our book of business through the lens of end market served. As companies began to act against the non-essential business designations around the middle of March, a segment of our customer base, predominantly in the retail and industrial verticals, was impacted. For instance, in various dedicated operations, we had roughly 445 drivers impacted due to customer temporary shutdowns. We expect this situation to continue to improve throughout the second quarter, and we have worked with our customers in a fashion consistent with the integrated and strategic nature of the relationship to balance the needs of both organizations in these unprecedented times. We expect most all operations to restart once the broad shelter-in-place restrictions begin to lift, but at various levels of ramp-up velocity. And in keeping with the whole dedicated theme, one of the many disappointing fallouts of the current environment is how our dedicated plan new business startup activity has slowed due to customer distraction and certainly understandable. We have over 200 units in startup holding pattern that should break loose once the restrictions begin to lift and business normalizes again. Non-specialty assets and capacity allocation are fungible, especially in the short term, and we routinely flow resources or verticals that are experiencing a surge in demand from places that are contracting. As industrial non-essential retail verticals lagged, we quickly allocated resources to surging food, beverage, consumer products, and other essential retail segments. Despite the dislocation of assets in mid-March, tractor asset productivity improved slightly in Q1 on a light comparison basis. As the pantry restocking surge began to normalize, the ability to redeploy is becoming more difficult as the month of April has progressed. We have moderated our incoming driver hiring numbers for the months of April and May to account for the more tepid demand levels. On a month-to-date basis, on a year-over-year comparison, truckload build miles are currently down high single digits daily from the prior year. The impact is more pronounced in the network-for-hire portion of our business. That's a function of approximately 300 fewer trucks and lower demand levels than a year ago April. Let's move on to intermodal. Year-over-year order growth in the first quarter was 3.2%, with a large mix change due to the competitive condition of the West and impact of port activity with the extended Asia export market closures. We enjoy order growth of 20-plus percent year-over-year in the combination of the East and Mexican portion of the network, offset by an 8% order shrinking year-over-year in the quarter in the Western Regional and TransCon combination. The higher rail expense, and Drake Costas' percent of revenue due in part to this mix change contributed in part to 160 basis point margin erosion year over year in the quarter. As we now look to where we are in the month of April, the intermodal segment is being negatively impacted by the Asian import air pocket limiting volume through the ports combined with a higher mix of non-essential retail than we enjoy in our truckload segment. Therefore, our intermodal daily tender volumes, as compared to a year ago in April, are currently down in the upper teen percentages. We are disposing of containers that have reached end of life without replacing them in the short term, so we expect to have roughly a thousand less containers in service at the end of Q2 of 20 as compared to the end of Q2 of 19. And finally, our brokerage business continues its growth trend with volume growth in the high single digits in the first quarter, The volumes were certainly helped by consumer restocking behavior in March in support of larger shipper needs with some margin offset with the tightening capacity situation. Before we get to your questions, I want to turn it over to Steve to provide some additional insight into our going forward actions to position the company favorably for a recovery in economic activity and freight demand.