Schneider National, Inc.

Greetings. Welcome to the Snyder National Second Quarter 2020 Early 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 your host. Steve Mendez, 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. Hello, everyone, and thank you for joining the Schneider call today. I will open with a few summary comments on the quarter regarding our operating segments. And then before we get to your questions, I'm going to ask Steve Bruffett just to provide some additional insight on the overall enterprise results, our strong liquidity position, and the reintroduction of earnings guidance based upon the best information we have available at this time. As it relates to the quarter, it was a demanding one, and I'm especially grateful and proud of the resiliency our associates demonstrated daily, especially our professional drivers. In these highly uncertain and fluid times, our key business priorities are to first ensure Safeguard the health and safety of our associates, and secondly, to adapt to the dynamic freight demand needs of our valued customer community. At Schneider, we have nearly 19,000 associates and owner-operators across the globe, and nearly four out of five of them must report to work daily to fulfill our promises to customers. They are driver, shop, warehouse, and driver services professionals, and they continue to shine in keeping goods flowing across the nation's supply chain. The impacts of COVID-19 in our daily work lives are pronounced. Since the onset of the pandemic, we've had over 100 associates who've experienced the confirmed COVID diagnosis. Fortunately, all of them have recovered or are in the process of recovering from the effects. We have supported another 800 associates or so who have gone through monitoring protocols due to a potential exposure. For those in roles that cannot work remotely, that support at times includes emergency paid leave and other benefit-driven relief to ensure we are doing our best to eliminate community spread of the virus. To safeguard our associates, we have adjusted our deep cleaning protocols, provide disinfectant supplies and face masks, among other measures, at approximately an incremental $1 million of expense per month. As it relates to the economic recovery of freight markets, it's been uneven across our various service lines. The intermodal segment has been impacted the most due to a combination of higher business mix of quote-unquote non-essential shippers and a reduced level of agent-sourced import activity. While volumes did improve throughout the quarter, in total, year-over-year intermodal order count contracted 13%. But in addition to the volume reductions, the disruption to the network in terms of load balance, increased empty repositioning movements, and rail purchase transportation costs led to a disappointingly low operating margin for the quarter of 5%. Now, the most recent quarter does not change our long-term operating margin target expectation for intermodal. That remains in the 10 to 12% range. And assuming we avoid another economic shock, the work done in the second quarter by our intermodal sales and operations team, working in concert with our customers and rail partners, is expected to result in a material improvement towards our targeted range in the third quarter of 2020. Improved order volumes and balance will contribute to that rebound in performance, and we are certainly seeing the benefit of that body of work already here in the month of July. And one more note on our intermodal segment. Our published intermodal metrics indicate our total trailer count, or container count, excuse me, finished the quarter at approximately 21,200, and that number is roughly 600 units lower than we projected during our last earnings call. I just want to highlight that that number is largely just a timing nuance between when end-of-life containers were pulled out of service and when our new containers are placed into service, and we expect that difference to largely be resolved as we operate through the remainder of 2020. Our truckload liquid bulk tanker service also was disproportionately impacted in the quarter as its end-cup market customers in the industrial and energy market experienced a mid-teen percentage drop in business volumes starting in April. Bulk tank network business volumes improved throughout the quarter, and delayed bulk dedicated startups became operational very late in the second quarter. The positive upward trend continues so far in the month of July, and bulk generally serves as a leading indicator for dry van truckload business volumes. Speaking of dry van, overall, our business volumes and build customer miles rebounded the fastest across our network and dedicated truckload business. I think last quarter we indicated we had about 445 dedicated units that have been displaced due to temporary customer shutdown activity. As the quarter closed, all of those accounts have become operational again, although several with less units than pre-COVID levels. And in addition, several new business startups that were delayed became operational late in the quarter. Again, assuming no market setbacks, we would expect that in the third quarter of 20, we will rise above pre-COVID and year-over-year volume comparators in our core truckload segment. Our focus in the second half will be on improving the network freight basket from a yield standpoint as contractual pricing through the second quarter is down low single-digit percentages year-over-year. Now, daily network freight tenders now are far exceeding our acceptance levels. and spot pricing has spiked throughout the quarter and is now double digit percentages above contract levels. We also believe capacity levels are likely to tighten further as we head into the second half of the year. New truck orders remain well below industry replacement levels. New driver entrance to the industry, the top of the funnel, if you will, has been materially curtailed as public and private driving schools have responded to the pandemic with closures, or certainly with smaller class sizes and the National Drug and Alcohol Clearinghouse process is now fully implemented. Finally, our logistics segment business posted a positive year-over-year growth numbers in terms of order counts and operating revenue. Our brokerage business continues to adapt well to the highly variable market conditions that we experienced throughout the quarter and brokerage experienced a tightening capacity market as the quarter progressed and the corresponding rise in carrier costing that comes with that but despite all that volatility, margins improved 180 basis points sequentially from the first quarter. So in summary, there's still a high degree of macro uncertainty, but at the same time, our retail, food, beverage, and consumer non-durable customers, a large composition of our business mix, are projecting increased volumes through the second half of the year. We are in constructive planning conversations with our customers across our intermodal and truckload segments and we're seeing this near-term tightening of supply and demand in most geographies across our networks. Furthermore, we believe this driver supply condition actually could tighten further with the pending public policy decisions being debated in Washington presently. Before we get to your questions, Steve, why don't you just wrap up the quarter.