Schneider National, Inc.

Greetings. Welcome to the Snyder First Quarter 2022 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 your host, Steve Vindas. You may begin.

Thank you, operator, and good morning, everyone. Joining me on the call today are Mark Roark, 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. These 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 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 Roark. Mark?

Thank you, Steve, and hello, everyone, and thank you for joining Schneider's call this morning. This month marks our fifth anniversary of being a publicly traded company. Many of you have been with us on the journey since April of 2017, and we are grateful for your insight, encouragement, and support. I'll start our prepared comments this morning on our first quarter operating performance by illustrating, with metrics, how our portfolio of services has been reshaped into a leading multimodal transportation and logistics platform. The transformation of Schneider to date has not been consistently recognized when you consider the current trading multiple of the company. In the most recently completed quarter, in our three segments of truckload, intermodal, and logistics, the asset light segments of intermodal logistics represented 61% of the segment's revenue mix, excluding fuel surcharge. Year-over-year intermodal order count grew 1%, with year-over-year container growth of 26%. enabling an attractive runway opportunity for rail conversion and growth as rail fluidity begins to return to the network. Logistics produced another quarter with order count growth exceeding 20% in our brokerage offering, placing revenue essentially on par with our truckload segment. Since 2016, our compounded annual order volume growth rate in brokerage is 16%. In truckload, we averaged over 10,300 tractors in the quarter, with 56% or 5,700 of those operating within dedicated customer configurations, with additional startups currently in flight and a very strong new business pipeline. While we are very proud of our truckload heritage, and truckload remains a very important element of our long-term positioning of the Schneider Enterprise, these metrics illustrate Schneider is much more than a one-way truckload organization. So let's transition to the segment specifically with particular emphasis on our strategic growth drivers of dedicated truck, intermodal, and logistics. In the quarter in truckload, dedicated revenue grew 52% over one year ago, and the growth is nearly evenly split between organic growth and the addition of our acquisition of Midwest Logistics Systems at the end of 2021. The acquisition is going well. We intended to build upon the associate and customer-based strengths with an approach of running it separately with targeted costs and operational synergies that are focused on improving driver and customer experienced opportunities. With one quarter under our belts, we are pleased that the approach has been well received by the MLS associates and customers, and the business results are at or above expectations for both revenue and earnings. Revenue per truck per week again, excluding fuel surcharge, and dedicated and network was up year over year by 10% and 19%, respectively. In dedicated, more of that improvement was realized in asset productivity as our new business startups mature. More than 100% of the improvement in network was price-related as asset productivity in the network was affected the most by the temporary system outage we experienced in the quarter due to a vendor hardware failure, as well as COVID-related impacts on driver availability early in the year. As it relates to current market conditions, the first quarter contract renewals and price adjustments in dedicated and network remain highly supportive of the inflationary costs in the business, particularly around driver compensation and direct cost areas such as new equipment acquisition, equipment maintenance, and replacement parts. It is our view that shipper allocation events have largely moved spot price business to contract, which in general delivers better cost acceptance and service, Better acceptance results results in less tender rejects and smoother supply chain execution for all parties. In fact, in our network-based offerings, we are seeing materially higher levels of award tenders and acceptance after allocation events than prior to those events. So let's transition to intermodal. On our last earnings call, we discussed the role we expect intermodal to play as a growth driver for the company while offering our customers additional value in achieving their carbon emission reduction commitments. Specifically, our stated goal is to double intermodal by 2030. Part of that plan was to create competitive differentiation with the largest industry player with shippers who most value an asset-based execution model of own container, own chassis, and company driver drape model. The unique asset-based model alignment with the Union Pacific in the west and the CSX in the east provides the desired differentiation. We also chose to announce the Western Rail partner change to the Union Pacific a year in advance so we could operate in an open and transparent manner with our stakeholders, namely our trade drivers and our customers, and importantly, to act with integrity and be highly respectful of our long-term relationship with the BNSF team. It speaks to the quality of their organization and leadership as we are collectively working through this transition in a constructive and professional fashion. The timing also gave us the open air time to develop a robust plan with the Union Pacific to execute the change with a very high level of operational excellence and be in regular communication with all our stakeholders to allow them to be an ally in the change. The joint commitment, resources, and plan to do just that is on track and we are highly confident in our collective execution capability. Sequentially within the first quarter, we grew the intermodal container count by 2,200 containers. We expect the 26% growth in containers year over year to be translated into order volume growth as rail fluidity and labor conditions improve at our customers' loading and unloading locations. Revenue per order improves 16% year over year, excluding fuel, contributing to a 510 basis point improvement in operating ratio to 87.1%. As we move to logistics, they were led by our brokerage offering, which delivered another quarter of excellent business results, improving operating ratio year over year, 320 basis points to 92.3%. Logistics earnings surpassed the intermodal segment for the first time. Our investments in Schneider Freight Power are focused on digitally connecting to the shippers and third-party carriers with price, book, and track automation benefits. The advancements are helping to drive productivity in the business. In fact, in the quarter, brokerage grew order count over 20%, with people count increasing just 7%. Finally, we experienced a sizable net asset property gain, so I wanted to write some strategic context for that development. The gain was derived from a capital allocation exercise we regularly perform across our various operating units. While we have been operating inside Canada for nearly 30 years, The assessment determined that the current and future prospects of cross-border operations based in Canada was expected to remain substantively inferior to other uses of resources, especially rolling stock capital assigned across our truckload and intermodal offerings. Therefore, by the end of the quarter, we have largely reallocated the power, trailer, and container capital to a series of higher return profile operations in the United States. The attractiveness of the commercial property in Canada resulted in an expedited sales process. So as I turn it over to Steve for his remarks, I feel we have ample opportunity to continue to deliver leading performance across our three operating segments, and that confidence is embedded in our full-year guidance raise.