Schneider National, Inc.

Greetings and welcome to the Schneider National Inc. Second Quarter 2022 Earnings Call. At this time, all participants are in a listen-only mode. A brief 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. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Bindis, Director of IR. Please go ahead.

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 second quarter call this morning. In our opening comments, we'll cover our second quarter results, what we're currently seeing in the marketplace, and an update on our full year guidance. In the second quarter, the market has clearly moved past the chaotic routing guide breakdown and higher tenant rejection phase to the more normalized typical seasonality condition that has not existed the last couple of years. In our truckload intermodal network offerings, we are centrally through the annual allocation award process with our shipper base, and the results of that process indicate that our customers desire and value incumbency and dependability. In general, we have improved our market share at rates that recognize the unprecedented inflationary impacts of wages, equipment, and other operating expenses. In our second quarter results, you'll see further evidence of the transformation of our multimodal transportation and logistics portfolio to a higher concentration of revenue and earnings in our asset light segments and the heightened prominence of our dedicated contract configurations in our truckload segment. In the second quarter, 60% of our segment revenues and 53% of our earnings were derived from our two asset light segments, intermodal and logistics. At $175 million in enterprise earnings, this quarter was our second most profitable in our history, just missing the highest quarter of fourth quarter 2021. The difference was modest equipment disposals and gains this quarter, as we deferred planned disposals due to new equipment delivery delays and new business implementations and dedicated and power only. We see a more material equipment gain step up in the second half of the year, that Steve Ruffet will offer commentary on in a few minutes. We also had meaningful growth in dedicated truckload year over year. We have added 1,800 tractors in service within dedicated contract solutions. 47% of that growth was organic, and 53% was gained through our MLS acquisition. 280 of those units were added sequentially from the first quarter, and we have several new account startups on the docket for Q3 implementation and a healthy new business pipeline we are navigating through 60 of our truckload segment tractors or over 6 000 units now reside in dedicated configurations that is important because in general dedicated contracts are longer term in nature renew at a greater than 90 rate are stickier through freight cycles and our professional drivers prefer the more predictable nature of the work The diversification and configuration of our portfolio of services has been constructed with the intent of building additional resilience in our results, while bringing great multimodal value to our customer community, especially centered around the flexibility and control of container and trailer pools. So let's spend a few moments on intermodal specifically. The western part of the network is highly challenged on fluidity and reliability, and we're working closely with our partners to focus on key areas of improvement so we can move more volume that benefits the rail providers, Schneider, and importantly our customers. We are seeing customers through their allocation events selectively convert intermodal volumes to over-the-road. While this strategy has practical limits, it is more pronounced in prior periods. Through non-overlapping lanes, we are now moving 15% of our western-based volumes on the Union Pacific. The 15% number means customers are already sourcing new business to us on the UP. We are utilizing and sourcing drivers at new ramp facility locations, and we are working out the process and technology connections with the Union Pacific. In the second quarter, Intermodal enjoyed its highest revenue quarter in history on 5% order growth year over year and 16% revenue per order improvement. We have lots of runway on box turns when container dwell times at customer unloading locations return to its historical performance standards and as rail fluidity returns, particularly on the western part of the network. Additionally, new container delivery timing is ahead of new chassis deliveries by a couple of quarters. We expect to start to see more of our planned new chassis deliveries in time for peak season utilization, which also should serve as a boost to container turns. While we are justifiably focused on rail fluidity and box turns in the west, as that's an important component for a high-performance intermodal offering, I should mention that our eastern rail partner, CSX, is performing very reliably, and we continue to enjoy year-over-year order volume growth in the eastern part of the network. I will close my opening remarks on our logistics segments. Logistics had a remarkable quarter at $47 million in earnings and 9% operating margins, which is well ahead of our long-term margin target range of 4% to 6%. Our processes tools are very adept in adjusting to the live load, live unload spot market movements, and we grew order volumes throughout the quarter. Our investments in Schneider Freight power and digital capabilities continue to lower our cost to serve, enables faster business volume growth than people growth, and this is especially evident in our power-only offering. Our contract versus spot order volumes in our traditional live-load, live-onload brokerage toggles between 50% and 60%, depending upon market. Contract has moved higher in that range throughout the recent allocation season, and power-only continues to grow in prominence and serves as a high-performing and flexible complement to our network offering and truckload. A differentiating feature of our power only is that greater than 90% is contracted volumes. While we're collaborative with our truckload segment offering, it is not simply an overflow model, but one where we secure through our revenue management processes upfront lane commitments via the customer allocation decisions. As a result, we believe power only is resilient as the freight cycles moderate. Let me turn it over to Steve Bruffet for his additional commentary on the quarter and look ahead to the second half.