Schneider National, Inc.

Greetings and welcome to the Schneider third 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 Bindon. Please go ahead.

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. 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. Hello, everyone, and thank you for joining Schneider's third quarter earnings call. In our opening comments, we will cover our third quarter results, what we are currently experiencing in the marketplace, and an update on our strategic imperatives as we head into 2023. As we indicated on our last earnings call, shipper freight allocation events were largely complete by the end of the second quarter in our truckload and intermodal network offerings. Therefore, the third quarter freight tender activity served as a gauge on actual fulfillment levels of those awards across our diversified customer base. In general, we experience steady contractual demand throughout the quarter. However, freight order fulfillment levels post the implementation of those annual allocation events are lagging historical fulfillment averages. We would attribute the lagging fulfillment to inflated awards coming off of pandemic-driven freight levels and elevated inventories due to earlier than normal product sourcing to hedge against supply chain disruptions over the last couple of years. So far in October, We are experiencing sequential volume improvement but muted seasonal peak demand and below historical average of special project programs. While the supply and demand market dynamics have become more balanced in the quarter, we continue to deliver customer value and gain market share across our multimodal platform with specific focus across our strategic growth drivers of dedicated truck, intermodal, and logistics. Our dedicated service offering grew revenues excluding fuel surcharges 50% over a year ago, a combination of organic and acquisitive growth. On average in the quarter, we had 6,020 tractors operating in dedicated contract configurations, or 57% of the truckload fleet. We favored dedicated's resilient nature due to multi-year contracts, the high level of customer integration points resulting in high renewal rates, and the preference of our professional drivers due to the more predictable nature of the work, and the close alignment with the customer's business. Dedicated new business wins and sales pipeline remains robust, particularly in the specialty equipment segments. Additionally, our MLS acquisition at the end of last year is surpassing planned synergy and performance expectations to include recent new business awards due to its unique relay-based execution model. Intermodal grew order volume year-over-year by 4% as network fluidity issues remain, despite moderate rail service improvement throughout the quarter. We did experience volume erosion in September as customer hedged against the labor uncertainty on the rails by converting volume back to truck. We continue to be encouraged by the positive customer response to our Western Rail partner change. Bringing our own container, chassis, and company-controlled dray to the Union Pacific Western network in combination with the high-performing Eastern network of the CSX, offers our customers a distinct asset-based alternative to our largest competitor. Twenty percent of our Western volume is now moving on non-overlapping lanes on the Union Pacific franchise. Finally, and importantly, our detailed conversion plan with the Union Pacific remains on schedule, and we are targeting a flawless transition at the first of the year. Our financial results in the third quarter reflect additional cost impacts resulting from executing on two Western Railroads. The temporary redundant cost to protect the customer experience is reflected in suboptimal dray efficiencies as the business optimizes dray, chassis, and container resources between the two networks. We expect to quickly shed those additional expenses in the first quarter of 2023, consistent with our implementation plan. In a moderating spot market environment, our brokerage business grew order volumes year-over-year by 5% and expanded net revenue per order by 10%. Our logistics earning contribution also increased by 26% by leveraging our digital freight power platform and its robust decision science capability to efficiently match transportation orders with third-party capacity in both carrier trailer and power-only configurations. We believe we are in the early stages of capacity level correction, especially with the small carrier community that increasingly relies on the spot market. It is our assessment that a meaningful portion of the spot market has dropped below the break-even point for carriers. There are a series of meaningful and persistent inflationary impacts facing the small carrier community, such as wages, equipment acquisition costs, replacement parts, and fuel, to name a few. So let me stop there. I'll turn it over to Steve for more financial commentary on the quarter and our full year 2022 guidance.