Schneider National, Inc.

Good day and welcome to the Schneider second quarter 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key then zero on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Steve Sindes, Director of Investor Relations. Please come ahead.

Thank you, Operator, and good morning, everyone. Joining me on the call today are Mark Lark, President and Chief Executive Officer, Steve Bruffet, Executive Vice President and Chief Financial Officer, and Jim Filter, Executive Vice President and Group President of Transportation and Logistics. Earlier today, the company issued an earnings press release. This release and an investor presentation are 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 annual report on 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 relief and investor presentation, which includes reconciliations to the most directly comparable GAAP measures. Now I'd like to turn the call over to our CFO, Steve Bruffet.

Good morning. Thanks for joining us today. I'll provide some opening comments on the quarter and on our guidance. And then Mark will offer his perspectives before we take your questions. I'll begin with our recently announced acquisition of M&M Transport. We deployed $225 million for this transaction, which represents an EBITDA multiple of about six times. From this investment, we expect not only immediate EPS accretion, but also a return on capital well above our cost of capital. In addition, we will be pursuing both revenue and cost synergies that benefit the customers and employees of M&M Transport and therefore deliver additional value to our shareholders. While there are operational differences between M&M Transport and Midwest Logistics Systems, our earlier acquisition in the dedicated space, the financial characteristics are quite similar between these two quality companies. Mark will provide some additional context to this acquisition. The next topic is share repurchases. The second quarter contained our first-ever repurchase activities, and we returned $31 million to shareholders. As a reminder, our objectives for this $150 million authorization are to reduce our diluted share count to approximately $175 million and then maintain that level by offsetting the impact of equity grants that are part of our compensation programs. Turning now to our second quarter results, a reminder to refer to the IR section of our website to review the investor presentation. The second quarter represents what is likely to be the most challenging year-over-year comparison as freight conditions were just beginning to soften in the second quarter of last year. Now that we're over a year into this freight down cycle, the cumulative effect of pricing pressure is nearing its largest impact. Our second quarter revenues excluding fuel were down 20% compared to the prior year, and our adjusted income from operations was down 39%. We obviously do not prefer this phase of the freight cycle, but we do like how our portfolio positions us to compete and perform across all phases of the freight cycle. And while these results do not yet reflect our full potential, they do illustrate meaningful progress on our journey to deliver resilient and growing earnings over time. Our truckload segment results would have undoubtedly been lower if not for the support from dedicated operations. Our dedicated operations include our legacy business along with MLS, and going forward will include M&M Transport. We still have opportunities in front of us to further improve our dedicated operations, and we're energized by those prospects. In the intermodal segment, our results continued to be challenged by sluggish port activity, which resulted in 14% lower volumes compared to the second quarter of 2022. We have yet to have a market opportunity in which we can demonstrate the full value of our intermodal service offering since establishing our new rail partnerships and having grown our container fleet by 24% over the last two years. As a result, we view intermobile as one of our largest upsides going forward. The logistics segment reported nearly a 4% margin for the quarter in a highly challenged freight condition. While this was considerably lower than last year, This shows the benefit of our logistics model that generates its own demand and is not reliant on overflow volume from our truckload operations. Moving now to our forward-looking comments, our updated guidance for full-year diluted adjusted earnings per share is $1.75 to $1.90, which includes a modest but immediate contribution from the M&M transport acquisitions. At the midpoint, the updated EPS guidance reflects a 13% decrease from our prior guidance range of $2 to $2.20. In our view, third quarter 2023 earnings will likely show a moderate sequential decline from the second quarter as the full effect of virtually all contractual rate renewals will be in place during the third quarter. Then the fourth quarter is expected to show sequential earnings improvement due to anticipated seasonal upticks in volume. Said another way, our updated guidance includes expectations for second half EPS to be lower than first half EPS. A contributing factor to this is the timing of equipment gains within the year. We recorded 10 cents of EPS from equipment gains during the first half and our expectations for the second half equipment gains are minimal. While it's early to have clear insight into 2024, we anticipate that we will begin next year in a more balanced freight condition. I'd stop short of saying the word recovery, but our expectations are that incremental capacity will exit yet this year, and there will be marginally improved demand from customers. does not take a large amount of change in these two levers to derive better equilibrium in the freight market. So we're well positioned to execute and deliver regardless of the conditions. So Mark's going to now provide his additional insights.

Thank you, Steve, and good morning, everyone, and thank you for joining us on the Schneider call today. Before we get to your questions, let me offer additional context into how we are positioning the business perform favorably through economic and freight cycles versus our investments to profitably grow dedicated in our truckload segment dedicated proved highly resilient year-over-year and compared to the first quarter which was evident in stable truck count and revenue per truck per week performance while on sequential basis dedicated grew by only 25 trucks from first quarter levels we do expect to add an additional 225 to 250 units of new business in the second half of the year based upon current implementation timelines. In addition to organic growth, we are selectively looking for high-quality dedicated contract carriers to add to our portfolio, and we're pleased to welcome the M&M Transport Associates to the Schneider team. Through the acquisition, we added nearly 500 trucks and 1,900 trailers that primarily operate in specialty equipment configurations serving the retail and manufacturing verticals. M&M Transport is a very well-run, regional dedicated carrier that largely operates in the Northeast, Midwest, and Southwest regions of the country. It is our intention to follow our established acquisition playbook. M&M Transport will run independently, keep their name, brand, and successful operating model intact. We have identified a list of synergies that enhance the customer and associate experience. Those synergies identified include driver recruiting resources, customer-facing technology support, and access to truck and trailer growth capital, among others. And I'm personally pleased that the founder is staying with the business. The organic growth combined with the addition of M&M Transport puts our dedicated offering on a glide path towards $1.5 billion in annual revenues and a deployed tractor count of 6,500 units. Now let's turn to the network portion of our truckload segment. It is under the most margin pressure as inflationary costs in wages, insurance, and new equipment costs are rising into contract renewal rates that in certain elements of the book are not durable, perhaps not even through the end of this year. Our commercial and operational teams are ready to pivot to upgraded opportunities as they begin to materialize. Now let's transition to the intermodal segment. We have chosen to retain our revenue management discipline through this cycle and not chase the price leader to the bottom. That discipline and muted import volumes are reflected in the 14% order volume reduction year over year. We are poised for the freight recovery through offering our customers a strong service, cost, and emission reduction value proposition with a leading combination of rail providers, the Union Pacific, CSX, and most recently, the CPKC. Moving forward, we expect even further reliability and execution benefits with the Union Pacific as leadership implements their proven playbook. The addition of the CPKC gives us advantages into and out of Mexico and soon across Meridian Speedway into the southeast through a seamless connection with the high-performing CSX. Our early experience with the CPKC's OneRail solution has been exceptional. We have found the transits not only beat the other competing service offerings and their published transits, but now match solo truck levels with nearly 100% on-time reliability performance. The next intermodal allocation season will be one where we now have a proven record with the Union Pacific transition, a proven top performer in the CSX, and new capability with the CPKC with what we expect to be a tailwind in the inevitable restocking cycle. It is important to note that we have paused additional containers being added to the fleet to focus on volume growth with meaningful room for asset productivity measures. Also in the second quarter, we achieved an important sustainability milestone with a large-scale installation of one of the nation's most advanced commercial electric battery charging depots at our Southern California intermodal hub. And I'd like to recognize our professional driver fleet, our facilities, equipment engineering, and intermodal operation teams for building the capability to move beyond merely testing battery electric vehicles to operating at scale. This capability offers the value of zero emission first or final mile dray in combination with the emission savings of a middle mile intermodal rail movement. And we are on track to have 93 battery electric dray units deployed by year end, positioning us favorably for the rapidly approaching zero emission vehicle mandates in the state of California. Now, last year at this time, we noted in our call that our logistics segment was coming off a special quarter where freight rates were rising into moderating purchase transportation costs in combination with peak port services, dray, and warehousing demand. Fast forward a year, and this second quarter is whatever the opposite of special is. Contract pricing renewals proved to be even more competitive than asset-based services, putting net revenues under considerable pressure. Overall brokerage order volumes per day contracted 10% year over year, inclusive of power only. And power only is proving resilient through the cycle, especially considering we are optimizing more power only volume on our network and dedicated backhaul assets than is typical. The freight generation capability of our logistics model keeps us relevant and adaptable through all freight cycles. While we believe this cycle is starting to show its age as both the inventory destocking phenomenon reaches its natural conclusion and marginal capacity accelerates their exit from the market, the third quarter will still have challenges before giving way to moderate seasonality in the fourth quarter. And so with that, operator, let's move to the question and answer session. Thank you.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your telephone keypad. If you are using a speakerphone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw your question, please press star then 2. Please limit yourself to one question and one follow-up question. At this time, we will pause momentarily to assemble our roster. Our first question comes from Robbie Shanker with Morgan Stanley. Please go ahead.

Thanks. Good morning, everyone. You guys are somewhat of peak season whisperers, if you will. So it's very interesting to hear your comments about a pickup in seasonality in the fourth quarter. I'm just wondering how much visibility you have into that. What are your customers telling you right now about both their current inventory levels as well as their need and desire to start restocking at some point in the next quarter or two?

Yes.

Good morning, Ravi. Thank you for the question. I think we're getting increasingly confident in our discussion with customers that the long destocking trail is coming to an end. We had a recent discussion with a retailer that reflected that they're back to chasing inventory a bit. as opposed to de-stocking it. In fact, enough so that it starts to weigh on decisions between intermodal and truck transits on certain lanes and on certain products. And so I wouldn't say that's everybody across the spectrum, but it is illustrative of the work that folks have done over the last several quarters to get to a different spot. So I think most folks feel that they are getting in within the zone. I think the concern has changed to the health of the consumer and what categories they'll be purchasing in through the remainder of the year, and perhaps less focus on the inventory.

Got it. Also, as a follow-up, a little shift of gears here, because I know you're going to get a million cycle questions on the call. So, I did want to ask you about your recent EV initiative. It feels like there's some change coming with our focus on building a charging infrastructure, the availability of long-haul electric Class 8 semis now. Obviously, what you just did was a pretty big kind of showcase of your capabilities. Are we at that tipping point where we can start to think of commercial deployment of electric trucks in a significant manner, or what more do we need to get there?

Well, as mentioned, we have a large-scale operation now moving beyond just the testing phase, Ravi, but I still think there are significant challenges on the infrastructure side and what would be necessary to move beyond some of the applications that we're presently deploying in, which is the real short-haul, high-density markets of Southern California. So, again, I think the easy part of this is the truck, and although we have to have different types of operational parameters as we implement battery electric trucks, I still think there's not an answer, an adequate answer at this juncture for us to be thinking much broader in the short term because of the infrastructure concerns.

Yeah. The other piece, Robbie, is just the regulation in California is driving this adaptation of electric vehicles. The end of this year will be the last time that we'll be able to bring a new diesel truck into that operation. in California.

Anderson, thank you.

Our next question comes from Bruce Tan with Siebel. Please go ahead.

Hey, thanks, operator, and good morning, everyone. Glad to be joining you here. Just wanted to square maybe some of the comments around, you know, the optimism in terms of a cycle recovery with the lower guidance. And then, you know, when you think about the guide down, you mentioned the lower equipment gains. Is that just due to pricing? And, you know, were there any other big factors in that guide down? Any parts of the portfolio that you can isolate as the biggest driver of the remainder of that software outlook?

Well, good morning, Bruce.

The optimism is an interesting word. I think the words that we would choose is that we think that the cycle is getting aged. We think some of the drags that have been Most prevalent is the inventory condition, and that is starting to age as well. So we're being cautious. I wouldn't say overly optimistic would probably be a mischaracterization, but I think we're getting to the end and that restocking mode starts to happen at least within the sight lines. As it relates to the gains, unlike a year ago, we've got more of our equipment on time this year. And so we've taken a larger percentage of our new equipment in the first half of the year, and thus more of our disposal activity took place in the first half of the year. So that's a contributor. And then secondly, the demand, which is also reflective of perhaps the health of the small carrier, has waned as the year went on. So we put the combination of those two things that we think will have minimal impact on gains in the second half of the year.

Okay, great. That's very helpful. And then just, you know, as a follow-up, you know, maybe can you just talk about some of the puts and takes between the, you know, inflationary costs and the, you know, yield headwinds and then, you know, some of the ability of lower rail costs and dray costs to kind of offset those on the intermodal side. And, you know, I guess what I'm asking here is, you know, do you feel that as costs kind of adjust lower, you can get back down to below a sort of 90 OR in that intermodal section, you know, a segment later this year or do you think that we're going to kind of stay at these levels?

I'll let Jim offer some additional context, but certainly we have a great deal of capability with our box count and our rail partners and what we can do from a performance standpoint. And so the biggest opportunity for us that we believe is in volume and intermodal more so than cost and price. And what we haven't really seen is the recovery yet, particularly through the port activity that drives so much of our intermodal business. And so I would comment that more towards volume going forward as our best remedy.

Yeah, and I believe that we've taken a number of cost actions early on in this freight cycle to get ahead of this, and that's what's enabled us to maintain the margin performance we've had. But certainly there's the big opportunity here is volume, as Mark stated. In terms of our rail deals, those are long-term. cycle.

Okay, great. That's helpful. Thank you.

Our next question comes from Brian Ostenbeck with JP Morgan. Please go ahead.

Hey, good morning. Thanks for taking the question.

Maybe just to circle back, I think, Mark, on your comments, you mentioned not really wanting to chase some of the pricing in intermodal. So maybe I Didn't hear that right, but if you can just expand more broadly on competition within that segment. Are you still stacking your containers? Do you feel like others are doing the same? And do you have some visibility to getting some truckload conversion? Are the spreads getting to the point where you can actually pull some of that stuff off the highway?

Yeah, you have a lot of questions there. I'll try to put all those in together, make sure I hit all of these. So we do have boxes stacked. we're not adding to that fleet. So we think that leaves a lot of opportunity for us to continue to grow. In terms of market and some of our competitors, we see some competitors that are going in with pricing that would be at extremely low contribution or no contribution, which might be creative in the short term, but those really are not sustainable levels. And in the past, when we've gone through these cycles, we've seen different carriers have to go and make adjustments very soon after those bids implement. And that leads to a really strong visceral reaction from our customers that often lasts for years. And many of our large customer relationships were born out of those types of interactions. And we've been able to build on top of those. In terms of competition relative to truck, We're within the range of when we see that we're able to do over-the-road to intermodal conversions, discount ranging about 10% to 15%. We're a little bit on the low edge of that. The other impact there is fuel costs. Fuel is down $1 a gallon year over year, but over the last couple of weeks it has been picking up, so we'd expect that will be another opportunity for Intermodal to gain share.

Thank you, Jim.

Just a quick follow-up in terms of we have seen some of the international or the IPI pick up for some of the rails, and maybe that's off of a low base, but I wanted to get your thoughts if that's maybe the first sign of a little bit of resurgence, a little bit of recovery that might trickle down into more transloading and then might be more of a factor for Schneider in the future.

Yes, there is absolutely. through that, and these are often, especially in international, some very low year-over-year comps that certainly see some improvement there that could potentially start to trickle in to more of a normal seasonality as we get into the fourth quarter.

Okay. Thanks very much, Jim. Appreciate it.

Our next question comes from Tom Wade with Swiss UBS. Please step ahead.

Yeah, good morning. Good morning, Tom. Yeah, let's see. I wanted to see – I'll ask you a non-cycle question. You had the nice dedicated acquisition with Midwest, and then you've got this one that you just announced, which seems like your characterizing is very similar. How do you think about the maybe kind of – I don't know if it's multi-year kind of medium-term frame on dedicated acquisitions. Is that something that there's a big enough pool out there of similar companies that you can keep doing this for a while that you kind of say, well, maybe we do one of these deals a year? And is that something that strategically you'd like to say, hey, we'll spend a couple hundred million dollars a year on acquisitions as a kind of regular part of our growth strategy?

As we think about, thank you for the question, Tom, as we think about our allocation of capital approach, we still believe in most of our businesses that organic growth is still our most attractive play and are focused intently on that. In the dedicated truck space, we do believe and continue to believe into the future that buying a well-run dedicated contract carriers, particularly who have long-term and deep relationships with customers, which is the hallmark of the two that we just, our last two that we've acquired, make sense for us. And I do think you have a cadre of these well-run companies that have been around in these 25 to 30 years who may not have as solid a succession plan that would be necessary to continue the business in its current form. And I think we're in a very attractive suitor for those type of individuals. And We've developed an approach and a process, I believe, that makes us a very viable acquirer. And doing it in the right way that's consistent with what someone who founded a company and put their life passion into wants to be aligned with. So it wouldn't surprise me at all that we continue on this pace. I wouldn't expect us to do anything again yet this year. And I wouldn't also roll out something more transformative if we felt that that was an the best interests of our shareholders and that we could advance our strategy. But certainly the programmatic acquisition and dedicated is something that we're interested in continuing.

Okay, yeah, great. And then one on the freight cycle. Thanks for a non-cycle question, by the way. Oh, yeah, I know. I do have one on the cycle. Sorry. It's just, I need to get your insight on it, Mark. We heard from two of the, you know, the big intermodal competitors about, I think, you know, JBL was like, well, June was a little better on, you know, intermodal volume year over year. And then I think Hobb was saying, well, you know, sequentially, you know, you were, I think, two points better than normal seasonality, July versus June. So I think they expressed, you know, a little bit of, optimism that at least from an intermodal perspective, there was some improvement. Maybe some of that's due to what they're, you know, the approach you take on price, right? I know you talked about the competitive environment on price, but are you seeing that in intermodal or in truck that there is a little, you know, some reason for optimism, sequential improvement, or is it, are you seeing it maybe not quite the same as the comment from those two?

Well, I would characterize, I think your question is more July versus second quarter.

We have seen June or July, you know, improvement in either of those months. Yeah.

Yeah. I would say there was an atypical trend in July to be a bit, I'll use the word a bit stronger in both the truck and the intermodal volumes and a little higher fulfillment rate coming in from our customer community on the allocation. And so that's, generally atypical but it's coming off some smaller bases as well and maybe a sign of as what we've been talking about of moderate uh restocking but uh so the trend is there but it's not pronounced but it's also atypical to have something larger in july and building from a june level okay yeah great uh thank you i appreciate it next time

Our next question comes from Jack Atkins with Stevens. Please go ahead.

Okay, great. Thanks for taking my questions. So I guess maybe going back to the dedicated M&A discussion for a moment, I mean, as you sort of think about the decision to allocate capital towards building the fleet organically versus buying it, I mean, could you maybe give us a little more color on on why you would decide to maybe buy a fleet versus slowly over time building it out because it would seem like there's such a large addressable market there that you could grow your fleet by 500 trucks organically maybe cheaper than it would be to buy it. So maybe talk about post-deal the opportunity to maybe grow faster than you would have otherwise.

Yeah, Jack, thanks for the question.

And certainly with our balance sheet and our health financially, we don't see that as an either or. We just see that as an and. And that, as I mentioned, we expect a couple hundred units at least of implementation here in the second half organically. And that will continue to be our focus. And so we don't feel constrained that we have to do acquisitions in lieu of growing organically. I think it's a healthy approach to do both. And particularly when you get access to perhaps some deep relationships and new customers that you have not had the opportunity either because of its regional nature or because it's just a different vertical or a different segment of the market that you don't have a large presence in. And so that's the attractiveness to us. And just like we find in our dedicated businesses, these are long-term deep relationships that are very deeply intertwined within the customer supply chain, and there's a real commitment and a real value that's exchanged between the two companies. And that's consistent with our strategy and how we like to position ourselves with customers. So, Jack, I wouldn't have it as our first priority will always be organic for the reasons that you described, but I think we can augment in a way that adds great value to the business and to our shareholders organically. Okay. With acquisitions.

Okay. No, that makes complete sense. Just appreciate that additional color. And then within the intermodal operations for a moment, and Jim, I'd love to get you to chime in on this if you're interested in addressing it. But when we think about box turns there, we just continue to see pressure on this for the last few years. you know, I guess at what point do you feel like we can begin to see some improved, you know, asset efficiency? I know the cycle, at least to this point has not been your friend, but you know, do you feel like we've kind of reached a bottom here in the last couple of quarters and, you know, how should we be thinking about that in the back half of the year?

Yeah, thanks Jack. So you're right. We have everything that we need to be able to improve our, our box velocity with the exception of customer demand, because we have the, Train performance, the rail performance is at all-time high levels. Customers are unloading at levels that were similar to pre-pandemic. And as we spend time with them, they've made some changes to their warehouse operations, structural changes to prevent the type of backlogs that we experienced previously. We have the company dray and dray providers in place, as well as chassis abnormalities. levels, it's really a matter of when do we start to see the normal restocking begin to occur and believe that there will be a moderate peak season that we'll experience here later in the year. And as we go through next year, opportunity to have over-the-road conversions as we go through that next bid cycle.

Okay. That makes sense. Thank you.

Yes. Another way, Jack, we don't believe there's any structural impediments to getting to a more efficient box turn, and that's what we're really focused on here is asset productivity across both our truck business and certainly our intermodal container fleet.

And just to follow up on that, because I would imagine that the incremental margins as that box turn and just overall productivity improves would be pretty meaningful. Is that the right way to think about it?

Absolutely. It's a powerful flywheel.

Okay.

Thank you.

Our next question comes from John Chappelle with Evercore ISI. Please go ahead.

Thank you. Good morning. Jim, I hate to keep harping on intermodal, but I just want to understand kind of the strategy, backward-looking, so to speak. Like, your revenue per order actually held in a little bit better, I think, on a year-over-year basis and a sequential basis than most of your peers, but the 14% year-over-year decline in orders was quite high. Are you kind of being very price disciplined and pushing away business, even given some of the macro challenges because you'd want to, you know, keep the base higher when that cyclical recovery does start?

Yeah, so, you know, what I characterize our volume decline as primarily being pressured due to West Coast import volume, you know, driving the majority of that, but also, you know, as we're remaining disciplined as we go through these bid events, I wouldn't say that we're pushing volume away, but we're also not willing to go to the very bottom of the market that would put us in an unsustainable level. And that gives us better opportunities to grow long term in a sustainable way.

OK, that makes sense. And then a quick follow up, Mark, you mentioned again that power only has been resilient through the cycle. You've seen an entire cycle now through your build out of power only from peak to trough. Is there any way to quantify what the margin difference has been or maybe the stability of the margin from the power-only offering versus the traditional brokerage as logistics is fully cycled?

Yeah, I think I understand your question, Jonathan. It's certainly, we believe we're getting a return on the asset that we're providing, the trailer asset in this case, and power-only, over top what we would normally extract on a third-party complete move in brokerage, if you will. And so the return profile we believe is durable. We still have the same pressures on pricing that occur in any other parts of the business or the same opportunities that get created on any other part of the business to take advantage of. And so we would consider the customer acceptance, the carrier acceptance, our ability to integrate now more efficiently and effectively both within our dedicated offering has a supplemental capacity type and also within our network configuration and how we go to market with customers. And we just continue to get better and better at that. And so we think this is a long-term solution and a long-term contributor to our network offering within our trucking operations. Even though it's third-party and it sits in our logistics business, we're much more integrated in how we go to market.

All right. Thank you. Thanks, Mark. Thanks, Jim.

Our next question comes from Jason Seidel with TD Cowen. Please go ahead.

Thank you, operator. Good morning, gentlemen. I wanted to focus a little bit on the intermodal side. You know, you said a lot of good things about some of those new transit times coming cross-border. I wanted to sort of dive into that and see how much you think that could become a percent of your total business, those cross-border moves, and how we should think about the yields on those going forward.

Yeah, so I'm very happy with the performance of that business. You know, mentioned the transit time. Actually, you know, going from Monterey to Chicago, we're running, well, the state of transit's four days. They're actually running about a half day faster, so puts us right on R with our truck business, and that business just began in May, and we've seen 5% growth out of that segment of our intermodal business, so we're and expand. And, you know, also longer term, expect more near-shoring. We see opportunities to grow there as well. And overall, that business performs very well, the north-south Mexico business.

And the other part of my question in terms of how we should think about the yields and impacting the intermodal yield going forward as that grows?

It's a long length of falls, so it's on the higher end of our average.

Okay, fair enough. I appreciate that color. The other thing, just trying to get a little clarity on the guidance here, you know, you said M&M is going to just be moderately accretive. Should we think about like sort of that five cents range so I can get a sense of what you're bringing down on the core business?

Yeah, this is Steve. I'll take that one. Hey, Steve. We did incorporate that into our four-year guidance. And as we mentioned, of course, M&M Transport's a programmatic type acquisition. So if you take five months of that versus 12 months of our legacy business, it's obviously not a huge needle mover. Said another way, I think our guidance range would have been the exact same range even without the M&M Transport acquisition occurring. But M&M just helps us move a bit upward within that same range.

Appreciate the color, guys. Thank you.

Our next question comes from Jordan Alger with Goldman Sachs. Please go ahead.

Yeah, hi. Just sort of curious, with all the stuff going on in less than truckload with yellow, Is there any anticipation of knock-on benefit over to the truckload sector, and could that happen, and would you see it? Thanks.

Thanks. We don't anticipate a great deal of benefit that comes to the truckload side of the segment. I think there's, I guess our assessment, there's plenty of capability within the LTL providers there, and so we don't and haven't felt it or don't expect that to be a catalyst on our side of the house.

Well, we do believe that's indicative of the type of pressure that's on carriers that are less well capitalized and some of what we're seeing in terms of carrier exits in the truckload marketplace.

Okay, great. I'll leave it there. Thank you. Thank you.

Our next question comes from Scott Group with Wolf Research. Please go ahead.

Hey, thanks. Good morning, guys. So when I look at the one way, when I look at one way revenue per truck, you know, basically flat sequentially and truckload margins actually improved a bit from Q1 to Q2, which I think that's going to be a lot better than most. Any color on the price versus the utilization pieces in Q2? And then I guess I'm wondering how much of the bids would you say are implemented at this point? Any color on how to think about ref for truck and margin from Q2 heading into Q3?

I don't know if I can exactly answer maybe what you asked there, Scott, but I would tell you that we are through the allocation season and certainly the third quarter will feel the full brunt of all the implementations and to finish up what occurred in the second quarter. So as we look at overall revenue per truck and our ability to hang in there, there's a couple of influences. Clearly contract pricing has come down in the, we would consider in the upper single digit range. We're also in that part of the network utilizing higher than our typical spot rate or spot volume to include some optimization on some of our power only volume. And so those are the implications of getting it a little higher reduction on the revenue per truck utility, for the most part, hanging in there pretty well. We think that's still an item that we can lean into to even be more effective on the productivity side of the house. And then the question is, in our view, there is a percent of the book that we don't consider sustainable, and how quickly can we pivot when better opportunities start to materialize?

Okay. just secondly when i just look at truckload margins today versus 19 and intermodal today versus 19 truckloads actually holding up better than 19 intermodal maybe now a little bit worse any thoughts on why we're seeing you know those two businesses perform a little bit differently and then you and others have just tons of these boxes parked do you think that that limits some of the intermodal pricing upside whenever this demand inflection comes, or are you not worried about that? Thank you.

There are several questions there. Yeah, I'll start on the first part of that compared to 2019, which was a prior down cycle for reference there. even three or four years ago as we've continued to grow and develop that. The stability of those margins are part of why we've been strategically pursuing that growth and dedicated over the past several years. So we're seeing some of the fruits of that purposeful steering.

So I believe that we'll still be disciplined as the market starts to grow.

Scott, maybe just another color from our view as we look at our chessboard with our intermodal offering going forward versus what we were positioned in 2019. We think we were positioned very favorably to just have a chance to exercise all of those new opportunities and relationships to the extent yet. And so we very much look forward to even A slight recovery, I think, will have a nice flywheel effect for the business. And we consider that all in front of us.

You're just talking about the different rail contracts you have now?

And providers, network, and our ability to execute it.

Okay.

Makes sense. Thank you, guys. Our next question comes from Boston Majors with Susquehanna. Please go ahead.

Thanks for taking my questions. With the second quarter being the first where you've been active on the buyback, can you talk a little bit about how that's worked out with your expectations? Is it interplaying well with the dual class share structure and limited float? And longer term, as you get through this program, do you see a path to having a more active

share reduction style buyback as part of your capital allocation strategy thank you yeah this is steven i'll i'll take that one um as far as the second quarter we did we did want to get the program off to a solid start we did identify some good buying opportunities during the quarter so with nearly uh 1.4 million shares already repurchased we'll likely assume moderate but steady pace of repurchases across the remainder of the year. Like we articulated when we launched this $150 million authorization, we are aware of our public load and aren't looking to do anything that disrupts that in any meaningful way. um so we're behaving with some discipline there and ultimately once we stabilize to get to our desired share account like we said we anticipate that it would be more of a maintenance program where we where we offset the dilute impact of equity grants going forward but understand that there are some constraints as to just how far we can go given the parameters we work within today with that change in the future

Thank you.

Our next question comes from Ken Hoekstra with Bank of America. Please go ahead.

Great. Good morning. Congrats on another acquisition, and it's getting closer, so a lot of talk here on imports, exports. Thank you to Green Bay for exporting Aaron Rodgers. Looking at the... I guess your target now, $0.38 to $0.45 if you just divide it, you know, in the second half per quarter down from $0.45 to $0.55 in the first half. Mark, I just want to clarify, is that really just pricing? It sounded like you were saying utilization is okay. You've added dedicated fleet, but no contribution at least right now, right? So does that mean higher margin on the added fleet? Maybe just talk about, you know, I don't know if Steve wants to chime in on the highs, lows, what kind of gets you to that top bottom end of the range and your expectations?

Yeah, Ken, thanks for the question. And there's a couple of influences there. Certainly, as we mentioned, the impacts of gains in the second half of the year are going to be different than the first half of the year. So that would take into account that element. Secondly, we do believe the third quarter in particular will have some pricing pressure that we believe will begin to start to be able to address in a more constructive way as early as the fourth quarter if The restocking phenomena and the trends that we feel that the customers position themselves to would occur. And so those would be the two primary. And the moderate seasonality improvement from the third to the fourth quarter being the other. And the degree of all of those, in our view, will dictate where we finish ultimately in that range.

Great. And then any update on the CFO search? Is this, you know, focused external, internal? Any timing thoughts?

No updates for you at this time. Wait a minute. What CFO? Steve, you're the one that brought it up. All right. Yes, our process is progressing for our plan, and when we have something to share, we will do so. Okay. Thanks.

Thanks for the time. Thank you, Ken. Good luck with Rogers.

Our next question comes from Chris Weatherby with Citigroup. Please go ahead.

Hey, thanks, guys. Good morning. I guess I wanted to ask a little bit about sort of the fleet, and so maybe a specific detailed question. I think it's about 6,500 trucks is the right way to think about dedicated post-acquisition, but wanted to confirm that. maybe bigger picture on the for hire side, the network side. As you think about this relative to previous cycles and maybe stretching beyond the next couple of quarters, presumably we have a better freight environment ahead of us. Do you expect to grow back to the levels you were before or proportionally relative to dedicated? I just want to get a sense of kind of how you think this evolves between dedicated and the truckload side over the course of the next couple of years potentially.

Thank you, Chris. I understand the question. Certainly, as we've laid out, our strategic growth driver within truckload is and I believe will remain in the dedicated space. And so we're less focused what the percentages are between those two, but looking for quality opportunities to grow earnings in a sustainable way over an extended period of time is our focus with dedicated. That being said, we still have a meaningful one-way presence. 4,000 trucks, 4,500 trucks, if we do nothing but stay there, is a meaningful presence. What gets masked a little bit is the increasing influence of power only in our network business from a customer's lens. And so from a customer viewpoint, our network business feels larger than our published one-way company driver and owner-operator fleets. because of how we go to market, how we integrate those things. And so we're going to look at that truckload network as how to maximize our earnings potential and value to the customer across those various capacity types. And those are the capacity types that will operate in that more random network configuration. So it'll be the combination of those two things. And so we're not anti-company driver or very pro in our network business. We like it a great deal, but our growth focus will remain undedicated.

Okay. So that sounds like somewhere in the 4,000 plus truck range is maybe the low water market that you don't necessarily think you'll drop below that is what you're thinking? It would not be our intention. Not at all. Okay. And then one quick follow-up just on the acquisition is we think about whether it be a revenue per truck per week, how does that sort of stack up relative to the broader? I know it's a relatively small piece in the context of 6,000 trucks that's coming on, but are there meaningful variances either in market exposure or other dynamics that could drive different revenue per truck per week numbers?

No, Chris. Our approach to this is buying very healthy companies that can contribute in a consistent way to what we're trying to do here. So that will be very much on par to our current experience to perhaps slightly ahead based upon some of the geographies that they participate in. So it'll be a positive contributor.

Okay. Thanks for the time. Appreciate it. Thank you.

This concludes our question and answer session. I would like to turn the conference back over to Mark O'Rourke for any closing remarks.

Great. Well, thanks for everyone for joining us today. And I'll just close by referring you to page 14 and 15 of our updated investor presentation. And our strategy is to be disciplined in how we deploy our capital, focused on shareholder returns. And to do that, we have outlined our strategic growth drivers of dedicated truck, intermodal, and logistics. And we're pleased that we had a chance to talk about those things today. In the quarter, we did leverage our strong balance sheet to complement our dedicated organic truck growth efforts with M&M Transport, and we look forward to not only what they bring to us, but our opportunity to derodge synergies as we get them implemented. We'll continue to pursue those right acquisitive opportunities that advance our strategic priorities. We got a chance to talk about our share repurchase program today, which is almost 1.4 million shares in the quarter. We'll keep a nice, steady drumbeat for the remainder of the year, perhaps not to that same extent, but a nice, steady drumbeat. And we're going to continue to invest in the strengths across our highly diversified portfolio, and again, several of those which we had a chance to highlight on the call today. So I appreciate your time and attention and look forward to our discussion next time.

Thank you.

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect.