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.