Schneider National, Inc.

Good morning. My name is Krista and I'll be your conference operator today. At this time, I would like to welcome everyone to the Schneider fourth quarter earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star followed by the number one on your telephone keypad. And if you would like to withdraw your question, again, press star one. Thank you. I will now turn the conference over to Steve Bindes, Director of Investor Relations. You may begin your conference.

Thank you, Operator, and good morning, everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer, Darrell Campbell, Executive Vice President and Chief Financial Officer, and Jim Filter, Executive Vice President and Group President of Transportation 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 release and investor presentation, which includes reconciliations to the most directly comparable gap measures. Now I'd like to turn the call over to our CEO, Mark Roark.

Thank you, Steve. Hello, everyone, and thank you for joining the Schneider call this morning. Let me start by offering our perspective on the current freight cycle by placing that in context for our most recent quarter results and our long-term strategic priorities. A consistent theme emerged from the discussions we have had with our highly diversified customer base through the back half of 2023. While customers still find themselves in a heightened state of uncertainty heading into 2024, virtually no one believes the current demand and capacity cycle is a new normal or even that it's durable. The consistent question is, when does it change? In alignment with that theme, at the end of January, Schneider's internal truckload freight market index crested 600 days of being below neutral, while the prior six cycles, three up and three down, have lasted an average of 575 days. Therefore, historically, we are quite long into this cycle. Invariably, macroeconomics and the demand and capacity balance environment adapts, sometimes at a slow and steady pace, and sometimes more abruptly due to a catalyst. Irrespective of the market, we are intently focused on company-specific initiatives to return our diversified and scaled operating segments of truckload, intermodal, and logistics to their long-term margin targets. Let me recap the important developments in the most recently completed quarter regarding those initiatives. First, in truckload segment, our average dedicated truck count in the quarter is up 674 units over a year ago and up 283 units sequentially from the third quarter through a combination of organic and acquisitive growth. Included in those numbers is truck count attrition across dozens of operations, particularly in retail support applications, due to less overall demand this fourth quarter versus a year ago. Encouragingly, this serves as a built-in growth channel with even modest demand improvement. Revenue per truck per week and dedicated improved both year-over-year and sequentially, primarily due to asset productivity improvements as a result of those operations-specific truck count adjustments. Our dedicated value proposition of strong operating performance combined with the robust new business pipeline gives us visibility into several hundred units of additional organic growth in 2024. Dedicated's consistent revenue and earnings profile places it at the top of Schneider's strategic growth priorities alongside Intermodal. Presently, the growth and performance impact of dedicated within truckload is muted due to the challenges of generating returns in the network offering. Over 100% of truckload earnings in the quarter were associated with the dedicated offering. Revenue per truck per week in network improved sequentially, driven by asset productivity aided by volumes improving modestly compared to the third quarter. However, at this time, there is not a compelling reason to allocate additional capital in network until freight rate levels are compensable for the service provided. Our second strategic imperative is to grow intermodal earnings primarily through accelerating over-the-road conversion opportunities. That objective was the driving force behind our new rail partnership alignments with the Union Pacific and the CPKC. We are not gauging success with the UP network conversion off the first four quarters of operations. We are playing the long game here. Achieving our desired outcomes in the West requires not only service reliability, which the UP team has urgently and successfully addressed, but also flexibility in the solution commercially. 2023 was the year we took a step back in Western intermodal order volumes. The corresponding mix change is reflected in the 11% lower year-over-year revenue per order, evenly distributed between a change in mix and a change in price. That said, I am pleased that we are working in a highly collaborative manner with the UP to reverse that trend in the 2024 allocation season, and I am confident we're going to be successful. We were also committed to leveraging Schneider's considerable strengths in Mexico with the leading intermodal service capability of the CPKC. The CPKC's best-in-class solution is one that proved its value in the quarter by eliminating handoffs and keeping freight in motion, which is the best way to avoid thefts and other disruptions. However, to unlock the full potential of the intermodal conversion opportunity requires changing long-held market beliefs and experiences on the reliability of intermodal solutions into and out of Mexico. Again, we're playing the long game here, and we expect by the time we exit 2024, we will be well on our way to realizing that potential. Thirdly, the logistics and brokerage market are hyper competitive, and I appreciate how our team has nimbly navigated the environment by leveraging its own freight generation capability and the resilient power only model to stay profitable. I am pleased with the advancement of Schneider Freight Power and the growth of our digital connections. Despite market softness, the number of orders that we acquired digitally increased approximately 25% over a year ago. This creates significant leverage for Schneider when the market begins to improve. Before I hand it over to Darrell for his commentary, let me offer some additional insight into fourth quarter results, including context to our guidance coming out of the third quarter earnings call. From a safety performance basis, our operations safety and professional driver teams have reduced the frequency of auto liability incidents by 19% as compared to the pre-COVID 2019 baseline. That is an important trend line as cutting exposure is the first line of defense against rising settlement costs. However, in the quarter, we experienced adverse development primarily on two accident claims from earlier in the year. Those two incidents snapped a 16-quarter consecutive period without a significant claim adjustment. On the positive side of the ledger, we posted a lower tax rate for the year. The net of the adverse safety developments and lower tax represented a 4% drag on earnings per share from what we contemplated in our prior guidance. Otherwise, the quarter played out nearly as we expected in terms of freight yields, cost performance, and lack of equipment disposal gains. Encouragingly, year-over-year volumes were up in December for both network truck and intermodal, but overall volumes in the quarter were more tepid than expected, especially around the holiday weeks in November and December. Let me now turn it over to Daryl for his insights on the most recent quarter, an update on our capital allocation expectations, and our 2024 guidance.