Schneider National, Inc.

Ladies and gentlemen, thank you for standing by. Welcome everyone to the Schneider First Quarter Earnings Call. At this time, 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'd like to ask a question during this time, simply press the star followed by the number one on your telephone keypad. If you'd like to withdraw your question, please press the star followed by the one once again. Thank you. I will now hand the call over to Mr. Steve Bindis of Schneider. You may begin your conference.

Thank you, operator. And good morning, everyone. Joining me on the call today are Mark Warck, 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 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, forecast 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 day of this call, and Schneider disclaims any duty to update such statements except as required bylaw. 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 presentations, which includes reconciliations to the most directly comparable GAAP measures. Now I'd like to turn the call over to our CEO, Mark Rourke.

Thank you, Steve, and hello, everyone. Thank you for joining the Schneider call this morning. In our opening comments, we will cover first quarter results in context with the current freight cycle, the positioning of our multimodal platform, including the ability to quickly pivot with the eventual market recovery, as well as our updated 2024 full-year guidance. Let's start with a recap of the themes we highlighted on our last earnings call. First, we noted that in general, customers entered 2024 with a heightened sense of uncertainty, but they also had the mindset that it's not a matter of if the supply and demand condition would recalibrate, but when. Second, our internal indices suggested that as we entered the year, the full load freight down cycle surpassed 600 days below neutral, which is long by any historical standard. Third, irrespective of the market, we are focused on company specific initiatives, including cost reduction actions and asset efficiency improvements, and returning our diversified and scaled operating segments of truckload, intermodal, and logistics on a path toward their long-term margin targets. All of these themes continue to be relevant as we sit here today. In the first quarter, the excess capacity condition persisted. January was especially challenging with sluggish volumes and adverse winter weather, which negatively impacted a large portion of the network. We are assessing signs that market conditions are beginning to moderate. For the first time in six quarters, we experienced positive contract price renewal closures in the low single digits for the truckload network. While this is a promising sign, we have not seen enough to consider the market at an inflection point. In the first quarter, the outcomes of pricing renewals varied across our service offerings. We achieved positive pricing of volume share gains with some large strategic customers as they prepare for the next market phase. We also renewed with certain customers at reduced volumes if retaining volume required contractual price concessions. The short term, we are prepared to place more of our capacity in other configurations, including dedicated and a spot market if necessary. This approach position us to quickly pivot, leveraging our scale across our multimodal platform and to be at an advantage when the market improves. Next, I'd like to provide some insights specific to each of our business segments. In truckload network, revenue per truck per week in the first quarter contracted 10% year over year, with most of the change due to depressed rates. Majority of the year over year in sequential change in network truck count is centered around the owner operator community, which highlights the financial strain that small operators are enduring through this extended down cycle. Our company truck count has been steady as we've maintained flexibility to take advantage of an improved market when it materializes, even if that means a higher spot percentage in the short term. In truckload dedicated revenue per truck per week was flat year over year and down 4% sequentially from the fourth quarter, with low single digit utilization impact primarily due to the severe weather in January. Our commercial and operational teams, along with our professional drivers, are executing with purpose against the dedicated portfolio and are serving as a catalyst for growth. Dedicated will also benefit from an improving network market as improved pricing on backhaul and revenue share arrangements, enhance margin performance while adding value back to our customer. Average dedicated truck count grew year over year by 773 units and 80 units sequentially from the fourth quarter. Dedicated now represents 62% of truckload tractors. The pipeline remains strong and we have successfully closed on a series of second and third quarter new business award implementations. And this gives us further confidence to continue to take action to address below contract threshold accounts. Moving to the intermodal segment, volumes were flat year over year, growth in the West, Transcon, and Mexico was offset by the East, which is the most competitive region with the truck alternative. Revenue per order was down 7% compared to the first quarter a year ago. Intermodal margins improved 40 basis points sequentially from the fourth quarter, overcoming typical seasonal declines and more severe weather impacts. The intermodal network is showing modest signs of healing with new business awards being implemented and great cost efficiency gains. Intermodal first quarter contractual renewals were largely flat compared to a year ago. I consider this favorable as last year's first quarter renewals were the most constructive of 2023. However, the outcomes of the early renewal season were more volatile than is typical. Pricing and volume gains and losses were higher in their amplitude depending upon customer allocation strategies. Our fully asset-based positioning with the Union Pacific and the CSX rail partners differentiates us as we take further advantage of how well they are connected to deliver volume growth and operating efficiencies that enhance our long-term intermodal returns. In addition, we are excited about the opportunity that will be created pending STB approval to allow two of our rail partners, the CPKC and CSX, to provide a new service between Mexico and Texas to the Southeast. We are also encouraged by today's announcement that the Union Pacific will reduce transit by two days on the country's largest freight lane from LA to Chicago. In our logistics segment, we have observed that customers in general are favoring asset-based solutions. We have seen the favorability for our assets and asset-based brokerages play out in the first quarter as our overall brokerage order volumes contracted only 8% -over-year, and power-only order volumes grew each month through the quarter and -over-year. Similar to other segments, brokerage has maintained its pricing discipline forgoing volume to maintain accretive returns. In the quarter, January's weather impacts were not absorbed as easily in the market as carrier costing and customer spot rates surged. However, the market moderated quickly, logistics operating margins eroded over 300 basis points compared to the first quarter a year ago, but only 10 basis points sequentially from the fourth quarter. Our power-owning offering has proved its value through both extreme up- and down-cycles, and we expect it to play an increasingly larger role in serving our customers' networked truckload freight needs when the freight market rebounds. It can grow share of wallet with our customers and earnings to the business at highly efficient capital turns. Despite current market conditions, we are encouraged that margins improved each successive month of the quarter across truckload, intermodal, and logistics, with March experiencing a semblance of seasonality and slight -of-quarter push. Before I turn it over to Darrell to offer his financial summary insights for the first quarter and our updated guidance for full year 2024, I want to take this opportunity to recognize five amazing Schneider Hall of Fame driver associates who recently surpassed a significant and extremely rare safe driver milestone. I offer congratulations to John, Kurt, Daniel, Wayne, and Michael for achieving 4 million safe driving miles. Everyone at Schneider is looking forward to an event being held in their honor this summer where we will celebrate their accomplishments, commitment to safety, and dedication to providing outstanding service to our customers. They are among the 92 professional driver associates who have earned safe driver awards of 1 million miles or more this year, and we are grateful for them and all the professional drivers at Schneider who live out our core values every day. Now let me turn it over to Darrell.

Thank you, Mark, and thanks to each of you for joining us this morning. I'll provide a financial recap of our first quarter results and give perspective on our updated 2024 guidance. You can find summaries on pages 21 to 26 of our investor presentation included on our website. Our adjusted income from operations for the first quarter was down 85 million or 74% from the prior year. Adjusted diluted earnings per share for the first quarter was 11 cents compared to 55 cents in the prior year. The first quarter of 2023 included net gains on equity investments and higher gains on equipment sales versus the current period, which represented a 12-cent aggregate headwind to earnings per share. EBITDA of 131 million, which was in line with the fourth quarter of 2023, demonstrated a level of sequential stability and reflects the asset efficiency and cost actions we continue to implement. In our asset-based truckload segment, revenues excluding fuel surcharge for the first quarter of 2024 were flat year over year. Solid, dedicated, organic, and acquisitive growth was offset by lower revenue per truck per week and volumes in our network business. Truckload earnings for the first quarter were lower on a year over year basis, primarily due to network price and volume pressures, lower gains on equipment sales, costs related to dedicated new business startups, and inflationary equipment-related costs. Across all business segments, we continue to implement mitigating actions to improve asset efficiency and manage controllable costs while executing from a position of strength to be advantaged as the market recovery builds. We continue to be disciplined in our commercial actions. Our dedicated business continues to grow due to strong account startup activity, a robust pipeline, and solid operating performance of existing accounts. The -over-year consistency in dedicated revenue per truck per week is indicative of the resilient nature of the dedicated portfolio. In our intermodal segment, first quarter revenues excluding fuel surcharge were down 7% year over year as a result of corresponding declines in revenue per order. Intermodal earnings were down year over year, primarily due to lower revenue per order and higher empty repositioning costs, partially offset by improved grade performance. In our non-asset logistics segment, revenues for the first quarter declined 15% on a -over-year basis, primarily due to decreased revenue per order and overall volume declines. We're encouraged by the earnings improvement we've seen across all segments as the first quarter progressed with a return of more seasonality, and we believe this is a positive indicator as we continue to navigate the current freight cycle. We expect to build on this momentum through the remainder of the year as we work to restore our long-term margin targets. We're also encouraged by the strength of our balance sheet, which allows us to remain committed to our capital allocation strategy regardless of cycle. As reflected in 112 million of net capital expense for the quarter, we continue to execute on our age of fleet objectives while taking appropriate actions to improve asset efficiency. We executed opportunistic share repurchases and paid nearly 17 million dividends during the quarter, which was 5% above the same period in 2023. We continued to generate strong operating cashflow of 98 million during the quarter, and our net debt leverage stood at 0.4 times. Moving now to our forward-looking comments. We remain intensively focused on executing all areas of the business, leaning heavily on those factors within our control, including commercial and revenue management discipline, managing asset efficiency, and delivering on cost-containment initiatives. These efforts are ongoing, and we've been successful in delivering meaningful improvements. However, these efforts only partially offset the impact due to the persistent supply and demand challenges. We're seeing signs that inventory de-stocking has largely concluded, although shippers are cautious and reluctant to begin meaningful restocking, partly based on the impact of inflation and interest rates on consumer confidence, including uncertainty around the timing and extent of interest rate cuts by the Federal Reserve. In addition, since we shared our previous guidance, spot rates have not improved to the degree expected, and we're experiencing varying results in contract pricing throughout the allocation season to date. We're seeing positive signs across our business, with dedicated and power-only resiliency and improvements in earnings within our network businesses. While we do anticipate capacity attrition, modest demand growth, but a market that moves towards balance as the year progresses, the timing of market recovery differs from what was contemplated in our previous guidance. Our current guidance reflects a return to some degree of seasonality and our anticipation of modest sequential improvement in market conditions through the remainder of the year. As in all market conditions, we were made focused on controllable costs and asset efficiency actions. As we progress through the year, we anticipate improving yields in our network businesses, volume growth in intermodal and logistics, and continued front growth in dedicated based on visibility to our pipeline. Taking our first quarter results and our revised market expectations into account, we have updated our adjusted diluted earnings per share guidance range for 2024 to 85 cents to $1, assuming a full year effective tax rate of 25%. We're also adjusting our net capital expectations to be in the range of 350 to 400 million for the full year 2024. With that, we'll open the call for your questions.

Thank you. We will now begin the question and answer session. If you have dialed in and would like to ask a question, please press star one on your telephone keypad to raise your hand and join the queue. If you'd like to withdraw your question, simply press star one again. If you are called upon to ask a question and are listening by loudspeaker on your device, please pick up your answer and ensure that your phone is not on mute when asking your question. In the interest of time, we ask that you limit yourselves to one question and one follow-up to allow for as many questions as possible from our audience. We'll pause for just a moment to compile the Q&A roster. Thank you. Our first question comes to the line of Brian Ostenbach from JP Morgan. Please go ahead.

Hey, good morning. Thanks for taking the questions here. Maybe just wanted to start off with intermodal. Maybe Mark or Jim, you can talk about just the allocation season, especially on the Western side. I think that was an area you called out last quarter. There was a little more challenging expected to get a bit more balanced there. How did that turn out? How much visibility do you have to that? And will that start to help bring some more balance through the rest of the year?

Yeah, Brian, thanks for the question. This is Jim. So, we're still about 40% of the way through our allocation season. As we've gone through that, as Mark was saying, we've remained disciplined and we've been able to sell into those areas where we have differentiation in our network. And in the West, we talked about it in Mark's opening, really excited about the fact that we have an improvement in transit time on the largest corridor. So, we're going from a position where we were 24 hours behind the competing transit to now we're 24 hours faster than the competing transit. So, we think we have an opportunity to continue to grow there. So, we feel really good about that. We've had terrific results in Mexico. And now with the additional opportunity between the CPKC and CSX to provide that service between the Southeast and Texas and Mexico, there's some great opportunities for us there. And getting back to the West, the UP expanded their capacity in the Inland Empire. And so, there's nothing constricting us from growing that really important corridor.

Yeah, Brian, in the first quarter, we did see growth in the West, both Transcon regionally and as Jim mentioned, just a real continued traction into and out of Mexico would help us overcome some of the difficulty in the East just because of the truck alternative and that market being more sensitive to truck pricing. So, which is a little bit of reversal a year ago. If you remember, we've been growing more in the East. So, we've had a little bit of a renaissance with growth in the West, which is highly encouraging and continue to lean into that.

Okay, thanks for that. And then just maybe more broadly speaking, when you look at the guidance for the rest of the year and the level of competition is out there, you've mentioned the East is pretty competitive. You got one other large competitor looking at basically down mid-single digit rates for their book of business this year. How can you work through that? And I guess, what are you seeing that gives you the confidence to see more seasonality and then sort of this back half recovery, even though it's a little bit later than you initially thought? Is that more on the demand side? Do you really think capacity is gonna start to get squeezed up? What are your specific thoughts on that? Thank

you. Sure, sure. Obviously, it's been hard to predict in this market over the last couple of years, Brian. But as we looked at the first quarter and the continued improvement in results, January through March, both from a demand standpoint and leaning in now into the allocation season and seeing some turn in pricing, not in every condition in every place, but starting to see some positive price movement, we think is an encouraging sign. And we would expect as the consumer to date has kind of hung in there and our industrial markets, as we're highly diversified between consumer and industrial markets. And what we've seen so far in April is really what's embedded in our thought process going forward for the remaining quarter. So not as positive as we felt as we were coming through the latter part of last year, we were seeing in our view, the replications and some of the changes in capacity that we felt was starting to turn more aggressively, particularly going into what we would have expected to be a hardened insurance market. And again, I think what is happening, we're seeing a little bit more resiliency still in the capacity front, but we still expect moderate and we're seeing moderate reductions there and moderate demand improvement into some seasonality. And so it's not, so those are really the key factors for the remaining part of the year.

And Brian, this is Jim, the other factors we're looking at the East is the competing rail service. There's a potential for some disruption as they will be reworking potentially their network. And that's something that we experienced with the CSX a number of years ago. It was a challenge for us. And so there's a potential coming up here in the remainder of the year that we could see some disruption on that competing service. Yeah, filling some room momentum and intermodal and total.

And sorry, just to clarify the low single digit contract that you mentioned earlier, was that for truckload? Is that just for the current wave of contracts? Maybe you can put a little more contact. The truckload,

it was referencing truck network.

Okay. All right, thank you very much for the time, appreciate it.

Thank you. Our next question comes from the line of Ravi Shankar from Morgan Sammy, please go ahead.

Thanks, morning everyone. I think the commentary on recent contract rate increase was pretty encouraging. Can you unpack that a little bit more? Is that for customers who just had the easiest comp? Do you feel like that's sustainable? How are some of those increased conversations going down with customers?

Yeah, Ravi, the comment about easy comps, I think easier comps are kind of later in the year. This, as we referenced in our opening comments, both in our intermodal and truck network, the most constructive allocation season a year ago was the first quarter. And so also in my comments, I indicated strategic customers who are anticipating where they're going next in the marketplace are looking, I think, to value incumbency more and also asset-based solutions more. And I think that's more of a consistent theme that we're hearing through the allocation season, but it's not everybody. And for those that want to continue to press in a different direction, then we have to make sure that we're doing the right thing for our shareholders and our business. And if necessary, we'll also reduce volume and look for other alternatives there. But I agree with you, it is a good encouraging sign and momentum that we intend to build on as we go through the remainder of the season.

Gar, I just want to follow up on what you said about your customers preferring asset-based carriers. Someone with a pretty large logistics operation as well, kind of, is that a consistent trend you're seeing because we are starting to hear of maybe, you know, shippers moving more towards asset-light opportunities as potentially a reason why, you know, rates are being suppressed for a while. Kind of, do you see a swing back towards asset-based?

Well, I base my comments and assessment on just customer conversations and behaviors. And, you know, I do think we are advantaged when we have a multimodal platform the way we do, and certainly power only in our brokerage business that integrates well with our trailer pull offering on the asset side for a customer. You know, we work hard to make that incredibly seamless. And so I think the combination of how we go to market and our portfolio as it relates to brokerage with that power only offering, I think, gives us advantage, and we're seeing it in volumes growing even year over year across that segment and showing its resiliency, whether the market's up or whether the market's down.

Very

good, thank you. Thank you, our next question comes from Lana Jason Seidel from TV Club. Please go ahead.

Thank you very much. I wanted to start an intermodal. I mean, clearly there's a lot going on with improved service, whether it's coming from the West or coming cross border. You know, I was wondering as we look out into the future, do you think that that could actually maybe push that intermodal growth rate, you know, sort of beyond what we've seen in the past?

Great, thanks for the question, Jason.

Yeah, this is Jim. Absolutely, I agree with you that it creates a differentiation for us that in addition to service, that customers in the past looked at reliability and service as a reason why they expected, you know, a discount, a savings for using intermodal. As you reduce that transit difference, it's more reliable, as well as sustainability, it starts to change that. And there are customers that we have today that are already looking at this and they no longer expect a discount for intermodal. Given the service that it's already at and the sustainability improvement, I'd expect as you go further, there's more customers, they'll put more weight towards sustainability.

So as we look out and if we just assume that, you know, truckload rates recover, so you're gonna have that spread narrow between intermodal and truckload, as well as service improved, should we just expect that there are gonna be stronger growth rates at least on the volume side for intermodal?

Yes, we'd expect that intermodal would grow faster than over the road transportation.

And then, Paul, go ahead. Well, Jason, we also have more tools in our toolbox here with the performance, you know, in Mexico, and again, we had some STP approval on some other lanes and now we're getting a chance to fully exercise after a year with our UP partner in the West and not going through a change this year like we were going through last year. And all of those, I think we're just in a more stable condition and customers like stability when it comes to intermodal.

That makes sense. My other follow-up is just sort of trying to get clarification on your guidance. So what do you have built in for equipment sales in the back half of the year?

Yep, so for equipment sales, if you recall, when we gave our guidance for the fourth quarter, you know, we said that we expected some headwinds and we expected rates of gain on sale of equipment. So we're essentially, you know, assuming flat, you know, or zero gain on sale, which was a 30 million headwind. So what we saw as we progressed through the first quarter is that proceeds were stronger, primarily based on the mix of what we're selling, but also as it relates to the trade off pool, we saw unit price improvements versus what we initially thought. But as we go through the year, the expectation is that that's gonna moderate. So some of the gains that we saw in the first quarter would not be expected to continue. So we're more in line with what we initially guided to a few months ago.

So pretty much flat in the back half of the year right now? Yes. Very little gain. Very little gain, yeah. Very little, okay. Gentlemen, appreciate the time.

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

Great, good morning. Mark, you're definitely a little surprised by the positive backdrop, given what we've heard from some others. So I just wanna interpret that a little bit. It sounds like maybe seeing a little bit more of a turn and Intermodal, you know, Darrell's been pretty positive on the comments here. You answered Ravi on the contract market, which was up a little bit. I guess I'm still trying to figure out if that was just because contracts were underwater or if that's real strength, because then in your commentary you threw in, we've also moved more business to spot. So maybe just parse that out a little bit or follow up with some more thoughts.

Yeah, Ken, thanks for the opportunity to clarify. Certainly we're not calling an inflection in the market. What we really highlighted there is the discipline relative to how we're looking at through allocation season and the alignment we have with customers that value, incumbency, value what we provide and looking in those cases to be recognized for that and our commitments are reflective. If folks are not in that camp, then that's what goes more to spot or more into dedicated that are looking to extract more from a marketplace that we don't think is sustainable. And so in those cases, we might lower our commitments and lower our volume with those customers. And so in the first quarter in aggregate, that net was slightly positive in the low single digits on the contractual renewal front. So that's what I would read into it. I wouldn't read into it that we're suggesting that we're in a market inflection, but I do believe it's at least a positive sign. At minimum, it's less negative, let's put it that way.

Yeah, and just a follow up on dedicated. The sequential decline in revenue per truck, I guess some peers have noted some competitive undercutting. I know you talked about a big win, maybe a quarter or two ago. Can you talk about the market now on the dedicated side? How is it standing out? Yeah,

we would consider the dedicated market fairly stable. Again, we're highly diversified within that market, Ken. Not only if we're talking retail, we're highly diversified across virtually every segment of retail from extreme value all the way up to the home improvement and big box. But we're largely and increasingly focused on our growth on the industrial side of the economy, which is more in the specialty equipment. And what we find there is folks that have scale, folks who have referenceability, and folks that have a balance sheet to go ahead and play there. The competition, while always there, and we have good competition everywhere, we wouldn't characterize it as any more difficult than we've experienced in the last couple of years. So it's a focus, we have it resourced well, we're performing well, and the pipeline continues

to build. Yeah, this, Jim, there was no drop-off in pricing. There were some weather events in Q1 that had some impact on our productivity. That was the primary driver. Great, guys, appreciate the time, thanks.

Thank you. Our next question comes from the line of Tom Wodowitz from UBS, please go ahead.

Yeah, good morning. I think, I know you've talked a fair bit about rates, and it's good to hear the constructive commentary. In terms of the modeling for 2Q in revenue per truck per week or in intermodal revenue per load, would we think that's stable sequentially, or is it down sequentially? Or I guess, I mean, your comment on contract rates maybe say it's actually up a little bit sequentially, but just trying to think about how to translate that into the model for 2Q.

Yeah, Tom, we don't give specific quarterly guidance on metrics of business, but I draw you back to improving condition through the quarter, January through March, and really all three of the businesses relative to its operating metrics and ultimate performance was a pretty difficult start to the quarter and a start to the year, and a little bit of what we obviously can see here in the month of April. So that is what's behind our adjusted downward guidance, but how we build what we consider modest momentum from here, both on the capacity and demand standpoint and the fact that we've been leaning into costs very directly for the last several quarters and getting to get to some of the benefit of our cost position and our cost actions and give the organization great credit, and doing it in a smart fashion that it doesn't impede our ability to respond when the market condition starts to turn. So what I would consider smart, constructive, and sustainable leaning into cost positions across the income statement.

Okay, how do you think about, and I know you've had a couple on this too, but just interval competitive dynamic does seem to have, I think, I don't know if you use the word churn, but maybe some greater movement than normal. It seems like one of the players has gotten a bit more aggressive on volume, and your outlook seems constructive, I think, in terms of seeing volume growth. Just how much visibility do you have to the volume growth, and did you kind of avoid some of the greater rate pressure, or just how do you think about the dynamic that's happening in the interval competitive market? Thanks.

Yeah, Tom, I think I got your question. If I missed it, please come back. But what I really wanna start with is how we're approaching this from a strategic standpoint, and that starts with how we've aligned relative to our underlying rail partners, which we feel really, really good about. And we did that for the specific purpose based upon our asset-based model of owning our own box chassis, and largely our own company, Dre, that we wanted to have as much distinction with our key competitors as possible, so that we could bring a different type of solution to our customers and the underlying railroads to help support that. And that's only been encouraged further by the newer relationship with the CPKC, a terrific operator doing extremely well for us in Mexico, and looking like us to extend reach and capability in other parts of the network, which they've announced some intentions to do that. So it's the combination of getting some maturity in what we outlined in our strategy, and ultimately the market has to be there, and ultimately the intermodal business has not been immune to pricing pressures or competitive pressures. But again, I think we're poised and ready to take advantage of what's in front of us. We just need the market to go along with us a bit.

Do you think you have good visibility to the volume growth? Like you kind of have the contracts in place to get that, or just what about the visibility on volume side?

Yeah, we're getting close to about 40% through, so we have a little better visibility. Fulfillment rate is always the key measure there. What you're awarded and what the customer's business is is always has to be ultimately delivered to us. But yeah, we have a lot, so a lot of the year left, and we have a lot of the allocation season yet to go, but we have visibility to, like I said, roughly about 40%.

Right, okay, that makes sense. Thanks for the time, Mark.

Thank you. Our next question comes from line of Jordan Halegar from Goldman Sachs. Please go ahead.

Yeah, hi, just a quick question just on intermodal and the margins and sort of return to sort of the longer term targets that you guys have talked about. Is it safe today that the price dynamic has to be the key driver of that at this point relative to the volumes and perhaps productivity even that you're seeing with the rails?

Yeah, this is Jim. So there's a number of actions here. First of all, staying disciplined on price as we go through the allocation. So price is a part of that, but also, we're seeking to heal our network where we need to drive out some empty miles and driving out those empty miles helps us improve our asset utilization or productivity. And you saw a little bit of that as we saw some improvement on DRAE. And then intermodal is no different than our other segments where we're focused on managing cost, but at the same time preserving that ability to grow and where we're growing is gonna be specifically growing into those areas where we have differentiation. And so taking those actions is what puts us on the path to hitting our long-term margins. So yeah,

it's shortly, it's a combination of our revenue actions, it's a combination of rail costing and it's a combination of our cost positions in general. So we're on the path, but we got a ways to go coming out of where we are in the market.

Thank

you. Thank you, our next question comes from Lana Bascon-Mazes from Cisco HANA, please go ahead.

Yeah, thanks for taking my questions. I wanna go back to the seasonality question. If you look historically, you typically see a pretty meaningful lift in the second quarter. It sounds like you've got confidence in that from your comments about sequential momentum in all your businesses through the first and that continuing into April. For the second half tends to be kind of sideways in the third quarter, depending on the market. And then, you see the typical four-queue peak seasonality. Is that the shape of the year contemplated in your guidance? Just any thoughts about how seasonality might be a little different than the historical patterns would be helpful as we think about the rest of the year? Thank you.

Thanks for the question, Bascon. As we kind of set back and look at, quote unquote seasonality, one of the things that was interesting for us that didn't end up holding as long within the first quarter was the weather events. When we had the weather events a year ago, those were much quicker absorbed into the marketplace with really little difference between price and carrier costing in those items. It was interesting to see in the weather patterns, this year, that that quickly changed, both spot pricing increase, carrier costing increase, which I think suggests that there has been a degree of tightening. So that's hit and hold. Obviously, there was a pricing, spot pricing started to retract back, but at least there was a bit of a change in the marketplace. There was a change in those metrics and those dynamics. As we look towards seasonality now and seeing a little bit of a return with inventory seem to be in most of our customers relatively where they should be, we got back to some end of quarter projects. We got back to some end of quarter protection for volumes that people push out a little bit heavier at the end of the quarter. Again, not an inflection, being very clear about that, not an inflection, but some of those changes and some of those more typical market practices started to return. And so as we think for the rest of the year, that's what we're really referencing on seasonality, of moderate seasonality back to some similar behaviors. Again, not inflecting, we're not suggesting that we're through the cycle completely, but that's how we're thinking about seasonality. And I would characterize it fairly typical as we would normally see it. Through history, which is what you suggested in your

question. Thank you for the time.

Thank you. Our next question comes from the line of Daniel Inbrough from Stevens, please go ahead.

Hey, good morning guys, any second to questions? Morning. I wanna start on the dedicated side. Grow and truck out nicely on dedicated. We may have missed it, but what does the sales pipeline look like there? And as we think about the embedded ramp and earnings in the back half, are there startup costs as you're winning these contracts that are weighing on the first half? Or how should we think about the profitability dedicated to the role through the year?

Yeah, good question. And certainly the best time for cost for dedicated is when you're just farming everything that you have and you're not starting up. So there is impact when you go through startup, but we're in a pretty consistent cadence of startup on a quarterly basis. What I outlined in my opening comments is we have site to several startups in the second and third quarter based upon implementation schedule. We laid out at the beginning part of the year that we expected to net up several hundred dedicated trucks, knowing that now that we're at 62, 6,300 trucks, even a modest churn of two, 3% creates a couple hundred units of new business that you have to grow to maintain yourself. And so those initial projections are pretty much where we see and expect the year to play out. So the pipeline is strong. We've increased our efficiency, meaning we have improved our tractor to driver ratios in dedicated, which has helped us lower costs for new implementation. We've got more efficient, so we use those tractors on some new startups, which lowers our friction costs to get things started up. But overall, we would still very bullish, and this is across a very diversified part of the economy. We're not really concentrated in any one area. We have a good distribution across both the industrial and the consumer markets.

That's helpful. And then as a follow-up, maybe on intermodal margin, you had revenue down sequentially. There were some disruption from weather, and yet OR improved from the fourth quarter. Is

that just

some rail cost adjustments that explode through in the first quarter with your partners, or what specifically drove that margin improvement despite those conditions?

Yeah, this is Jim, and thanks for the question. So specifically, it's some improvements that were sequentially healing our network, and as well as utilization of our drivers. So when we were talking about going through the bid season, we've been very specific of growing where we have differentiation, where we can take out empty miles, and as we're taking out empty miles, that's improving the asset utilization and productivity, and that's enabled us to have some sequential improvement in margin.

Great,

thanks so much. Best of luck.

Thank you. Our next question comes from Lana John-Chapelle from AVOCOR ICI. Please go ahead.

Thank you, good morning. It's ISI. Mark, I'm the power only. So some real positive comments there increased each month throughout the quarter. It seems like that's been one part of the business that's held up pretty well, relatively speaking, relative to the rest of the portfolio. Yet the logistics margin now is still in the sub 2% level. So, can you help us just understand, does power only just provide kind of a stickier business from a volume perspective, or is it truly higher margin, and I guess maybe in the absence of power only, you'd be kind of bouncing around break even.

Yeah, let me see what I can kind of share here. First, as we generally have talked about in our brokerage business in total, we are generally about 50%, contract 50% spot to the customer. That can toggle depending upon market into a 60-40 either direction. Under the power only model within there, we are even a higher percentage of contract business, so it's repetitive, it's what we commit to through allocation events. And because we're bringing some asset component to that, the trailer, we do get a higher net revenue per order in power only than we do in our traditional brokerage offering. And it's just exasperated presently just because of the difficulty in the competitive, the highly competitive nature of the live-live brokerage margin, or excuse me, market. And so, power only is accretive to the margin performance of the business in total, and even more so now in this, what we consider the most difficult part of the market for our live-live brokerage offering.

Okay, that helps. And then I apologize for how big picture this is, but I think it's pretty important. It feels like the capacity is still pretty stubborn across the truckload side and just hasn't accelerated to the pace necessary. And then we're also seeing some really negative commentary out of some of the biggest consumer products companies in the country or the world. So I'm just trying to understand with those two headwinds seemingly, Steph, where do you think some of this sequential improvement has come from since January consistently and even into April? Is it just like things couldn't go lower and there's only one way to go from here? Or are there green shoots outside of maybe the bigger picture things that we focus on that we just can't see yet?

Yeah, it's hard to have perfect vision across all of those elements, which I think has been so stubbornly difficult going through this current elongated freight cycle, Jonathan, but I do believe most customers are through the inventory de-stocking, right? So whatever is kind of moving through the channel, there is something that's backing it up to replenish. And so while it's not building necessarily, we don't see a lot of that condition, it does seem to be quote unquote more normal relative to where inventory is, sales occur, and then whether it's coming through the vendor inbound into DC or through our dedicated trucks from DC to store, it's steady, I would consider demand fairly steady and certainly we saw improvements through the quarter and the first quarter and our early view here to April. So again, always hard to predict the future, but what we're seeing would seem to be a more normalized condition.

Yeah, and I think the other key aspect here is just the importance of remaining diversified. We're not tied to any one single customer that's making up a significant portion of our volume in any one of our segments, and that enables us to be successful through the cycle.

Yeah, and I guess the only thing I would add is some of those macro factors that you did outline have led to the reduction in the guidance, right? But as we look forward, we do have some conviction based on the sequential improvement. It's not only on the pricing side, but the productivity actions and the cost actions that we've taken have helped to improve earnings as we've gone through.

Okay, thank you, Darrell. Thanks, Mark. Thanks, Jim. Thank you.

Thank you. Our final question for the day comes from Brian Osenbeck from JPMorgan. Please go ahead.

Thanks for taking another one here. Time call or something? Just

a list.

That's right. Well, I just want to ask real quickly on a negative cashflow for Darrell. It seems like maybe this should be the low point, but you're still sticking with most of your CapEx plans, so maybe you can just walk through that. And then Jim, it'd be good to hear your thoughts on the dynamics in international intermodal. We've clearly seen some pretty strong growth, easy comps, but just wondering your thoughts and how that trickles down into domestic. Is that channel getting more full in those, so therefore we should see more

transloading,

or do you think that maybe these ocean carriers are really just fine sending more and more boxes, IPI, and that might be a headwind for growth. So thanks for the follow-up.

Yeah, so I guess I'll start. So just to clarify your question, negative free cashflow, right? So our operating cashflow was actually positive, almost 100 million in this cycle, which I think is very impressive. So the dynamic really is the CapEx. So as we kind of entered into the year, we talked about the improvements that we made in our age of fleet targets, right, and that would continue some of those actions. We talked about the growth that we expected in dedicated and intermodal tractors. We've become more efficient as the corridor has come through, and that's really what's allowed us to reduce our CapEx guidance as it relates to tractor growth going forward. But as Jim said, we want to make sure that as we become more and more disciplined, we're still positioning ourselves for the recovery. So we're not trying to cut CapEx that's necessary for our growth. So the dynamic really of a free cashflow is the combination of lower earnings for the first quarter and a continuation on our CapEx strategy.

Yeah, and this is Jim to answer the question about international intermodal, and yes, it is up on a -over-year basis, but that's really just a function of, to your point, how bad it was a year ago. So it looks more stable, as does the distribution between East Coast and West Coast. So it's becoming a little bit normalized. And so I wouldn't really say that there's been this growth in international in terms of taking share from domestic intermodal. So it's good to see that a little bit more normalcy. In terms of the ocean carriers and their position, what's still out there is disruption. There's been a lot of disruption in the world, and we're one more disruption from the ocean carriers saying, I'm going to need my boxes because I'm going to be taking longer routes, and that pushes even more to pack to transloading. Thank

you for the question.

Thank you, ladies and gentlemen. As we have no further questions at this time, we will conclude today's conference call. We thank you for participating, and you may now disconnect. At this time, we will conclude today's conference call. We thank you for participating in this conference call.