Schneider National, Inc.

Ladies and gentlemen, thank you for joining us and welcome to Schneider National's second quarter 2026 earnings call. After today's prepared remarks, we will host a question and answer session. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. I will now hand the conference over to Christyne McGarvey, Vice President of Investor Relations. Please go ahead.

Thank you, Operator, and good afternoon, everyone. Joining me on the call today are Jim Filter, President and Chief Executive Officer, and Darrell Campbell, Executive Vice President and Chief Financial Officer. Earlier today, the company issued an earnings press release. This release and 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 date of this call and Schneider disclaims any duty to update such statements except as required by law. In addition, pursuant to Regulation G, reconciliation of non-GAAP financial measures referenced during today's call can be found directly in our earnings release and investor presentation, which includes reconciliations to the most directly comparable GAAP measures. Now, I'd like to turn the call over to our CEO, Jim Filter.

Thank you, Christine. Hello, everyone. Thank you for joining this international call today. I will start by offering my perspective on the freight cycle and how we are positioning the enterprise for success in this dynamic market. I will then turn it over to Darrell for his commentary on second quarter results, capital deployment, and our full year earnings per share guidance. After that, we'll open up the call for questions. Looking at our performance in the quarter, we believe we are seeing the initial benefits of the actions we took to structurally improve the enterprise and position us to quickly and effectively capitalize on better market fundamentals. This includes effective revenue management, enhancements to asset efficiency and productivity, execution on our $40 million cost savings program, and our differentiated multimodal model. We continue to see meaningful opportunity ahead, but we want to thank our associates, especially our professional drivers, for their hard work which helped drive earnings to more than double sequentially, representing the strongest quarter-over-quarter improvement in the last decade. Many cycle indicators that showed signs of life in the first quarter gained momentum through the second quarter. Spot rates are already testing prior cycle highs, turndowns remain elevated, and utilization has increased meaningfully. Underlying demand trends were largely stable, with some modest seasonal activity. As a result, we believe the market's improvement to date has been supply-led. Regulatory action and enforcement on non-compliant supply, including in areas such as non-domicile CDL usage, English language proficiency, illegal cabotage, entry-level driver training, and ELD tampering, all gained traction through the second quarter. Supply attrition has been faster than we initially expected and is removing the most irrational capacity from the marketplace. We would now categorize the market as driver-constrained. The long-haul driver population in the U.S. sits well below long-term averages and near the lowest levels seen over the last decade. However, we believe roughly half of the non-compliant capacity is left, with the remaining impacted supply expected to exit through next year. Against that backdrop, we believe we are only in the early stages of rate recovery and are maintaining a discerning approach to customer allocation events. We are balancing customer commitments with the need for rates that will support our strong service, recoup multiple years of significant cost inflation, and drive returns back to a level that is supportive of growth. Importantly, spot rates now exceed contract rates at a level that has historically preceded more meaningful contract rate improvement. While the pace of supply attrition and a supporting price increases, it is also creating challenges in driver recruiting and retention, which is putting upward pressure on the cost of capacity. We remain an employer of choice, and we will be disciplined in investments to add capacity, focusing on where we see clear demand, strong productivity, and returns that meet our expectations. We have aligned our pay structure to reward our hardest working drivers to support retention, while surgically reinforcing recruiting efforts, including growing the number of recruiters, expanding our AI capabilities, and enhancing starting driver pay in the most constrained geographies. Altogether, second quarter results underscore the importance of price and productivity. Changing supply conditions are most acute in the over-the-road segment of the market where irrational capacity has persisted. This, in turn, is creating the strongest initial opportunities in our network and logistics solutions, and we have responded rapidly. In the second quarter, these segments captured premium opportunities as we supported customers through a quickly tightening marketplace. We expect dedicated and intermold to see increasing benefit as we move further into the upcycle through contract renewals and freight allocation events. This flexibility is the benefit of operating a scaled, sophisticated, multimodal portfolio. Dig into our business segments in more detail. In truckload, we more than doubled earnings sequentially on 2% revenue growth, only possible through the organization's hard work on executing price, productivity, and cost reductions. Network price grew high single digits year over year in the quarter. We are quickly leveraging all our tools to extract price, including historically high spot exposure, advanced freight selection and acceptance technology, and a growing number of mini-bids, among others. Spot rates became increasingly accretive through the quarter and June saw levels of contribution that were on par with March of 2021. Network price renewals also accelerated with average price increases in the quarter of double digits, which we achieved while also improving incumbent retention. Tractor count was impacted by driver availability, but we were able to more than offset the reduction with improved productivity, which grew high single digits year over year. The asset efficiency gains we have made are now being compounded by better freight selection, and we actively manage truck count in the quarter to reduce unseated tractors. Turning to our dedicated business, we saw modest year-over-year price improvement in the quarter, supported by our self-help actions on portfolio quality. We remain disciplined in adding durable, dedicated solutions with returns in our targeted ranges, as that discipline is what drives earnings resiliency through the entire cycle. Proactively addressing pricing now is allowing us to get ahead of the increased cost of capacity and position the portfolio for higher quality growth. As we highlighted on our last call, these actions are creating some near-term churn. While productivity gains also contribute to the year-over-year tractor count decline, they help drive margins higher in the quarter. Dedicated remains a key pillar of our long-term growth strategy, and the consistency and resiliency of earnings is a feature, not a defect. We continue to advance our sales initiatives with more than 500 new trucks sold year-to-date in 2026. We believe constrained driver supply, inflationary pressure in areas such as insurance, and emerging liability concerns all support long-term dedicated growth. We are also increasingly confident in our focus on specialty equipment where our retention remains highest. At the same time, the benefit of our diverse portfolio of solutions is that it gives us flexibility to meet customer needs as they evolve. As cycle conditions shift, the network will be most responsive to market improvement, especially in an upcycle that remains primarily driven by supply attrition in the over-the-road segment of the market. As a result, in the near term, we may shift some capacity into our network configuration. However, we do expect dedicated to benefit as those conditions translate through contract renewals and customer allocation decisions. As improvement accelerates, we will have the line of sight and capability to quickly return that capacity to capture these opportunities. This is the multimodal strategy working as intended. An intermodal second quarter results underscore the efforts we have made and continue to make to prioritize profitable growth. Over-the-road conversion opportunities expanded in the quarter, but as expected, drayage has become the primary constraint. Realizing nine consecutive quarters of volume growth, we remained disciplined in the second quarter. We elected not to chase growth that would have required expensive third-party dray when pricing was not yet supportive of the incremental costs. We are growing in areas where returns are commensurate with our service and cost, as evidenced by the strong growth in Mexico and in the East, where there are the most significant over-the-road conversion opportunities, and we have clear differentiation. Altogether, the segment delivered earnings growth despite some revenue pressure, reflecting our differentiators in lanes and service, containers and chassis asset control, effective network and revenue management, and the optimization of third-party costs. Looking forward, we have seen success with select targeted investments in company trade capacity which net up through the quarter. At the same time, pricing renewals accelerated intermodal. Importantly, we are seeing even stronger out-of-cycle increases, a signal that the market is beginning to turn faster. We expect these efforts to gain traction through the third quarter, positioning us to profitably capitalize on the trifecta of over-the-road conversion tailwinds as we move forward. including elevated fuel costs, rising truckload prices, and strong rail service. We are pleased with our performance in this allocation season, which we expect to translate into volume growth in the second half. In logistics, we extend the momentum from the first quarter, delivering double-digit year-over-year growth in both revenue and earnings. Brokerage net revenue per order improved both year-over-year and sequentially, supported by revenue management and premium project business. While we are addressing out-of-market contractual pricing, we are also leaning into expanded spot opportunities. Our spot exposure increased year-over-year and sequentially. Revenue management actions were amplified by productivity initiatives, especially those supported by our ongoing technology investment and leadership in agentic AI solutions. The projects that began in the first quarter extended through much of the second quarter, though have now largely concluded. We expect the expertise we have built into these new verticals to remain a meaningful growth driver for logistics, even as the project-based nature of the work may create some quarter-to-quarter variability. Altogether, we are encouraged by how the business has responded to the early innings of supply normalization and market improvement. Darrell will provide more detail on our earnings expectations shortly, and we are confident that 2026 will be a year of meaningful earnings growth supported by an improving rate backdrop and our enhanced ability to drive operating leverage. With that, I'll hand the call over to Darrell to discuss our results and guidance in more detail. Darrell?

Thank you, Jim, and good afternoon, everyone. I'll review our enterprise and segment financial results for the second quarter and provide insights into our full year 2026 earnings per share and net capex guidance. Summaries of our financial results and guidance can be found in our investor presentation available on the investor relations section of our website. Starting with the second quarter results, enterprise revenues excluding fuel surcharge were $1.3 billion of 4% compared to a year ago. Adjusted income from operations was $73 million, a 29% increase year over year. Enterprise adjusted operating ratio improved 110 basis points compared to second quarter 2025. adjusted diluted earnings per share for the second quarter was 29 cents compared to 21 cents for second quarter of 2025. Earnings grew year over year across each of our business segments, supported by continued progress on the strategic initiatives Jim outlined earlier and execution against our $40 million cost savings target where we remain on track. We're seeing meaningful progress from our ongoing technology initiatives, which are helping automate and streamline workflows, Reduce headcounts, improve driver productivity, and lower third-party spend. From a segment perspective, truckload revenue is excluding fuel surcharge, or $628 million in the second quarter, of 1% year-over-year. This growth was driven by improvements in revenue per truck per week, which grew 5% year-over-year, and more that offset lower truck count, which have been impacted by a more constrained driver environment. Network revenues excluding fuel surcharge grew 8% year-over-year driven by productivity and price with revenue per truck per week up 16% year-over-year. Dedicated revenue per truck per week was up modestly year-over-year reflecting ongoing portfolio upgrade actions. Truckload operating income was $51 million, a 28% increase year-over-year. Operating ratio was 91.8% and improvement of 180 basis points compared to last year. This marks the strongest profitability for our truckload segment since the second quarter of 2023. Earnings were positively impacted by our revenue management efforts that were supported by an improved truckload backdrop. We're also seeing the benefits from our cost savings program where we're gaining traction in areas such as headcount and trailing asset efficiency. Intermodal revenues, excluding fuel surcharge, were $262 million for the second quarter, down 1% year over year. Revenue per order declined 2%, reflecting mixed changes that drove a lower length of haul. Volumes grew modestly year over year, marking the ninth consecutive quarter of order growth. Intermodal operating income was $18 million, a 14% increase compared to the same period last year, and a strong sequential improvement supported by headcount actions, and gains in tractor acid efficiency. Operating ratio was 93%, 90 basis points improved compared to last year. Logistics revenue excluding fuel surcharge totaled $376 million in the second quarter, up 11% from the same period a year ago. We saw improvement in price supported in part by opportunistic premium project business. Logistics income from operations was $12 million of $4 million year over year. operating ratio was 96.8%, an improvement of 90 basis points from last year due to top-line growth noted earlier and effective management of net revenue per order, including capitalizing on spot opportunities. Productivity gains, including those from reduced headcount and power-only trailer efficiency improvements, also contributed to strong performance. Turning to our balance sheet, the capital allocation. Net capex in the quarter was $84 million, compared to $53 million last year, primarily reflecting our efforts to improve the age of tractor fleet. As a result, free cash flow declined $35 million year over year in the quarter. Year to date, we've delivered nearly $35 million back to our shareholders in the form of dividends. Looking forward, our strategic priorities for capital are unchanged, and we remain focused on disciplined deployment, including supporting organic growth that's aligned with our areas of differentiation, accretive M&A, and robust shareholder returns. The strength of our balance sheet allows us to be nimble and execute on all three. As of June 30th, we have $397 million in debt and lease obligations and $293 million in cash and cash equivalents. As a result, our net debt leverage was 0.2 times at the end of the quarter. For 2026, we're revising our net capex guidance to the range of $350 million to $400 million, down from $400 million to $450 million. As noted earlier, our plan continues to reflect the use of capex to improve our Asia fleet. The reduction from our previous outlook is driven by a lower need for trailing equipment and consistent with our ongoing focus on asset efficiency. Our areas of investment will continue to support growth across intermodal, Thank you. Thank you. Thank you. Based on our year-to-date performance, we're raising the top and bottom end of the full-year earnings per share guidance for the progress we're seeing across the business. Our outlook continues to assume that supply attrition remains supportive of freight conditions for the balance of the year and that we continue to make progress against our $40 million cost savings target. At the same time, our guidance incorporates a range of outcomes for demand and the availability of driver capacity in the second half of the year. Demand has tracked largely in line with our base case to date. Looking forward, stronger demand could drive additional upside, while softer demand may moderate some of the benefits from supply rationalization. As we think about the remainder of 2026, we're bringing momentum from contract implementations and successful allocation events. It's important to note that we're anticipating the loss of a large dedicated customer, which will be more evident in the second half of the year. Additionally, our business mix has evolved over the past several years, including the addition of three dedicated acquisitions and greater exposure to food and beverage and home improvement end markets. As a result, seasonal demand is typically stronger in the second quarter than in the third. Altogether, we expect earnings to grow meaningfully year over year at every point in our updated guidance range. Now I'll turn the call over to Jim for closing remarks. Jim?

Thanks, Darrell. Before we open the call for questions, I want to reinforce why we're encouraged by the direction of the business. We are a stronger, more efficient company than we were in the last tough cycle, with a more resilient, dedicated solution, differentiated intermodal service, and scalable capacity across network and logistics. These improvements are being further supported by technology innovation, our cost savings program, and a proven acquisition playbook. Second quarter results show that the actions we have taken to structurally improve the enterprise are working. The freight backdrop is improving, capacity rationalization is progressing, and pricing momentum is building. Across the portfolio, we are seeing benefits from revenue management actions, productivity gains, a lower cost to serve, and a multimodal platform that helps us methodically capture opportunities. While uncertainty remains, particularly around demand and driver capacity, Our confidence in the earnings trajectory has strengthened. We are maintaining a strong balance sheet, investing where we see clear returns, and continuing to execute against an unchanged strategy, earn customer loyalty through consistent execution, grow profitably where we create differentiation, improve on our low-cost operating model, and maintain disciplined capital allocation. With that, we will open the call for questions.

We will now begin the question and answer session. Please limit yourself to one question and one follow-up. If you would like to ask a question, please press star 1 to raise your hand. To withdraw your question, press star 1 again. We ask that you pick up your handset when asking a question to allow for optimum sound quality. If you are muted locally, please remember to unmute your device. Please stand by while we compile the Q&A roster. Your first question comes from the line of Jordan Alliger with Goldman Sachs. Your line is open. Go ahead.

Yeah. Hi. Yeah, I was wondering, you know, obviously the supply side has been the big factor. I was wondering if you have a little more color in what you're hearing, seeing from Your customer base, their thoughts on perhaps demand looking ahead, and maybe a little bit on the fleet. Interesting on perhaps moving some more trucks into network, but can you maybe talk about your thoughts for fleet growth as we look ahead over the next year or so? Thanks.

Yeah, thanks, Jordan. I think you've got a few questions in there for us to start. So let me just start with what we're hearing from customers related to demand and what we're seeing. and many more. and, you know, looking forward, what we're hearing is the consumer has been resilient through all the macro noise that's been going out there. But there are some risks that are not completely behind us. There's inflationary pressure primarily due to higher energy costs. Interest rates are continuing to weigh on some of the key end markets and places like housing and That's why we're really focused on a broad portfolio of customers that provides us a bit of a cushion here. And the reality of the market that we're in here, though, is that This is really being driven by supply. And even with just a little bit of a ripple in demand, it was enough to make a market move here. And there's just no excess supply. And our customers recognize that the market has changed, that there isn't excess supply out there. And if there's any disruption, it'll result in a really rapid change in the market because there's no way to absorb the shocks. You know, that being said, as we're looking at our fleet, you know, the way we're looking at it, we're excited about the supply exiting, the driver market tightening. In dedicated, we already highlighted that we're continuing to see strong sales, the 500 year-to-date, offset by a little bit of churn in the near term. But At the same time, this is a great opportunity for us to be able to continue and restore profitability in that area. And then as it relates to the network, we haven't been satisfied with our performance in the network. And we know we need to restore some margins there. That's our first priority before we start to look at growing that driver fleet again. Thank you.

Your next question comes from the line of Bascom Majors with Stevens. Your line is open.

Please go ahead. If we look at the public data that we can follow, 2Q was a sea of frenetic activity and spot rates and tender rejection rates escalating at pretty much unprecedented levels despite the stable demand drop you talked about, but Since then, at least the data we can follow, it's been kind of sideways and maybe even walked back a bit. And I just want you guys' perspective from looking at your own internal metrics, whether it's turndown rates or what you're hearing from customers. Is the market leveling out and even cool it off a bit? Or is this just the sign of seasonality that's kind of consolidating after a pretty challenging period? Thank you.

Yeah, thanks, Beth. You know, we looked at this very similar last year. I think we had the same discussion that when you get late into July, you see spot rates change a little bit. And I would say this really mirrors what we saw a year ago. So very similar seasonality here. And, you know, it hasn't changed what we're seeing out there in the marketplace. And it's not just Spot rates aren't the only way that we're able to extract price. It's one of those areas. And even though it's moving sideways, we would still say spot rates are still about 15% higher than contract price. And so that enables us to have a number of ways to go out there and extract price. And the number one area, obviously, is through normal allocation events. But outside those events, we're seeing post-allocation opportunities that are growing. We're also improving price through freight selection. And even though spot is moving a little bit sideways, still positive opportunities there. And our customers are increasingly realizing that this is not a temporary situation when you see a little bit of a sideways move here. We've been really comfortable staying with elevated spot exposure because there's that 15% delta between spot and contract. And we continue to think we're still in the early innings of a rate recovery with overall it's elevated spot exposure. And we'll keep that elevated spot exposure until the book closes between the gap between spot and contract.

Thank you for that. And just to follow up on one point.

Bascom, I think we're missing you here.

We will move on to the next analyst. A reminder, if you'd like to rejoin the line, you can press star one to raise your hand again. Our next question comes from the line of Ravi Shankar with Morgan Stanley. Your line is open. Please go ahead.

Great, thanks, everyone. Jim, just on IM, obviously, you're a significant player in both asset-based trucking as well as IM, and we're seeing significant rotation from TL to IM at the moment. Do you get a sense that this is sort of a permanent structural move, or do you think this is kind of opportunistic for the moment, given that volumes aren't there yet and TL pricing is high and share might shift back to TL, or do you think this is like the new normal for IM?

Yeah, thanks, Robbie. Appreciate the question here because definitely you're absolutely right. We're seeing that trifecta of opportunities here between fuel, seeing the impact with underlying truckload rates, but also I think what's structurally different right now is the rail service. It's giving us an opportunity to get into more opportunities and customers are seeing those benefits. I think the other part is You know, as you look at where our growth is coming, we now have 17 consecutive quarters of growth in Mexico. Customers have wanted to make a change there for a long time, and it really took that change of us operating with the CPKC to unlock that. We're also growing the local east with over-the-road conversion. Partly that's being driven by what you're seeing with truckload rates with fuel, but also the service is really good and customers are understanding that. But they also, when they make that change to use Schneider and Local East, part of the reason why they're doing that is because of our multimodal strategy. because they know that we have other capacity options, whether it's with one of our trucks or it's using one of our logistics solutions to make sure that we have them covered through it. So, yes, I do believe that we're going to have opportunities to continue to grow. And, you know, this has been two years, you know, nine quarters of growth. So we've been able to grow through some relatively weak times.

That's helpful. Maybe as a follow-up here, I'm sorry if I missed the detail here, but I think you mentioned a large upcoming dedicated loss. Can you shed some more light on that? Just maybe quantify how much an impact would be so we know what the net guide increase looked like and also maybe some color on that loss?

Yeah, and overall, Ravi, a way to think about that, that's contemplated and what we're expecting going forward. And, you know... Mark Rourke, Shelly Dumas-Magnin, Michael Baumgardt, James Filter, Shaleen Devgun, Steve Wells, Kara Leiterman, over the four-year down cycle dedicated has remained remarkably resilient. But at the same time, performance isn't where it needs to be. And as the conditions are improving, that has given us the opportunity to proactively address the bottom performing agreements in the portfolio and reallocate those resources towards higher performing opportunities. Obviously, as a byproduct of those actions, it can create some near-term churn, which is what we've been experiencing the last couple of quarters. So our focus here is the revenue per truck per week improvement. It's our priority at this point in the cycle and expect you're going to start seeing more pronounced improvement in that metric going forward because of the momentum we're seeing in contract renewals and productivity actions. and then after we've worked through these, then there's an opportunity to begin growing with deals that are durable. I feel really good about our ability to go out there and sell trucks in this area. That's given us the confidence to restore margins.

Ravi, this is Darrell. The only thing I would add is our pipeline is robust. One of the reasons that we have a pipeline is it can absorb shocks. The reason why we kind of highlighted that on the call on our prepared remarks is really that in the third quarter, it's going to be more evident as we implement some of those wins.

Understood. Thanks very much. Welcome.

Your next question from the line of Jonathan Chappell with Evercore ISI. Your line is open. Please go ahead.

Thank you. Good afternoon. Jim, a little surprising to see logistics EBIT almost doubling sequentially up over 50% year-over-year in a quarter where it feels like most logistics companies were squeezed by a parabolic move in spot pricing. So is this Schneider-specific cost? Is this your power-only model? Is there something special that went into this in a quarter where it seemed to be one of the worst laggards for most peers?

Yeah, thanks for the question. And we talked a little bit about this last quarter because we were already seeing some of the benefits and logistics come through last quarter. And once again, it's shining through. And we're no different than the rest of the industry. In the second quarter, we still had some impact from rising third-party carrier costs that weighed on our contract-rated business, including power only, which you mentioned. But there's just been really strong execution on the premium project business. We had that in the first quarter. We developed trust with our customer, and that created additional wins in the second quarter. But it wasn't just the project business. We continued focusing our revenue management efforts to address and many more. We've been working on net revenue pressures, including leading into our spot opportunities. And so we had to address some out of market contract rates. And at this point right now, we're about 60 40 contract versus I'm sorry, 60 40 spot versus contract a year ago. And historically we run at about 50 50. And, you know, it's not just all of those commercial actions. There's some cost actions here. developing AI, especially in this area. And those tech investments have resulted in our frontline productivity improving 17% year over year in the second quarter, which is also enabling great results here. So it's really all the way through from commercial activity, how we're managing revenue management, and then how we're executing the loads.

Got it. And then just quickly, you specifically called out gains on equipment sales in both the truckload and the intermodal EBIT in the press release. It feels like those might have been a bit more outside of the normal. Is there any way to quantify that, especially as it helps us kind of consider the 223Q bridge?

Yep. So this is Darrell. You know, so in the second quarter, we did see, you know, a bit more in terms of gain on sale. We did see pricing improvements in terms of those sales, and we did also sell more units. Nothing that's that material, but there's definitely a step up from the first quarter to the second quarter. For the remainder of the year, we do expect some robustness in the market to remain as it relates to the price.

Got it. Thank you.

Your next question from the line of Bruce Chan with Stiple. Your line is open. Please go ahead.

Yeah, thanks, and good afternoon, everyone. Maybe just a question here on the intermodal revenue per order pressure. You know, Jim, I think you talked about the mix impact there, which, you know, makes a lot of sense with the local conversion, but I wanted to maybe get a sense for what core yields look like there and and I know you generally don't comment on what the number looks like by region, but just maybe directionally, how should we think about that yield trajectory on the shorter haul versus the longer haul lanes? Thank you.

Yeah, thanks, Bruce, and you're right. We don't comment on pricing by region here, but I can give you some color that I think will be helpful Thank you for joining us. and we had expected that Intermold would like truckload but we are seeing tightness now in the drainage market and really you know we've been talking about this for quite a while that the catalyst and Intermold to move price is that drainage market and so our contract renewals were low single digits in the second quarter and now we're trending towards mid-single digits which is What we really need to be able to invest in growing gray or utilizing third-party capacity, which is at a higher price point than company drivers. And so what we are focused on here is getting to a price point where we could start to accept more loads. And as we're getting to that pricing that we're beginning to see, that's going to enable us to start growing, not just in the East and Mexico, but really throughout all of our markets.

Great. Super helpful. Thank you. Great.

Your next question comes from Ken Hoekster with Bank of America. Your line is open. Please go ahead.

Great. Good afternoon, Jim and team and Darrell. So, Jim, congrats, first of all, on your first call leading here. We've also gotten the driver ads in Westchester, so it's clearly working. But looking at your guide and your outlook, my wife looks at me every time they come on the radio. So looking at your guide and your outlook, thoughts on progress, Darrell? I don't know if you can walk through. I know you don't do quarterly forecasting, but is 2Q the strongest? Is fuel going to aid more into 3Q? I don't know if there's delay real time, if you want to talk about that. You threw out thoughts on driver pay. Is there anything we should think about? Costs coming into play. So just maybe give us some parameters as you raise the range. Thanks.

Yeah, sure. I think you hit on a lot of the things that we're considering. But I think let's just start with framing the guide. So we've said that the guide will assume that we have more supply attrition, right? We said that in January. We said that three months ago. And we're continuing to expect supply to exit the markets. We've also talked about all the things that are within our control, including our cost savings initiatives, our productivity actions, our revenue management actions. And with two quarters behind us, we're seeing the signs of all of those efforts kind of come to fruition. So we've also seen driver capacity exiting faster than we initially thought. And year over year, all of our segments grew, which is remarkable. We're taking up the bottom end and the top end of our guidance based on all those facts. But it's not only the year-over-year growth that we've seen. We've seen very, very strong sequential growth. So quarter-over-quarter from the first quarter to the second quarter, we saw a doubling of our earnings, and that does not happen by accident. Those are all the things that are within our control with a little bit of help from the market. But as we go into the second half of the year, we're bringing all that momentum that we've seen, not only as it relates to price, So logistics, for example, and network, those are the areas where most of the irrational capacity came in, and that's where we're seeing it come out the fastest. So we're seeing the more ready impact in terms of pricing there. But areas such as dedicated and intermodal, which are more contract-based, we expect there to be a benefit in the second half as a result of all that. Now, we have two quarters left in the year, so we're thinking about things that are balancing and that optimism. And I think you hit on some of them. So as capacity has exited the market, which is good for price, there are certainly constraints on driver capacity, right? So in terms of our scenarios, we're putting in scenarios as it relates to driver cost and availability. And we've talked about demand, right? Demand being a swing factor. We think that's particularly important as it relates to peak and what happens in the fourth quarter. But obviously we have a lot of confidence that, you know, based on our preparedness, we're ready to execute You know, once, if and when that that free becomes available. Now you asked a question as it relates to, you know, momentum and progress throughout the year. In my opening remarks, I talked about seasonality. So our business has evolved over time. We've made three very significant acquisitions over the last five years. And, you know, with that, you know, comes a shift in the portfolio. So we talked about and many more. Thank you. developing our ears of strength in terms of specialty project business that came through in the first half of the year, very evident in the second quarter. We think that in the third quarter, even though we're going to have some project business, it's not going to be as pronounced as it was in the second quarter for logistics. And then we did talk about the loss of the large dedicated customer, which will also impact what the third quarter looks like. So all those things are in the mix in terms of kind of how we develop a guide for the rest of the year.

Great. Very helpful. Thanks, Darrell. If I just follow up, you mentioned in the prepared remarks moving trucks back and forth. I think it was from dedicated to network, if I've got that right. And so, you know, maybe can you talk scale, capacity, time frame? I don't know. Any kind of parameters you can put on that to see if we can scale that in our models? Thanks.

Yeah, yeah. So the way that we're thinking about that, Ken, is where we have the best market opportunities. And so that's the value of having this multimodal approach is that we're able to move drivers from one opportunity to another. And so, you know, it's not that I'm being invasive. There's just, we're going to take that opportunity as it plays out. Right now, what we're seeing with price in the market would suggest that there's just going to be more opportunities there in network that we might want to move some trucks over. Understood.

Thanks, Jim.

Thanks, Tom. You bet. You bet.

Your next question comes from the line of Brian Ossenbeck with JP Morgan. Your line is open. Please go ahead.

All right. Thanks for taking the question. Maybe, Jim, start with you. Can you just clarify the comment on the dray drivers? It sounded like you're getting to the point where pricing is support enough to be able to expand capacity or maybe fill in some of the gaps you might have in the network or want to add to the network. So maybe you can clarify those comments for me. And then it also sounded like you're getting more out of bids, out of cycle bids, rather allocations and intermodal, if I heard you correctly. So you can put some context around that. Be helpful. Like you have absolute terms how to compare it, or maybe it's better compared to like a prior cycle in terms of what strength or activity you're seeing there.

Yeah, thanks, Brian. So just to start on our dray capacity and what we're seeing is, you know, we had opportunities to grow, you know, much faster if we had wanted to in the quarter, but we remained disciplined. And specifically because we, you know, we want to look at some of the opportunities that were coming in were non-committed freight that would have driven our network out of balance or required third-party capacity. and even though we would have moved more freight it would not have been accretive and so you know we're at the same time we want to be able to take advantage of these opportunities and so we're leaning in to to grow our dray capacity and we've already had some success here but most of that growth in our dray capacity occurred at the end of the quarter and we're continuing to grow that that capacity now that we're seeing some improvement in market rates and that's the second part is going back to customers and because they understand they need to be able to fund our ability to grow capacity or to be able to use third-party capacity and so we're seeing both of those take place right now and gives us some confidence that we can continue to grow from there and you're right customers when they're seeing some some turndown activities they're willing to sit down and have some discussions and that's where we're seeing some out-of-cycle activity.

There's a quick follow up to comments on the B1 and the cabotage. Seems like there's some pretty significant activity. Have you seen that translate to any sort of opportunity in your network? Thanks.

Yeah, absolutely. Brian, as we we think about what's going on with capacity and just take a step back before I jump into just specifically cabotage, that this has been a matter of public safety. If you go back to, you know, since 2016, the number of trucks involved in injury crashes has increased 18%. At the same time, companies like Scheider have been investing in safety and reducing accident frequency, yet crashes are growing because not all companies are following, you know, these existing regulations. You mentioned cabotage. and we're starting to see some impact there and you can see it on specific lanes because you know we've all seen the data that there's approximately 30,000 drivers whose visas were revoked not enabling them for them to even cross the border and commit cabotage that has an impact you know and same thing with a number of other activities non-domiciled drivers the entry-level driver training is starting to be impacted Same time, we'd say, you know, all these factors that are going on, and while cabotage was much faster than we expected, non-CDL drivers was much faster than we expected, there's still about half of the capacity we're expecting to leave hasn't been impacted yet. And, you know, we know that capacity is exited because even that real modest increase in seasonal demand Triggered a market correction here in the corridor. And so when we look forward, we know that there's still about a third of the non-domiciled drivers remaining that we would expect to be removed. The first two thirds came up faster than we anticipated. But if Delilah's Law is enacted, we could see that capacity exit abruptly. And now we have the end of the broker preemption. That may remove some carriers with unsatisfactory conditional ratings. That's a few percent of capacity. and then ELD enforcement is another action that I'd say is largely in front of us and it's also the one that I believe would have the biggest impact on public safety because there's a lot of ELDs out there that were improperly certified and with those tampering is a feature not a bug and they're using offshore back office staffs that and many others. The current highway bill is seeking to address that as well. When you take not just what's behind us but what's in front of us, it's going to be a dramatic change. This also changed the top of the funnel. It's structurally different than what it was in the past, and so capacity won't grow as fast as it did after the pandemic, and that's why this recovery could last longer than other recovers.

All right. Thanks, Jim. Appreciate the perspectives.

You bet. Thanks, Brian.

Your next question comes from the line of Tom Wadewitz with UBS. Your line is open. Please go ahead.

Good afternoon. You had pretty strong growth in revenue per truck per week in network. I'm just wondering, how big a move can you see in 3Q? You already saw a good move, but I would assume you didn't get everything repriced, and so there's more to go. So just maybe a high-level thought, how much further gain we could see revenue per truck per week in 3Q in network? And then, In dedicated, I know obviously it's a different business with multi-year contract, but how might we think about the relationship across the cycle? So if network rates were to go up 15%, 20% across two years, a pretty strong cycle, would that translate to kind of a half of that gain in dedicated? Or how would you think maybe about that relationship just so we can kind of contemplate what to put in the model as you look out in dedicated? Thank you.

Yeah, thanks, Tom, for those questions. So let me just start with network revenue per truck per week, 16% growth year over year, really strong performance. And that's why network has just always been a part of our multimodal approach. even though we weren't pleased of the performance during the down cycle and you know we didn't sit around during the downturn and wait for the market to improvement but you know our improvements were primarily on productivity and cost and those were all being masked by price and now that price is starting to move I think it's just more apparent of what we've been working on and now that we're getting price, we're just ready more than ever to take advantage of the cycle shift and you're starting to see that in the second quarter. So let me just talk about some of those factors here. We don't get price just through allocation events. We're seeing that through elevated spot exposure, mini bids, freight acceptance and that's why we're already seeing high single digit price improvement hit this business. But also productivity is also a high single-digit improvement. That's being driven by a combination of asset efficiency, removing unseated tractors, and then higher driver utilization from both freight selection and then optimization. And then the cost reductions that we've been talking about across this entire enterprise for multiple years. This is the first time that you're able to look at a business and say, oh, I can see that coming through the business. And so we're always optimizing for earnings. And in tougher markets, you just have more leverage with productivity and cost. And now as the market turns, we have opportunities across not just productivity and cost, but also price. And that's where that leverage is starting to come through. In terms of... and many more. And, you know, it's a little A number you can map to to be able to say, well, this is going to change during this cycle because I think it would have been different. You know, we're going to be focused on having margins and dedicated that are going to be resilient. You sign a contract for multiple years and we're going to look for a price that's going to be fair for both sides and be durable. And so that's That is the plan now, I'd say, over the last couple of years, especially it got later into the cycle. There was a little bit of pressure on dedicated, and some of those contracts are the ones that needed to be renewed. Thanks, Tom.

So, I mean, maybe just on timing, when do you think we'll start to see the strength in revenue per truck effectively in price? Show up, does that start to show up in 3Q, or there's a little longer lag on it?

Yeah, I think in dedicated, we're expecting that we should start seeing improvement in revenue per truck per week and dedicated immediately here already in third quarter. Yeah.

Okay. Thank you.

All right. Thanks, Tom.

Your next question comes from the line of Chris Weatherby with Wells Fargo. Your line is open. Please go ahead.

Hey, thanks. Good afternoon, guys. So, Darrell, I guess just maybe to be a little bit more direct, you said a lot about the third quarter and the difference between 3Q and 2Q seasonality. I guess I'm just a little confused. I want to make sure I understand. Can 3Q earnings or however you want to sort of measure the profitability of the business be higher than 2Q, or should we assume that 2Q is higher than 3Q? Yeah.

Good question, and I guess unsurprising. So we tried to give a little bit more color to clarify. We don't guide by a quarter, but just trying to be helpful. So I think the seasonality point was just to kind of underpin some of the thoughts that we've seen. So if you just look at history over the last five years and kind of how our seasonality has shifted, I just wanted to make the point that given the transformation of our business, typically in the recent past, more seasonality has shifted into the second quarter. You know, we also talked about, you know, just the dynamic of the logistics specialty project business and the loss of the dedicated customer. I mean, with all that said, you know, where I did lead off is that we're seeing a lot of momentum going into the second half of the year. So all the things that I mentioned as it relates to capacity exit in the market and the impact on price You've seen what price and productivity together can do, you know, just even in network as an example. So we do expect that that momentum carries forward. And then, you know, Jim mentioned the, you know, the gap between contract and spot. We do believe that not only in network and logistics, but also in dedicated and in modal, we are going to get the benefit of price. And that's also going to come through in the second half, right? It's not as if we don't think that there's improvement. Actually, at every point in our guide, if you look on a year-over-year basis, we do expect to see improvement in our segments.

Okay. Okay. Appreciate the clarification there. And then maybe just a bigger picture one here is we're thinking about and some of the dynamics going on with drivers and in particular what's happening here in a post-Montgomery world around the brokerage businesses. I guess, can you maybe sort of refresh us on how you guys think about Carrier vetting, have you made any changes post-Montgomery to the way you think about it? Probably going to be, you know, maybe on the higher tier of carrier vetting discipline in the industry, but just want to get a sense of some thoughts around that and how it might impact available capacity and how you see sort of, you know, the potential opportunity for you in logistics going forward.

Yeah, thanks, Chris, here. I'll start by talking about the capacity impacts, and then I'll dive in a little bit into our brokerage business. And you're right, I think it's likely to further constrain capacity from a couple aspects. There's many brokers that are likely to avoid carriers that have conditional or unsatisfactory ratings from the FMCSA. That's probably a few percentage of the market. And while the drivers might go to work for another carrier, it's likely that they're going to be held to a higher safety standard. So even transfers to a new company potentially reduces capacity. And then you have brokers like Schneider that have some standards that go beyond a carrier safety rating. and within Schneider, we only qualify approximately 60% of the carriers that apply. Don't interpret that as 40% of the carriers on the road are unsafe. Some of these carriers are chameleon carriers, so we might disqualify them many times. And there are also carriers that are safe but lack enough time in the industry to meet our standards. But I also believe this creates an opportunity for our logistics segment. We're already seeing some shippers that are pivoting away from the small or medium-sized brokers, and there are some shippers that require minimum insurance levels that are well out of reach for most pure-play brokers and even for some small asset-based companies. and so our position, the standards that we put in, we implemented these several years ago and we've moved our carrier account from 60,000 to less than 14,000 carriers. And we did that primarily under the vein of improving cargo security, but many of the filters that we applied to cargo security also apply to safety. And so, you know, overall, I think this is an opportunity for Schneider. but I also believe that litigation is a risk to supply chains. We're investing heavily in safety, training, technology, compliance, and it's resulting in reducing accident frequency, but Accidents still happen. And we believe that companies that do the right thing should be held accountable based on the facts and not exposed to disproportionate outcomes driven by the current litigation environment. And that's why we believe tort reform is really important, not to avoid responsibility, but to ensure that the outcomes are fair, they're predictable and aligned with actual conduct. And so I believe that this is a big impact to the overall industry.

helpful perspective. Appreciate it. Thank you.

Thank you.

Your next question comes from the line of Scott Group with Wolf Research. Your line is open. Please go ahead.

Hey, thanks. Two questions worth the hour, so I'll just lump it into one. So you talked about, Jim, the trifecta for intermodal conversion. Volumes were flat in the quarter, where you think the growth goes. And then, Darrell, there's been a lot of talk about the seasonality of the mix of the business, like 2Q, 3Q. Maybe more importantly, does the changing mix of the business change ultimately where the annual margins can go? Meaning if this was an 85, 86 OR last cycle, does that change because you have more dedicated or more food and beverage or Does that not change? Is this just a seasonal shift within quarters?

Yeah, Scott, I'll start, and then Darrell will jump in on the long-term margin questions here. So, first of all, in intermodal volumes, I think I talked a little bit about this earlier, we could have grown double digits if we wanted to. Thank you for joining us. and so on. We don't have to go out there and take every single opportunity. Now that we are starting to grow that dray capacity, we're getting price that will enable us to use some third party in a certain area. We set up our and many more. We're seeing peak season programs with shippers very early on because we're seeing those opportunities as well. That enables us to use third party a little bit more today. So we expect that there's opportunities to start growing really in high single digits. Darrell?

Yeah, this is Darrell. So the seasonality commentary was really just to frame the guide, right? It doesn't change anything that we think about our business in the long term. The actions that we've taken have been purposeful. So we purposely targeted the three targets that we acquired over the last few years, and we knew what came with that, and we welcomed what came with that. So we've been taking actions to structurally improve the business during the downturn. We've not been wasting time. The dedicated portfolio, our truckload is more dedicated, skewed, Jim talked about our differentiation in a modal. In network and logistics, we've invested in being scalable and flexible. We've been investing in technology. All of those things make us stronger today as we're coming out of the downturn, and we're already seeing that. So if you just look at our year-over-year improvement, you look at our sequential improvement in earnings, it's all a result of all the things that we've done. But when we think about our long-term margin targets, and many more. You know, the pricing improvement that we saw in logistics and networks, I think that's just the beginning. Jim talked about, you know, where we are in terms of all the capacity actions that are being taken. So, you know, when we sit here today at the end of the second quarter, truckloads margin is already at 8%. Intermotors at 7%. Logistics is already within, you know, our long-term ranges. So we have line of sites to get to our longer-term margin ranges. and the evidence of all the actions that we've taken prove that.

Thank you.

Thank you, Scott. All right. We appreciate everybody joining the call today. Have a great day.

This concludes today's call. Thank you for attending. You may now disconnect.