Schneider National - Q2 2023

Transcript

Operator (participant)

day, and welcome to the Schneider Q2 2023 earnings conference call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key, then 0 on your telephone keypad. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then 1 on your telephone keypad. To withdraw your question, please press star then 2. Please note this event is being recorded. I would now like to turn the conference over to Steve Bindas, Director of Investor Relations. Please go ahead.

Steve Bindas (VP, Investor Relations)

Thank you, operator, and good morning, everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer, Steve Bruffett, Executive Vice President and Chief Financial Officer, and Jim Filter, Executive Vice President and Group President of Transportation and Logistics. Earlier today, the company issued an earnings press release. This release and an investor presentation are available on the investor relations section of our website at schneider.com. Our call will include remarks about future expectations, forecasts, plans, and prospects for Schneider. These constitute forward-looking statements for the purposes of the safe harbor provisions under applicable federal securities laws. Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations.

The company urges investors to review the risks and uncertainties discussed in our SEC filings, including, but not limited to, our most recent annual report on Form 10-K and those risks identified in today's earnings release. All forward-looking statements are made as of the date of this call, and Schneider disclaims any duty to update such statements except as required by law. In addition, pursuant to Regulation G, a reconciliation of any non-GAAP financial measures referenced during today's call can be found in our earnings 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 CFO, Steve Bruffett.

Steve Bruffett (CFO)

Good morning, and thanks for joining us today. I'll provide some opening comments on the quarter and on our guidance. Then Mark will offer his perspectives before we take your questions. I'll begin with our recently announced acquisition of M&M Transport. We deployed $225 million for this transaction, which represents an EBITDA multiple of about 6 times. From this investment, we expect not only immediate EPS accretion, but also a return on capital well above our cost of capital. In addition, we will be pursuing both revenue and cost synergies that benefit the customers and employees of M&M Transport and therefore deliver additional value to our shareholders. While there are operational differences between M&M Transport and Midwest Logistics Systems, our earlier acquisition in the dedicated space, the financial characteristics are quite similar between these two quality companies. Mark will provide some additional context to this acquisition.

The next topic is share repurchases. The Q2 contained our first-ever repurchase activities, and we returned $31 million to shareholders. As a reminder, our objectives for this $150 million authorization are to reduce our diluted share count to approximately 175 million and then maintain that level by offsetting the impact of equity grants that are part of our compensation programs. Turning now to our Q2 results, a reminder to refer to the IR section of our website to review the investor presentation. The Q2 represents what is likely to be the most challenging year-over-year comparison, as freight conditions were just beginning to soften in the Q2 of last year. Now that we're over a year into this freight down cycle, the cumulative effect of pricing pressure is nearing its largest impact.

Our Q2 revenues, excluding fuel, were down 20% compared to the prior year, and our adjusted income from operations was down 39%. We obviously do not prefer this phase of the freight cycle, but we do like how our portfolio positions us to compete and perform across all phases of the freight cycle. While these results do not yet reflect our full potential, they do illustrate meaningful progress on our journey to deliver resilient and growing earnings over time. Our Truckload segment results would have undoubtedly been lower, if not for the support from Dedicated operations. Our Dedicated operations include our legacy business along with MLS, and going forward, will include M&M Transport. We still have opportunities in front of us to further improve our Dedicated operations, and we're energized by those prospects.

In the Intermodal segment, our results continued to be challenged by sluggish port activity, which resulted in 14% lower volumes compared to the Q2 of 2022. We have yet to have a market opportunity in which we can demonstrate the full value of our Intermodal service offering since establishing our new rail partnerships and having grown our container fleet by 24% over the last two years. As a result, we view Intermodal as one of our largest upsides going forward. The Logistics segment reported nearly a 4% margin for the quarter in a highly challenged freight condition. This was considerably lower than last year, this shows the benefit of our Logistics model that generates its own demand and is not reliant on overflow volume from our Truckload operations. Moving now to our forward-looking comments.

Our updated guidance for full-year diluted adjusted earnings per share is $1.75-$1.90, which includes a modest but immediate contribution from the M&M Transport acquisition. At the midpoint, the updated EPS guidance reflects a 13% decrease from our prior guidance range of $2.00-$2.20. In our view, Q1 2023 earnings will likely show a moderate sequential decline from the second quarter, as the full effect of virtually all contractual rate renewals will be in place during the third quarter. The Q4 is expected to show sequential earnings improvement due to anticipated seasonal upticks in volume. Said another way, our updated guidance includes expectations for second half EPS to be lower than first half EPS.

A contributing factor to this is the timing of equipment gains within the year. We recorded $0.10 of EPS from equipment gains during the first half, and our expectations for the second half equipment gains are minimal. While it's early to have clear insight into 2024, we anticipate that we will begin next year in a more balanced freight condition. I'd stop short of saying the word recovery, but our expectations are that incremental capacity will exit yet this year, and there will be marginally improved demand from customers. Does not take a large amount of change in these two levers to derive better equilibrium in the freight market. We're well positioned to execute and deliver regardless of the conditions. Mark's going to now provide his additional insights.

Mark Rourke (CEO)

Thank you, Steve, and good morning everyone, and thank you for joining us on the Schneider call today. Before we get to your questions, let me offer additional context into how we are positioning the business to perform favorably through economic and freight cycles. First is our investment to profitably grow Dedicated in our Truckload segment. Dedicated proved highly resilient year-over-year and compared to the first quarter, which was evident in stable truck count and revenue per truck per week performance. While on a sequential basis, Dedicated grew by only 25 trucks from Q1 levels, we do expect to add an additional 225-250 units of new business in the second half of the year based upon current implementation timelines.

In addition to organic growth, we are selectively looking for high-quality Dedicated contract carriers to add to our portfolio, and we're pleased to welcome the M&M Transport associates to the Schneider team. Through the acquisition, we added nearly 500 trucks and 1,900 trailers that primarily operate in specialty equipment configurations, serving the retail and manufacturing verticals. M&M Transport is a very well-run, regional Dedicated carrier that largely operates in the Northeast, Midwest, and Southwest regions of the country. It is our intention to follow our established acquisition playbook. M&M Transport will run independently, keep their name, brand, and successful operating model intact. We have identified a list of synergies that enhance the customer and associate experience. Those synergies identified include driver recruiting resources, customer-facing technology support, and access to truck and trailer growth capital, among others. I'm personally pleased that the founder is staying with the business.

The organic growth, combined with the addition of M&M Transport, puts our Dedicated offering on a glide path towards $1.5 billion in annual revenues and a deployed tractor count of 6,500 units. Let's turn to the network portion of our Truckload segment. It is under the most margin pressure as inflationary costs and wages, insurance, and new equipment costs are rising into contract renewal rates that in certain elements of the book are not durable, perhaps not even through the end of this year. Our commercial and operational teams are ready to pivot to upgraded opportunities as they begin to materialize. Let's transition to the Intermodal segment. We have chosen to retain our revenue management discipline through this cycle and not chase the price leader to the bottom.

That discipline and muted import volumes are reflected in the 14% order volume reduction year over year. We are poised for the freight recovery through offering our customers a strong service, cost, and emission reduction value proposition with a leading combination of rail providers, the Union Pacific, CSX, and most recently, the CPKC. Moving forward, we expect even further reliability and execution benefits with the Union Pacific as leadership implements their proven playbook. The addition of the CPKC gives us advantages into and out of Mexico, and soon across Meridian Speedway into the Southeast, through a seamless connection with the high-performing CSX. Our early experience with the CPKC's one-rail solution has been exceptional. We have found the transits not only beat the other competing service offerings and their published transits, but now match solo truck levels with nearly 100% on-time reliability performance.

The next intermodal allocation season will be one where we now have a proven record with the Union Pacific transition, a proven top performer in the CSX, and new capability with the CPKC, with what we expect to be a tailwind in the inevitable restocking cycle. It is important to note that we have paused additional containers being added to the fleet to focus on volume growth with meaningful room for asset productivity measures. Also, in the second quarter, we achieved an important sustainability milestone with a large-scale installation of one of the nation's most advanced commercial electric battery charging depots at our Southern California intermodal hub. I'd like to recognize our professional driver fleet, our facilities, equipment engineering, and intermodal operation teams for building the capability to move beyond merely testing battery electric vehicles to operating at scale.

This capability offers the value of zero emission first or final mile dray, in combination with the emission savings of a middle-mile intermodal rail movement. We are on track to have 93 battery electric dray units deployed by year-end, positioning us favorably for the rapidly approaching zero emission vehicle mandates in the state of California. Now, last year at this time, we noted in our call that our Logistics segment was coming off a special quarter, where freight rates were rising into moderating purchase transportation costs in combination with peak port services, dray, and warehousing demand. Fast forward a year, this Q2 is whatever the opposite of special is. Contract pricing renewals proved to be even more competitive than asset-based services, putting net revenues under considerable pressure.

Overall, brokerage order volumes per day contracted 10% year-over-year, inclusive of Power Only, and Power Only is proving resilient through the cycle, especially considering we are optimizing more Power Only volume on our network and Dedicated backhaul assets than is typical. The freight generation capability of our Logistics model keeps us relevant and adaptable through all freight cycles. While we believe this cycle is starting to show its age, as both the inventory destocking phenomenon reaches its natural conclusion and marginal capacity accelerates their exit from the market, the Q3 will still have challenges before giving way to moderate seasonality in the fourth quarter. So with that, operator, let's move to the question and answer session. Thank you.

Operator (participant)

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

Ravi Shanker (Managing Director, Equity Research Analyst)

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

Mark Rourke (CEO)

Yes. Good morning, Ravi. Thank you for the question. I think we're getting increasingly confident in our discussion with customers that the, the long destocking trail is coming to an end. We had a recent discussion with the retailer that reflected that they are back to chasing inventory a bit as opposed to destocking it. In fact, enough so that it starts to weigh on decisions between Intermodal and truck transits on certain lanes and on certain products. I wouldn't say that's everybody across the spectrum, but it is illustrative that the work that folks have done over the last several quarters to get to a different spot. I think most folks feel that they are getting within the zone.

I think the, the concern has changed to the health of the consumer and what categories they'll be purchasing in, through the remainder of the year, and perhaps, less focus on the inventory.

Ravi Shanker (Managing Director, Equity Research Analyst)

Got it. Also as a follow-up, a little shift of gears here, because I know you're going to get 1 million cycling questions on the call. I did want to ask you about your recent EV initiative. It, it, it feels like there's, like, the, the, there's some change coming with kind of our focus on building a, a charging infrastructure, the availability of long-haul, electric, Class 8 semis now. Obviously, kind of what, what you just did was a, a, a pretty big, kind of showcase of your capabilities. Kind of are we at that tipping point where we can start to think of commercial deployment of electric trucks in a significant manner, or, or what more do we need to get there?

Mark Rourke (CEO)

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

Jim Filter (EVP and Group President of Transportation and Logistics)

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

Ravi Shanker (Managing Director, Equity Research Analyst)

Understood. Thank you.

Operator (participant)

Our next question comes from Bruce Chan with Stifel. Please go ahead.

Bruce Chan (Managing Director and Senior Equity Analyst)

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

Mark Rourke (CEO)

Well, good morning, Bruce. The optimism is, it is an interesting word. I think the words that we would choose is that we think that the cycle is getting aged. We think some of the drags that have been most prevalent is, is the inventory condition, and, and that is starting to age as well. So we're being cautious. I, I wouldn't say overly optimistic would, would probably be a mischaracterization, but I think we're getting to the end, and that, that, a restocking mode starts to happen with at least within the, in the, it's in the sight lines.

As it relates to the gains, unlike a year ago, we've got more of our equipment on time this year, and so we've taken a larger percentage of our new equipment in the first half of the year, and thus, more of our disposal activity took place in the first half of the year. That's a contributor. Then secondly, the demand, which is also reflective of perhaps the health of the small carrier, has waned as the year went on. We put the combination of those two things that we think will have minimal impact on gains in the second half of the year.

Bruce Chan (Managing Director and Senior Equity Analyst)

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

Mark Rourke (CEO)

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

Jim Filter (EVP and Group President of Transportation and Logistics)

Yeah, I, I believe that we've taken a number of cost actions early on in this, this rate cycle to get ahead of this, and that's what's enabled us to maintain the margin performance we've had. Certainly there's, the big opportunity here is volume, as Mark Rourke stated. In terms of our, our rail deals, those are long term. They're market driven, so they do adjust with the market. You know, so there, there'll be some adjustments as we go through this, remainder of this cycle.

Bruce Chan (Managing Director and Senior Equity Analyst)

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

Operator (participant)

Our next question comes from Brian Ossenbeck with J.P. Morgan. Please go ahead.

Brian Ossenbeck (Managing Director and Senior Equity Research Analyst)

Hey, good morning. Thanks for taking the question. Maybe just to circle back, I think, Mark, on your comments, you mentioned not really wanting to chase some of the pricing in Intermodal, so maybe I didn't hear that right, but if you can just expand more broadly on competition within that segment. You know, are you still stacking your containers? Do you feel like others are doing the same? And, you know, do you have some visibility to getting some Truckload conversion? Are the spreads getting to the point where you can actually pull some of that stuff off the highway?

Jim Filter (EVP and Group President of Transportation and Logistics)

Yeah, you have a, a lot of questions there. I'll try to put all those to in together, make sure I hit all of these. We do have boxes stacked. It's right now, at this point, it's less than 15% of our boxes, as Mark shared, we're, we're not adding to that fleet. We think that it, that leaves a lot of opportunity for us to continue to grow. In terms of, the market and, you know, some of our competitors, we see some competitors that are going in with pricing that would be at extremely low contribution or no contribution, which might be, accretive in the short term, but those really are not sustainable levels.

In the past, when we've gone through these cycles, we've seen different carriers have to go and make adjustments very soon after those bids implement. That leads to a really strong visceral reaction from our customers that often lasts for years. Many of our large customer relationships were born out of those types of interactions, and we've been able to build on top of those. In terms of competition relative to truck, we're within the range of when we see that we're able to do over the road to intermodal conversions, discount ranging about 10%-15%. We're a little bit on the low edge of that.

You know, the other impact there is, is fuel cost. That fuel is down $1 a gallon year-over-year, but over the last couple of weeks, it has been picking up, so we'd expect that'll be another opportunity for Intermodal to gain share.

Brian Ossenbeck (Managing Director and Senior Equity Research Analyst)

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

Mark Rourke (CEO)

Yes, there, there is absolutely some more international traffic that's starting to pick up. Similar to what Mark was talking about with restocking, that customers have now hit that level, that they've gone through that. These are often, especially in international, some very low year-over-year comps that's starting to see some improvement there that could potentially start to trickle in to more of a, a normal seasonality as we get into the fourth quarter.

Brian Ossenbeck (Managing Director and Senior Equity Research Analyst)

Okay. Thanks very much, Jim. Appreciate it.

Operator (participant)

Our next question comes from Tom Wadewitz with UBS. Please go ahead.

Tom Wadewitz (Managing Director and Senior Equity Research Analyst)

Yes, good morning. wanted to.

Mark Rourke (CEO)

Good morning, Tom.

Tom Wadewitz (Managing Director and Senior Equity Research Analyst)

Yeah, let's see. Wanted to see. I'll ask you a non-cycle question. You know, you, you had the nice Dedicated acquisition with Midwest, and then you've got this one that you just announced, which seems like, you know, you're characterizing it very similar. How do you think about the maybe kind of, I don't know if it's multiyear, kind of medium-term frame on Dedicated acquisitions? Is that something that there's a big enough pool out there, of similar companies that you can keep doing this for a while, that you, you know, you kind of say, Well, you know, maybe, maybe we do one of these deals a year?

Is that something that strategically you'd like to say, "Hey, we'll, you know, we'll spend $200 million a year on acquisitions as a kind of regular part of our growth strategy?

Mark Rourke (CEO)

As we think about. Thank you for the question, Tom. As we think about our allocation of capital approach, we still believe in most of our businesses that organic growth is still our most attractive play and are focused intently on that. In the Dedicated truck space, we do believe and continue to believe into the future, that buying a well-run, Dedicated contract carriers, particularly who have long-term and deep relationships with customers, which is the hallmark of the two that we just, our last two that we've acquired, makes sense for us. I do think you have a cadre of these well-run companies that have been around in these 25-30 years, who may not have as solid a succession plan that would be necessary to continue the business in its current form.

I think we're a very attractive suitor for those type of individuals. We've developed a approach and a process, I believe, that makes us a very viable acquirer, and doing it in the right way that's consistent with what someone who founded a company and has put their life passion into wants to be aligned with. It wouldn't surprise me at all that we continue on this pace. I wouldn't expect us to do anything again yet this year, but... I wouldn't also rule out something more transformative if we felt that that was in the best interest of our shareholders and that we could advance our strategy. Certainly, the programmatic acquisition and Dedicated is something that we're interested in continuing.

Tom Wadewitz (Managing Director and Senior Equity Research Analyst)

Okay. Yeah, great. And then one other phrase-

Mark Rourke (CEO)

Thanks for a non-cycle question, by the way.

Tom Wadewitz (Managing Director and Senior Equity Research Analyst)

Oh, yeah, I know. I, I do have one on the cycle, sorry.

Mark Rourke (CEO)

Sure.

Tom Wadewitz (Managing Director and Senior Equity Research Analyst)

It's just I, I need to, I need to get your insight on it, Mark. we heard from 2 of the, you know, the big intermodal competitors about, about... I think, you know, J.B. Hunt was like, "Well, June was a little better on, you know, intermodal volume year-over-year." I think Hub Group was saying, "Well, you know, sequentially, you know, you were, I think, 2 points better than normal seasonality, July versus June." I think they expressed, you know, a little bit of optimism that at least from an intermodal perspective, there was some improvement. Maybe some of that's due to what your, you know, the approach you take on price, right? I know you talked about the competitive environment on price.

Are you seeing that in Intermodal or in truck, that, that there is a little, you know, some reason for optimism, sequential improvement, or is it, are you seeing it maybe not quite the same as the comment from those two?

Mark Rourke (CEO)

I think your question is more July versus second quarter.

Tom Wadewitz (Managing Director and Senior Equity Research Analyst)

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

Mark Rourke (CEO)

Yeah. I, I would say there was an atypical trend in July to be a bit, I'll use the word, a bit stronger in both the truck and at the intermodal volumes, and a little higher fulfillment rate coming in from our customer community on the allocation. That's generally atypical, but it's coming off some smaller bases as well, and, and maybe a sign of, as what we've been talking about, of, of moderate, restocking. The trend is there, but it, it, it's not pronounced, but it's also atypical to have something larger in July and, and building from a June level.

Tom Wadewitz (Managing Director and Senior Equity Research Analyst)

Okay. Yeah. Great. Thank you. I appreciate it.

Mark Rourke (CEO)

Thanks, Tom.

Operator (participant)

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

Jack Atkins (Managing Director, Equity Research Analyst)

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

Mark Rourke (CEO)

Yeah, Jack, thanks for the question. Certainly, with our balance sheet and our health financially, we, we, we don't see that as an either/or. We just see that as an and. That, as I mentioned, we expect 200 units, at least, of implementation here in the 2nd half organically, and that will continue to be our focus. So we don't feel constrained that, that we have to do acquisitions in lieu of growing organically. I think it's a healthy approach to do both, and particularly when you get access to perhaps some deep relationships and new customers that you have not had the opportunity, either because of its regional nature or because it's just a different vertical or a different segment of, of the, the market that you, you don't have a large presence in.

attractiveness to us. And just like we find in our Dedicated businesses, these are long-term, deep relationships that are very deeply intertwined within the customer supply chain, and there's a real commitment and a real value that's exchanged between the two companies. And so that's consistent with our strategy and well, on how we like to position ourselves with customers. So Jack, I would have it as a, you know, our first priority will always be organic for the reasons that you described, but I think we can augment in a way that adds great value to the business and to our shareholders, organically-

Jack Atkins (Managing Director, Equity Research Analyst)

Okay.

Mark Rourke (CEO)

Excuse me, with, with acquisitions.

Jack Atkins (Managing Director, Equity Research Analyst)

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

you know, how should we be thinking about that in the back half of the year?

Jim Filter (EVP and Group President of Transportation and Logistics)

Yeah. Thanks, Jack. You're right. We have everything that we need to be able to improve our, our box velocity, with the exception of customer demand, because we have the train performance, the rail performance is at all-time high levels. Customers are unloading at, at levels that were similar to pre-pandemic, and as we spend time with them, they've made some changes to the warehouse operations, structural changes to prevent the type of backlogs that we experienced previously. We have the dray, company dray and dray providers in place, as well as chassis have normalized as well. We have everything we need to at least get back to 2018 levels.

It's, it's really a matter of when do we start to see the, the normal, restocking begin to occur, and we believe that, you know, that there will be a, a moderate peak season that we'll experience here later in the year. As we go through next year, opportunity to have over-the-road conversions as we go through that next bid cycle.

Jack Atkins (Managing Director, Equity Research Analyst)

Okay, that makes sense. Thanks.

Mark Rourke (CEO)

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

Jack Atkins (Managing Director, Equity Research Analyst)

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

Mark Rourke (CEO)

Absolutely.

Jim Filter (EVP and Group President of Transportation and Logistics)

Yes.

Mark Rourke (CEO)

It's a powerful flywheel.

Jack Atkins (Managing Director, Equity Research Analyst)

Okay. Thank you.

Operator (participant)

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

Jon Chappell (Senior Managing Director, Equity Research Analyst)

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

Jim Filter (EVP and Group President of Transportation and Logistics)

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

Jon Chappell (Senior Managing Director, Equity Research Analyst)

Okay, that makes sense. Quick follow-up. Mark, you mentioned again that Power Only has been resilient through the cycle. You've seen an entire cycle now through your build out of Power Only from, from peak to trough.

Speaker 17

Is there any way to quantify what the margin difference has been, or maybe the stability of the margin from the Power Only offering versus the traditional brokerage as Logistics is fully cycled?

Mark Rourke (CEO)

Yeah, well, we, I think I understand your question, Jonathan. It, it certainly, we believe we're getting a return on the asset that we're providing, the trailer asset, in this case, in Power Only, over top what we would normally, extract on a third-party complete move in, in brokerage, if you will. The return profile, we believe, is durable. We, we still have the same pressures, on pricing that occur in any other parts of the business or the same opportunities that get created on any other part of the business to take advantage of. We would consider the customer acceptance, the carrier acceptance, our ability to integrate now more efficiently and effectively, both within our Dedicated offering, as a, a supplemental capacity type, and also within our network configuration and how we go to market with customers.

We just continue to get better and better at that. We think this is a long-term solution and a long-term contributor to our network offering within our trucking operations. Even though it's third party and it sits in our Logistics business, we're much more integrated in how we go to market.

Speaker 17

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

Operator (participant)

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

Jason Seidl (Managing Director, Equity Research Analyst)

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

Jim Filter (EVP and Group President of Transportation and Logistics)

Yeah, I'm very happy with the performance of that business. You know, mentioned the, the transit time, actually, you know, going from Monterrey to Chicago, we're running, the state of transit is 4 days. They're actually running about a half day faster, puts us right on par with our, our truck business. That business just began in May, we've seen 5% growth out of that segment of our, our Intermodal business. We're, we're thrilled with where we're at. I think there's opportunities as we go through a full bid cycle to continue to grow that and expand. You know, also longer term, expect more nearshoring, we see opportunities to, to grow there as well. Overall, that business performs very well, the North-South Mexico business.

Jason Seidl (Managing Director, Equity Research Analyst)

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

Jim Filter (EVP and Group President of Transportation and Logistics)

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

Jason Seidl (Managing Director, Equity Research Analyst)

Okay, fair enough. I appreciate that color. The other thing, just trying to get a little clarity on, on the guidance here. You know, you, you said M&M is going to just be moderately accretive. Should we think about, like, sort of that $0.05 range so I can get a sense of what you're bringing down on the core business?

Steve Bruffett (CFO)

Yeah, this is Steve. I'll, I'll take that one.

Jason Seidl (Managing Director, Equity Research Analyst)

Hey, Steve.

Steve Bruffett (CFO)

We did incorporate that into our full year guidance, and as we mentioned, of course, M&M Transport's a programmatic type acquisition. If you take 5 months of that versus 12 months of our legacy business, it's obviously not a huge needle mover. Said another way, I think our guidance range would have been the exact same range, even without the M&M Transport acquisition occurring.

Jason Seidl (Managing Director, Equity Research Analyst)

Got you.

Steve Bruffett (CFO)

M&M just helps us move bit upward within that same range.

Jason Seidl (Managing Director, Equity Research Analyst)

Appreciate the color, guys.

Jim Filter (EVP and Group President of Transportation and Logistics)

Thank you.

Operator (participant)

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

Jordan Alliger (Vice President and Senior Equity Research Analyst)

Yeah. Hi. Just, just sort of curious, with all the stuff going on in, in less than truckload with Yellow, is there any anticipation of, knock on benefit over to the Truckload sector, and, and could that happen, and would you see it? Thanks.

Jim Filter (EVP and Group President of Transportation and Logistics)

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

Steve Bruffett (CFO)

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

Mark Rourke (CEO)

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

Jim Filter (EVP and Group President of Transportation and Logistics)

Thank you.

Operator (participant)

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

Scott Group (Managing Director, Senior Research Analyst)

Hey, thanks. Good morning, guys. When I look.

Jim Filter (EVP and Group President of Transportation and Logistics)

Good morning, Scott.

Scott Group (Managing Director, Senior Research Analyst)

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

Mark Rourke (CEO)

I don't know if I can exactly answer maybe what you asked there, Scott, but I, I would tell you that we are through the allocation season, and certainly, the Q3 will feel the full brunt of all the implementations and to finish up what occurred in the second quarter. So as we look at overall revenue per truck and our ability to hang in there, there's a couple of influences. Clearly, contract pricing has come down we would consider in the upper single digit range. We're also in that part of the network, utilizing higher than our typical spot rate or spot volume, to include some optimization on some of our Power Only volume. So those are the implications of getting at a little higher reduction on the revenue per truck.

Utility, for the most part, hanging in there pretty well. We think that's still an item that we can lean into to even be more effective on the productivity side of the house. The question is, in our view, there is a % of the book that we don't consider sustainable, and how quickly can we pivot when better opportunities start to materialize?

Scott Group (Managing Director, Senior Research Analyst)

Okay. Then just secondly, when, when I just look at Truckload margins today versus 2019 and Intermodal today versus 2019, Truckload's actually holding up better than 2019, Intermodal maybe now a little bit worse. Any thoughts on why we're seeing, you know, those two businesses perform a little bit differently? Then, you know, you and others have just tons of these boxes parked. Do you think that that limits some of the Intermodal pricing upside whenever this demand inflection comes, or are you not worried about that? Thank you.

Mark Rourke (CEO)

There are several questions there.

Steve Bruffett (CFO)

Yeah, I'll, I'll start on the first part of that, compared to 2019, which was a, a prior down cycle, to bring a reference there. Within our Truck Segment, I think the biggest single contributor to better margins this time around is just the composition within Truck. We have a much larger representation from our Dedicated operations within our Truckload Segment than what we had even three or four years ago, as we've continued to grow and develop that. And the stability of those margins are part of why we've been strategically pursuing that growth in Dedicated over the past several years. We're, we're seeing some of the fruits of, of that purposeful steering. The Intermodal question about the stacked containers.

Yeah, the stacked containers, first of all, that's, you know, part of the difference between now and 2019. We do have more available capacity to be able to grow. In terms of the weight that might put on, on pricing, I don't believe it's the same type of equation that we have in Truckload. The, the cost of having a driver, a truck, a trailer, at the standby is not the same type of cost impact that you experience with Intermodal, having a container that's stacked. I believe that we'll, we'll still be disciplined as the market starts to grow.

Scott, maybe just another, you know, color from our view. As we look at our chess board with our Intermodal offering going forward versus what we were positioned in 2019, we think we are positioned very favorably to... We just haven't had a chance to exercise all of those new opportunities and relationships to the, to the extent yet. So we very much look forward to even a slight recovery, I think will have a nice flywheel effect for the business. That's all- and we consider that all in front of us.

Scott Group (Managing Director, Senior Research Analyst)

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

Mark Rourke (CEO)

providers, network, and our ability to execute it.

Scott Group (Managing Director, Senior Research Analyst)

Okay. Makes sense. Thank you, guys.

Operator (participant)

Our next question comes from Bascome Majors with Susquehanna. Please go ahead.

Bascome Majors (Analyst)

Thanks for taking my questions. With the Q2 being the first where you've been active on the buyback, can you talk a little bit about how that's worked out by your expectations? Is it interplaying well with the dual class share structure and limited float? you know, longer term, as you get through this program, do you see a path to having a more active share reduction style buyback as part of your capital allocation strategy? Thank you.

Steve Bruffett (CFO)

This is Steve, I'll take that one. As far as the second quarter, we did want to get the program off to a solid start. We did identify some good buying opportunities during the quarter. With nearly 1.4 million shares already repurchased, we'll likely assume a moderate but steady pace of repurchases across the remainder of the year. Like we articulated when we launched this $150 million authorization, we are aware of our public float and aren't looking to do anything that disrupts that in any meaningful way. We're behaving with some discipline there.

Ultimately, once we stabilize to get to our desired share count, like we said, we anticipate that it would be more of a maintenance program where we, where we offset the dilutive impact of equity grants going forward. Understand that there are some constraints as to just how far we can go, given the parameters we work within today. Could that change in the future? Possibly, but we don't have visibility to any of that at this point in time. This is our plan to, to behave as, as we look forward across the remainder of this year.

Mark Rourke (CEO)

Thank you.

Operator (participant)

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

Ken Hoexter (Managing Director and Senior Equity Research Analyst)

Great, good morning. Congrats on another acquisition, and it's getting closer, so, you know, a lot of talk here on imports, exports. Thank you to Green Bay for exporting Aaron Rodgers. Looking at the, I guess, your target now $0.38-$0.45, if you just divide it, you know, in the second half, per quarter, down from $0.45-$0.55 in the first half. Mark, I just want to clarify, is that really just pricing? It sounded like you were saying utilization's okay, you've added Dedicated fleet, but no contribution, at least right now, right? Does that mean higher margin on the added fleet?

Maybe just talk about, you know, I don't know if Steve wants to chime in on the, on the highs, lows, what, what kind of gets you to that top, bottom end of the range in, in your expectations.

Mark Rourke (CEO)

Yeah, Ken, thanks for the question. There's 2 influences there. Certainly, as we've mentioned, the impacts of gains in the second half of the year are going to be different than the first half of the year, so that would take into account that element. Secondly, we do believe the Q3, in particular, will have some pricing pressure that we believe will begin to start to be able to address in a more constructive way as early as the Q4, if the restocking phenomenon and the trends that we feel that the customers position themselves to would occur. Those would be the 2 primary. You know, the moderate seasonality improvement from the second to the, or excuse me, from the third to the Q4 being the other.

The degree of all of those, in our view, will dictate where we finish ultimately in that range.

Ken Hoexter (Managing Director and Senior Equity Research Analyst)

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

Mark Rourke (CEO)

No updates for you at this time.

Steve Bruffett (CFO)

Wait a minute, what CFO?

Ken Hoexter (Managing Director and Senior Equity Research Analyst)

Steve, you're the one that brought it up. All right, thanks.

Mark Rourke (CEO)

Yes, our, our process is progressing per our plan, and when we have something to share, we will do so.

Ken Hoexter (Managing Director and Senior Equity Research Analyst)

Okay. Thanks. Thanks for the time.

Mark Rourke (CEO)

Thank you, Ken. Good luck with Rodgers.

Operator (participant)

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

Chris Wetherbee (Managing Director, Equity Research Analyst)

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

Mark Rourke (CEO)

Yeah. Thank you, Chris. I understand the question. You know, certainly, as we've laid out, our strategic growth driver within Truckload is, and I believe will remain in the Dedicated space. We're less focused what the percentages are between those two, but looking for quality opportunities to grow earnings in a sustainable way over an extended period of time, is our focus with, with Dedicated. That being said, we still have a meaningful, one-way presence. 4,000 trucks, 4,500 trucks, if we do nothing but stay there, is a meaningful presence. What gets masked a little bit, is, is the increasing influence of Power Only in our network business from a customer's lens.

From a customer viewpoint, our network business feels larger than our, our published, one-way company driver and owner-operator fleet because of how we go to market, how we integrate those things. We're going to look at that Truckload network as how to maximize our earnings potential and value to the customer across those various capacity types, and those are the capacity types that will operate in that random, more random network, configuration. It'll be the combination of those two things. We're not anti-company driver. We're very pro in our, our network business, so we like it a great deal, but our growth focus will remain in Dedicated.

Chris Wetherbee (Managing Director, Equity Research Analyst)

Okay. That, so that sounds like somewhere in the 4,000 plus truck range is, is maybe the low water mark. That you don't necessarily think you'll drop below that, is, is what you're thinking?

Mark Rourke (CEO)

It would not be our intention, not at all.

Chris Wetherbee (Managing Director, Equity Research Analyst)

Okay. Then one quick follow-up, just on the, on the acquisition. As we think about contribution, whether it be on, you know, revenue per truck per week, how, how does that sort of stack up relative to the, the broader...? I know it's a relatively small piece in the context of 6,000 trucks that's coming on, but, you know, are there meaningful variances either in sort of end market exposure or other dynamics that could drive different revenue per truck per week numbers?

Mark Rourke (CEO)

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

Chris Wetherbee (Managing Director, Equity Research Analyst)

Okay. Thanks for the time. Appreciate it.

Mark Rourke (CEO)

Thank you.

Operator (participant)

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

Mark Rourke (CEO)

Great. Well, thanks, everyone, for joining us today, and I'll just close by referring you to page 14 and 15 of our updated investor presentation. Our strategy is to be disciplined in how we deploy our capital, focused on shareholder returns. To do that, we have outlined our strategic growth drivers of Dedicated Truck, Intermodal, and Logistics. We're pleased that we had a chance to talk about those things today. In the quarter, we did leverage our strong balance sheet to complement our, complement our Dedicated organic truck growth efforts with M&M Transport. We look forward to not only what they bring to us, but our opportunity to derive synergies as we get them implemented. We'll continue to pursue those right acquisitive opportunities that advance our strategic priorities.

We got a chance to talk about our share repurchase program today, which is almost 1.4 million shares in the quarter. We'll keep a nice, steady drumbeat for the remainder of the year. Perhaps not to that same extent, but a nice, steady drumbeat. We're going to continue to invest in the strengths across our highly diversified portfolio, and again, several of those, which we had a chance to highlight on the call today. I appreciate your time and attention, and look forward to our discussion next time. Thank you.

Operator (participant)

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