Schneider National, Inc. Q1 FY2022 Earnings Call

Greetings. Welcome to the Schneider First Quarter 2022 Earnings Call. Please note, this conference is being recorded. I will now turn the conference over to your host, Steve Bindas. You may begin.

Thank you, operator, and good morning, everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer; and Steve Bruffett, Executive Vice President and Chief Financial Officer. Earlier today, the company issued an earnings press release, which is 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 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, which includes reconciliations to the most directly comparable GAAP measures. Now I'd like to turn the call over to our CEO, Mark Rourke. Mark?

Thank you, Steve, and hello, everyone. Thank you for joining Schneider's call this morning. This month marks our fifth anniversary of being a publicly traded company. Many of you have been with us on this journey since April of 2017, and we are grateful for your insight, encouragement, and support. I'll start our prepared comments this morning on our first-quarter operating performance by illustrating, with metrics, how our portfolio of services has been reshaped into a leading multimodal transportation and logistics platform. The transformation of Schneider to date has not been consistently recognized when you consider the current trading multiple of the company. In the most recently completed quarter, in our three segments of Truckload, Intermodal, and Logistics, the asset-light segments of Intermodal Logistics represented 61% of the segment's revenue mix, excluding fuel surcharge. Year-over-year, Intermodal order count grew 1%, with year-over-year container growth of 26%, enabling an attractive runway opportunity for rail conversion and growth as rail fluidity begins to return to the network. Logistics produced another quarter with order count growth exceeding 20% in our brokerage offering, placing revenue essentially on par with our Truckload segment. Since 2016, our compounded annual order volume growth rate in brokerage is 16%. In Truckload, we averaged over 10,300 tractors in the quarter with 56%, or 5,700, of those operating within dedicated customer configurations, with additional start-ups currently underway and a very strong new business pipeline. While we are proud of our Truckload heritage, and Truckload remains a very important element of our long-term positioning of the Schneider enterprise, these metrics illustrate that Schneider is much more than a one-way truckload organization. Now let's transition to the segment specifically, with particular emphasis on our strategic growth drivers of dedicated truck, intermodal, and logistics. In the quarter, in Truckload, dedicated revenue grew 52% over one year ago, and the growth is nearly evenly split between organic growth and the addition of our acquisition of Midwest Logistics Systems at the end of 2021. The acquisition is going well. We intend to build upon the associate and customer base strengths with an approach of running it separately with targeted cost and operational synergies focused on improving driver and customer experience opportunities. With one quarter under our belts, we are pleased that the approach has been well received by the MLS associates and customers, and the business results are at or above expectations for both revenue and earnings. Revenue per truck per week, again excluding fuel surcharge and dedicated network, was up year-over-year by 10% and 19%, respectively. In Dedicated, more of that improvement was realized in asset productivity as our new business start-ups mature, with more than 100% of the improvement in network being price-related, as asset productivity in the network was affected the most by the temporary system outage we experienced in the quarter due to a vendor hardware failure, as well as COVID-related impacts on driver availability early in the year. As it relates to current market conditions, the first-quarter contract renewals and price adjustments in dedicated and network remain highly supportive of the inflationary costs in the business, particularly around driver compensation and direct costs such as new equipment acquisition, equipment maintenance, and replacement parts. It is our view that shipper allocation events have largely moved spot price business to contract, which, in general, delivers better cost acceptance and service. Better acceptance results in less tender rejects and smoother supply chain execution for all parties. In fact, in our network-based offerings, we are seeing materially higher levels of award tenders and acceptance after allocation events and prior to those events. Now let's transition to Intermodal. On our last earnings call, we discussed the role we expect Intermodal to play as a growth driver for the company while offering our customers additional value in achieving their carbon emission reduction commitments. Specifically, our stated goal is to double Intermodal by 2030. Part of that plan was to create competitive differentiation with the largest industry player with shippers who value an asset-based execution model of owned container, owned chassis, and company driver dray model. The unique asset-based model alignment with the Union Pacific in the West and the CSX in the East provides the desired differentiation. We also chose to announce the western rail partner change to the Union Pacific a year in advance so we could operate in an open and transparent manner with our stakeholders, namely our dray drivers and our customers, and importantly, to act with integrity and be highly respectful of our long-term relationship with the BNSF team. It speaks to the quality of their organization and leadership as we are working through this transition in a constructive and professional fashion. The timing also gave us the opportunity to develop a robust plan with the Union Pacific to execute the change with a very high level of operational excellence and maintain regular communication with all our stakeholders to allow them to be allies in the change. The joint commitment, resources, and plan to do just that is on track, and we are highly confident in our collective execution capability. Sequentially, within the first quarter, we grew the intermodal container count by 2,200 containers. We expect the 26% growth in containers year-over-year to be translated into order volume growth as rail fluidity and labor conditions improve at our customers' loading and unloading locations. Revenue per order improved 16% year-over-year, excluding fuel, contributing to a 510 basis point improvement in operating ratio to 87.1%. As we move to Logistics, they were led by our brokerage offering, which delivered another quarter of excellent business results, improving operating ratio year-over-year by 320 basis points to 92.3%. Logistics earnings surpassed the Intermodal segment for the first time. Our investments in Schneider FreightPower are focused on digitally connecting to the shippers and third-party carriers with price book and track automation benefits. The advancements are helping to drive productivity in the business. In fact, in the quarter, brokerage grew order count over 20%, with people count increasing just 7%. Finally, we experienced a sizable net asset property gain, so I wanted to provide some strategic context for that development. The gain was derived from a capital allocation exercise we regularly perform across our various operating units. While we have been operating in Canada for nearly 30 years, the assessment determined that the current and future prospects of cross-border operations based in Canada were expected to remain substantively inferior to other uses of resources, especially rolling stock capital assigned across our Truckload and Intermodal offerings. Therefore, by the end of the quarter, we have largely reallocated the power, trailer, and container capital to a series of higher return profile operations in the United States. The attractiveness of the commercial property in Canada resulted in an expedited sales process. So as I turn it over to Steve for his remarks, I feel we have ample opportunity to continue to deliver leading performance across our three operating segments, and that confidence is embedded in our full-year guidance raise.

Thank you, Mark, and thanks to each of you for joining us this morning. Picking up where Mark left off, I'll begin with additional context regarding our forward-looking comments. We've increased our guidance for full-year adjusted diluted earnings per share to a range of $2.55 to $2.70 per share. This represents an $0.18 or 7% increase from our prior guided midpoint. We're making this increase despite the fact that we now expect to sell less equipment this year than was inherent in our initial guidance. During our last earnings call, I noted that we expected equipment gains for 2022 to be similar to those of 2021, which were $64 million. Our updated outlook for gains is approximately $45 million, reflecting our expectations to retain some equipment, especially trailers, to support the growth opportunities we see in our Dedicated and Power Only offerings. Our updated EPS forecast reflects expectations for strong operational performance across the portfolio for the remainder of the year. As Mark mentioned, we're seeing a return to normalcy as the contractual market has stabilized over the past couple of months and absorbed many of the tenders that were going to the spot market. The contractual rate environment remains healthy as shippers value the capacity and service that we provide. We expect constructive conditions to remain intact throughout 2022, which applies to both our Truckload and Intermodal segments. In our Logistics segment, dynamic market conditions provide the opportunity to fully utilize our decision science tools and rapidly adapt. We actively participate in both the contract and spot markets and are able to leverage our core brokerage capabilities while augmenting them with our Power Only solution and the broad reach of the Schneider FreightPower platform. Regarding capital expenditures, we're increasing our full-year expectations for net CapEx to $500 million, and this increase is due to cost increases combined with some incremental trailing equipment. I'll wrap up with brief comments regarding our first quarter. Revenues, excluding fuel surcharges, were up 28% over the first quarter of 2021, and all three segments made meaningful contributions to this top-line growth. Adjusted income from operations increased 95% over the first quarter of 2021, while adjusted earnings per share increased 84%. The reason for the differing percentages was a $0.04 loss on equity investments that was recorded this quarter. Also, it's important to note that the first quarters of 2022 and 2021 contained minimal gains from equipment sales as there were limited dispositions in either quarter. So operating performance was even stronger than the year-over-year EPS comparison implies. The portfolio is executing effectively and generating strong returns on invested capital, which is a strategic outcome of the reshaping that's been underway for the past several years and will continue as we move forward. On the topic of capital, net CapEx during the first quarter was only $9.9 million, and this was a function of the property proceeds, mostly offsetting the CapEx for equipment. As it is apparent from our full-year guidance of $500 million, we anticipate a sizable step-up in equipment deliveries over the remaining three quarters of this year. We continue to prioritize capital allocation towards our strategic priorities of growing Dedicated, Intermodal, and Logistics businesses while making steady investments in technology. And so with that, we'll open up the call for your questions.

Our first question comes from Jon Chappell with Evercore ISI.

Mark, starting with Intermodal. You've laid out your growth ambitions there and a lot of what you're doing to obtain that growth by 2030. Just wondering how the transition has been going early days. Obviously, it doesn't fully start until next year, but as you said before, you're kind of preparing. And as it relates to that, revenue per order down sequentially. Just wondering if that's part of the preparations to move over to the UP? Or if that was seasonality? Or was it some of the accessorials maybe going away a little bit and be more representative of a run rate going forward?

Thank you for the question, Jon. As you mentioned, we're in a great deal of planning as it relates to the transition across the commercial aspects, the dray aspects, and just the whole integration of the business process, and we're feeling two things. We're feeling really good about the engagement with the Union Pacific to do that well, and we've been really pleased with the commercial receptivity of the change coming from our customer community. Part of that is preparing how we go ahead and make commitments through the rest of the year and have a solid plan to accomplish this with a high degree of operational excellence. I'm really proud of the team and pleased with the engagement across all of our stakeholders. As we sit here now at the end of April, we feel we're really well positioned to do exactly what we set out to do. Regarding the second part, as it relates to the revenue per order, yes, there are some seasonality impacts through the peak retail season that are evident in that. But I will tell you that the contract renewals continue to be highly reflective of the inflationary costs in the business around the expense line, and the customers are highly responsive to that, whether we're talking about our truck business or Intermodal offering.

And Jon, this is Steve. I would just add to the sequential comment that you're making about revenue per order. There was also a length of haul component of that as most of our growth is occurring in the East, which has a shorter length of haul than in the West or the transcontinental move. So that's a factor in that number as well.

Got it. That's really helpful, Steve. And then just the second one as it relates to equipment availability. Steve, you just laid out how that's going to be a back-end loaded kind of CapEx. And you were able to add more dedicated trucks to the MLS acquisition, but how do you think about the truck count and how it's spread between dedicated and network just as it relates to OEM availability and your ability to actually spend that capital through the rest of the year?

Yes. We're giving you our best kind of estimate at this point. We believe we're going to get a good portion of what we've laid out here. So we get it in a slightly delayed fashion potentially, which we didn't have much planned for new equipment in the first quarter. This is consistent with how we've laid out our expectations with the OEM. So at this junction, we're feeling pretty good. But as you know, the supply chain has been fairly fluid. While confidence is high, we'll have to see how the full year plays out.

Yes. As far as the mix of the equipment, the tractor count, if you will, now versus the end of this year, if we see growth, I would expect it to be in dedicated configurations or supporting our Intermodal dray fleet and kind of in a maintenance mode with the Truckload network component of it.

Our next question comes from the line of Bert Subin with Stifel.

So it seems like your business has obviously changed a fair amount over recent years. How are you thinking about earnings volatility for the overall enterprise just this cycle versus last? If I look at the parts, obviously, your network exposure is quite a bit lower. So I think that would come down to your view on Intermodal, Logistics growth from here. Any color would be really helpful.

You're absolutely right. The mix of our business and the configuration of it is much different than if you compare it back to prior periods, particularly in the 2018 phase. As you sit here today, in our truck configuration, as I mentioned, we're at 5,700 dedicated units to 4,500 units in the network business, and we anticipate continued growth in the dedicated portion. I think we had 280 or so units in the first quarter in start-up sequentially from the fourth quarter to the first quarter organically. Additionally, we have a very robust pipeline. There has not been any dampening of enthusiasm for what Dedicated provides to our customer community and the certainty around cost and service, particularly in the markets that we serve in the more specialty dedicated market. We would expect that those mix elements we're seeing change will continue to be the trajectory in the truck business, which as you think about the dedicated mix being longer-term contracts as well as more consistent volumes, we think that bodes well for the resiliency of our truck segment. On the Intermodal front, we believe there's been significant conversion back to over-the-road based on the activities of the last couple of years relative to the urgency around the supply chain. In addition to what we can help customers solve regarding their increasing commitments to carbon emissions. As we sit here, we have some great tailwinds. We're executing well and differentiating our services, so we believe we can offer that service relative to own truck, owned container, and owned chassis for a great customer experience.

That's a great overview. Maybe just following up on logistics. It seems like, if I look at the numbers on a year-over-year basis, you saw a sequential improvement in brokerage volumes, which I would think is encouraging, yet you're still talking about bringing some more stuff in-house. Can you talk about what's allowing you to differentiate that Logistics business from your peers? Are there things you're doing in terms of loyalty programs for drivers that are keeping them in-house? Or is it purely what you're doing on the technology side?

I think the differentiation comes from our business model standpoint; we have the ability to leverage the whole organization and enterprise to the benefit of our customer, which allows us to capture market share because we're engaged in truck, Intermodal, and assisting on other lanes that don't fit other people's networks, which is how our logistics model plays out. We also have invested in the ability for them to not be solely reliant on the enterprise or overflow and have developed the capability to create their own customers and demand in a self-serving manner. So we're gaining benefits from both aspects. Importantly, we've found ways to provide more solutions by using our orange box in a way that's easy for our customers to agree to, and we've established networks underneath that with smaller carriers to operate that business in a balanced network configuration. This management of trailer pools is essential to serving our customers, and this is how our business model is structured, which favors carriers like ourselves who can manage both our capacity and that of third parties while maintaining a balance to serve our customers.

Just to clarify on that, that seems beneficial for the shippers. How do you think about the drivers in that ecosystem, being able to keep them on your platform?

Yes. Our integration with Power Only is organized in a way that does not disrupt our valuable company driver network and owner-operator network. Our technology and tools allow us to segment and determine where those fit best, both in pricing and customer value while ensuring the capacity that needs to be served. We've de-conflicted this on the front end of our processes so that we can execute with excellence on the back end. This is valuable to both our company and owner-operator capacity, but also increasingly to third parties who don't have access to the quality shippers we serve due to our trailer pool network, which is being aggregated on the Power Only front.

Our next question comes from the line of Ken Hoexter with Bank of America.

Mark or Steve, can you just talk a little bit about the environment now in terms of your thoughts on the market? And I ask that in looking at your revenue per truck, which showed deceleration. I got your answer before to Jon about kind of seasonality and other things. But maybe then just talk about the components within revenue per truck, what you're seeing and how we should think about that going forward as you go through bid season.

When we talk about our networks, we're specifically referring to the contract trailer pool network. If we engage in the spot world, it's generally in support of our contract customers dealing with disruptions within their business. There's much emphasis on the trucks that boards and similar elements, but that's really not applicable to what we do, particularly on the asset side of the business. When we assess demand, it's healthy across the contract side. We've gone through nearly 40% of our contract renewals already in the first quarter and are seeing share gain and very healthy pricing improvements to address the inflationary costs around the driver and equipment. So we think the market is still very responsive to that necessity, given the costs entering the business. We're encouraged by how the first quarter of the year has progressed.

Can you talk about the components of revenue per truck? Maybe just share if you're seeing shifts within the mix?

The shift we're experiencing in trucks is more between dedicated configurations and network configurations. There hasn't been a substantial change in length of haul or any underlying factors driving differences in that area.

Yes. My comments on that, Ken, we are on the Intermodal revenue per order, and that's where I was referring to length of haul differences. It was not applicable to the Truckload segment.

East versus West.

No. I guess I got that on the Intermodal. I was thinking more of utilization of miles per truck, if anything is aiding or detracting aside from just pricing, right? If there was anything within the mix just given maybe you don't break out other than the revenue per truck.

Nothing I'd point to, no.

Yes. Okay. And then my follow-up is just you mentioned a business review where you do it quite often. Was there also a look at how you allocate capital between, whether it's adding more dedicated resources or growing Intermodal more specifically or focus on Logistics? Just in the three segments of the business, was there an analysis of where you want to focus a little more? Or just kind of keep the same in terms of your third breakdown?

In assessing what we believe regarding capital allocation, we are focusing our strategic growth driver and subsequently, our capital allocation around the dedicated truck; Intermodal, both container chassis and power when we say Intermodal; and then technology and increasingly more trailers for Power Only in our Logistics business. This is indeed our focus of growth. Within those elements, we continually seek ways to enhance capital allocation and apply resources against the best customer value and enterprise value. This assessment was what led to the decision regarding the change in operations in Canada, allowing for the redeployment of assets.

Our next question comes from the line of Ravi Shanker with Morgan Stanley.

I want to follow up on the point about Intermodal conversions. I think you mentioned that we've seen more truck conversion from rail to truck because of congestion and everything else, despite how tight the truck market was. Even if rail congestion eases, if the truck market loosens even more in the back half of the year, do you see that traffic going back to rail? Does it stay on truck? Or how do you see that playing out over the next 6 to 12 months in the event of a down cycle?

Ravi, I’ll speak to a longer-term and then a more immediate view. When we study the Intermodal market, we’ve seen some conversion back, initially around 2015 due to precision scheduled railroading and then more recently due to congestion. We believe there is ample opportunity for growth that aligns with our aspirations, particularly with emission reductions becoming more valuable. The combination of factors provides us confidence in our long-term objectives. Short-term, with fuel prices and improved customer unloading conditions, we expect to see improvements in volume as it relates to Intermodal but overall, both short- and long-term improvements are anticipated.

Great. Second question is about the negligible gain on sale. You and some of your peers are talking about lower gain on sale in the short term due to new truck markets. How do you think this will play out? When do you think those new trucks come in? What does the guidance and guarantee look like? Also, will there be a maintenance cost drag if your truck fleet gets older than you'd like?

Yes, there is certainly tension between fleet age and maintenance costs, and we are very mindful of that. Regarding availability, I don’t anticipate a significant improvement beyond what we’ve been experiencing or projecting for 2022, likely even into 2023. We must ensure efficient utilization of our current equipment and leverage our relationships with our OEM providers to secure equipment more favorably than the average carrier, and that will be our focus.

There's a thought I want to bring up. If the airline manufacturer fails to deliver an aircraft on time, there might be compensation for the airline. At what stage do you communicate with your manufacturers about the situation and ask for assistance with the age of your fleet and any associated costs?

Ravi, I'm taking notes. I'm going to try that.

Our next question comes from the line of Jordan Alliger with Goldman Sachs.

Just curious, spot truck rates are well off their peak. Why are shippers looking to shift into contract? I’m just trying to get a sense of how much the gap has closed between spot and contract today versus a few months ago.

From a shipper standpoint, we mostly engage in the contract trailer pool market. Shippers value contracts for the efficiency they create. There are limitations to how effectively shippers can utilize the spot market due to live load and unloading inefficiencies. This leads to a focus on the contract and our assets being deployed primarily to support those contracts. The value we provide is tied to our capacity and service.

Okay. Just a quick follow-up on Dedicated. I know your pipeline is strong today. I assume that pipeline is business you have waiting to start. What about future pipeline or requests for proposals for business not yet in the official pipeline? Does that continue to rise?

Yes. There hasn't been any real slowdown regarding dedicated pipeline activity. We are focusing on specialty areas of specialty equipment, including temporary flatbed and private fleet arrangements, which provide more services beyond just moving a product from A to B. This broader market reach is responding well to needs for certainty in cost and service.

Our next question comes from the line of Tom Wadewitz with UBS.

Wanted to ask you a little bit about the logistics side and the outlook. The performance continues to be impressive in terms of volume growth and margins. Should we think about the year-over-year momentum sustaining on the load side? I know you’re focused on the spot market, but maybe more impact in brokerage. What about the margins? Can you sustain that strong operating ratio over the next couple of quarters?

Thanks, Tom. We've had solid performance, as you noted, without dropping off from the sequential fourth quarter to the first quarter. We do play in the spot market a bit more aggressively; we're about 50-50 contract to spot, suggesting some flexibility. We believe this durability is essential from a customer standpoint but offers resilience to our carrier community. The models we’ve developed highlight the capacity to adapt quickly to market conditions, allowing for consistent and durable margin performance. So we see great opportunities across both traditional brokerage and Power Only, and beyond our FreightPower platform, which positions us quite well.

It sounds like you have a pretty bullish outlook for that business. On Intermodal, the turns were challenged in the quarter, primarily due to rail and customer issues. Does it make sense to model sequential improvement? Or should we expect that to stay the same?

A combination of several factors impacted us in the quarter. We were, certainly, affected by COVID early in the year in key hub markets. If a lot of equipment is taken on during a specific quarter but isn't efficiently put into service and positioned correctly, it diminishes effectiveness. The sequential change of 2,200 containers from fourth quarter to first quarter is significant. We are optimistic due to the positive responses we’ve observed in allocation activities and the uptake of awards, suggesting improved throughput for our turns and ultimately uptick in volumes.

Are you optimistic on the rails improving? It seems like that would be an important component.

Yes, there's variability among railroads. The East is performing better regarding fluidity than the West. The allocation of our boxes is aligned with which railroads can effectively serve us. We expect to observe improvements across the board with enhanced rail fluidity and reduced chaos in the network.

Our next question comes from the line of Jack Atkins with Stephens.

I would love to get your perspective on the market in general. What's been going on through the first few months of the year? How do you see the freight markets playing out? Is the shift in the spot market just an air pocket, or is there something changing from a demand or capacity perspective?

Shippers have been looking for stability in their allocation and increasingly attempting to transmute freight from the spot to contract environment. There is some overlapping from spot to contract due to this shift. Additionally, the northern regions of the country have experienced delays due to weather recently impacting seasonality. We are beginning to see seasonal updates at the end of April. While there are affluent customers that may feel changes in demand, the larger middle is holding stable. Our contract business appears solid despite the attention load boards are receiving.

To add a macro level, there was some pull-forward, especially with large customers that have global supply chains. This has created a dynamic shift experienced late in the first quarter and into early second quarter. This could serve as a contributing factor.

As you think about the second half of this year and contracts that will renew on the Truckload side specifically, considering inflationary pressures, do you believe the market will support contractual rate increases?

Looking to the rest of the year, particularly during the second half of last year, we emphasized addressing inflationary costs. We understand that comparisons will differ but will likely reflect the experienced inflation. Circumspectly, we performed well addressing these issues earlier in the year, and for those renewed later, they may have uncovered additional metrics leading to adjustments. Ultimately, we maintain strong confidence that we'll avoid a negative price situation relative to inflation.

Our next question comes from the line of Bascome Majors with Susquehanna.

I want to go back to the question about Logistics results just in a slower market. Logistics had operating income of $42 million in the first quarter. What does guidance assume for the rest of the year? Does it go higher from $42 million? Or does it go down?

We don't give segment guidance, but based on Mark's earlier comments about how we view ongoing growth prospects and our capabilities, we believe the margin and revenue profile we've seen will continue throughout this year. We do anticipate that same contribution from our Logistics segment.

Can you share the cadence to get to that $45 million of gains throughout the year? Any thoughts on progression of margins for the rest of the year in Truckload and Intermodal?

We would anticipate most of the gains to be largely evenly distributed between the third and fourth quarters, though we expect some in the second quarter too. We should see typical seasonality affecting margin performance as we progress through the year, which is also factored into our assumptions.

Our next question comes from the line of Christian Wetherbee with Citi.

Two questions on the Dedicated side. First, with the MLS acquisition, the fleet count shifts more toward dedicated versus network. Do you think the right weighting is going forward? Will network continue to decline?

Our objective would be to grow across network rather than have network shrink. The driver community is inclined toward the certainty that dedicated configurations can provide. However, we're working to drive more predictability into our network configuration to compete effectively. Thus, we're not purposefully shrinking the network configuration; rather, we're actively pursuing dedicated growth.

On that point about dedicated growth, what should we expect in terms of incremental truck counts as we go forward from the first quarter?

Without being overly specific, we expect several hundred trucks to be added sequentially each quarter within dedicated configurations based on the existing pipeline.

Our last question comes from the line of Todd Fowler with KeyBanc Capital Markets.

On the guidance raise, can you help us think about what's driving the higher guidance for the remainder of the year compared to a few months ago?

We've addressed many of those points. It's how our reshaped portfolio is performing in this market. We have a clearer understanding as we assess our projections four months into the year. This enables us to raise numbers with confidence based on our performance yTD and what’s in the pipeline.

Can you help us determine if it is better performance in logistics? Is it contract renewals? How do we quantify that?

It's a combination of various elements rather than a singular one. It’s the portfolio effect that we've aimed for and the growth prospects in Logistics, Intermodal and Dedicated coming to fruition, along with operational execution driving margin growth alongside the top line growth.

It sounds like the cadence of gains is back-end weighted, but are there any other notable modeling considerations we should include to project the quarters into next year?

Yes, that captures the intended guidance. The second half's gains are somewhat similar to what we experienced in 2021 when you aggregate the third and fourth quarters. It's steady as she goes. Our operations are functioning and need to keep throughput flowing smoothly to achieve our plans. I fully anticipate the team can execute these plans well.

Our last question comes from the line of Brian Ossenbeck with JPMorgan.

Looking at Logistics, the long-term margin target is 4% to 6%. Given the current performance, do you think that may need adjusting, or are we just focusing on growing with the same margin?

This is something we'll review annually during our three-year planning process. We'll certainly be evaluating whether we should change that number based on performance and our future planning objectives. We've emphasized maintaining margins while driving top-line growth, leading to an increase in earnings from the Logistics segment, which is an increasingly valuable contributor to our overall position. Balancing a focus on revenue and margins is dependent on individual portfolio segments and market conditions.

Mark, can you elaborate on the transition over to the UP? You mentioned your confidence in a successful transition and notable commitments from shippers. Are you able to align volumes, customers, and lanes with those commitments?

Yes, Brian. The decision to announce the UP change early was to get our organization and Union Pacific aligned. This allowed us to engage with our customer community about how we're making a great transition. We've invested considerable effort and resources into developing robust planning. The early response during allocation exercises and customer discussions has further reinforced our confidence. By being transparent while respecting our partner's value to us, I believe this planning will yield positive results.

We have reached the end of the question-and-answer session, and this also concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.