Schneider National, Inc. Q2 FY2023 Earnings Call

Good day and welcome to the Schneider Second Quarter 2023 Earnings Conference Call. 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.

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.

Good morning. Thanks for joining us today. I'll provide some opening comments on the quarter and on our guidance, and 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 6x. 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 second quarter 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 second quarter results. A reminder to refer to the IR section of our website to review the investor presentation. The second quarter represents what is likely to be the most challenging year-over-year comparison as freight conditions were just beginning to soften in the second quarter of last year. Now that we're over a year into this freight downcycle, the cumulative effect of pricing pressure is nearing its largest impact. Our second quarter 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. And 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 second quarter 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. While 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 to $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 to $2.20. In our view, third quarter 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. Then the fourth quarter 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. It does not take a large amount of change in these two levers to derive better equilibrium in the freight market. So we're well positioned to execute and deliver regardless of the conditions. So Mark's going to now provide his additional insights.

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 investments 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 first quarter levels, we do expect to add an additional 225 to 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. And 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. Now let's turn to the network portion of our Truckload segment. It is under the most margin pressure as inflationary costs, 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. Now 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 that 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, 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. 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, and this second quarter 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. 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 third quarter will still have challenges before giving way to moderate seasonality in the fourth quarter. And so with that, operator, let's move to the question-and-answer session. Thank you.

Our first question comes from Ravi Shanker with Morgan Stanley.

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 was just wondering how much visibility you have into that? 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?

Thank you for the question. We're becoming more confident in our conversations with customers that the long phase of destocking is nearing its end. Recently, we spoke with a retailer who indicated they are starting to focus on restocking rather than destocking. This shift is significant enough that it is affecting their decisions between intermodal and truck transportation for specific lanes and products. While this change may not apply universally, it showcases the efforts made by various stakeholders over the past several quarters to reach a different situation. Most people feel they are moving into a better position. The primary concern now appears to be the health of the consumer and what categories they'll be interested in purchasing for the remainder of the year, with less attention on inventory levels.

Got it. Also as a follow-up, a little bit of shifting gears here because I know you're going to get a million cycle questions in the call. So I did want to ask you about your recent EV initiative. It feels like there's some change coming with kind of our focus on building a charging infrastructure, the availability of long-haul electric Class 8 semis now. Obviously, kind of what you just did was 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 what more do we need to get there?

Well, as mentioned, we have a large-scale operation now moving beyond just the testing phase, Ravi, but I still think there are significant challenges on the infrastructure side and what would 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. So again, I think the easy part of this is the truck. And although we have to have different types of operational parameters as we implement battery electric trucks, I still think there's not an adequate answer at this juncture for us to be thinking much broader in the short term because of the infrastructure concerns.

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

Next question comes from Bruce Chan with Stifel.

I just wanted to square maybe some of the comments around the optimism in terms of the cycle recovery with the lower guidance. And then when you think about the guide down, you mentioned the lower equipment gains. Is that just due to pricing? And were there any other big factors in that guide down? Any parts of the portfolio that you can isolate as the biggest driver of the remainder of that softer outlook?

The term optimism is interesting. We believe that the cycle is aging, and some of the significant challenges, particularly the inventory situation, are also starting to show signs of aging. Therefore, we're proceeding with caution. It would be inaccurate to describe us as overly optimistic. However, we think we are nearing the end of this phase, and a restocking period is beginning to take shape in the near future. In terms of gains, unlike last year, we have received a larger share of our equipment on schedule this year, resulting in more disposal activity occurring in the first half of the year. This has contributed to the current situation. Additionally, the demand, which may indicate the status of small carriers, has diminished as the year has progressed. We believe the combination of these two factors will have a minimal effect on gains in the latter half of the year.

Okay, that's very helpful. As a follow-up, could you discuss the factors influencing the inflationary costs and yield challenges, and how the decrease in rail and dray costs might help mitigate those issues in the Intermodal division? Are you optimistic that as costs decrease, you can bring the operating ratio below 90 in that segment later this year, or do you expect to maintain the current levels?

I will allow Jim to provide further details. However, we certainly have significant capabilities with our box count and our rail partners, which enhances our performance. We believe that our primary opportunity lies in increasing volume and intermodal service rather than focusing on costs and pricing. We have not yet seen a recovery, especially in the port activity that is crucial for our intermodal business. Therefore, I would suggest that focusing on volume moving forward is our best approach.

Yes, I believe we took several cost actions early in this freight cycle to stay ahead, which has helped us maintain our margin performance. However, the main opportunity lies in volume, as Mark mentioned. Our rail deals are long-term and market-driven, meaning they will adjust according to the market. Therefore, we can expect some adjustments as we move through the rest of this cycle.

Next question comes from Brian Ossenbeck with JPMorgan.

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. Are you still stacking your containers? Do you feel like others are doing the same? And 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?

Yes, you have a lot of questions there. I'll try to put all those in together and make sure I hit all of these. So 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 not adding to that fleet. So we think that leaves a lot of opportunity for us to continue to grow. In terms of market and 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. And 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. And 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, a discount ranging about 10% to 15%. We're a little bit on the low edge of that. The other impact there is fuel cost. 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 will be another opportunity for Intermodal to gain share.

I wanted to follow up on the international or IPI pickup for some of the rails, which may be starting from a low base. Do you think this could be an early indication of a resurgence or recovery that might lead to increased transloading and have a positive impact on Schneider in the future?

Yes. There is absolutely some more international traffic that's starting to pick up. And similar to what Mark was talking about with restocking that customers have now hit that level that they've gone through that. And 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 into more of a normal seasonality as we get into the fourth quarter.

Our next question comes from Tom Wadewitz with UBS.

I wanted to ask a question unrelated to the cycle. You made a significant acquisition with Midwest, and now you've announced another one that appears quite similar. How do you view the medium-term outlook for dedicated acquisitions? Is there a sufficient number of comparable companies available that you could continue this for a while? For instance, could you realistically aim for one of these deals each year? Strategically, would you plan to allocate a few hundred million dollars annually for acquisitions as a consistent element of your growth strategy?

Thank you for the question, Tom. As we consider our approach to capital allocation, we still believe that organic growth remains the most attractive opportunity in most of our businesses, and we are focused on that. In the dedicated truck space, we continue to believe that acquiring well-managed dedicated contract carriers, especially those with long-term and strong customer relationships, is beneficial for us. There are many well-run companies in this space that have been established for at least 25 to 30 years, but they may lack a solid succession plan to ensure continuity. We see ourselves as a very appealing option for such owners. We have developed a strategy and process that positions us as a viable acquirer, aligned with the values of founders who have dedicated their lives to their businesses. It wouldn't surprise me if we continue on this trajectory. While I don't anticipate making any moves this year, I also wouldn't dismiss the possibility of a more transformative acquisition if it would serve our shareholders' best interests and support our strategy. However, we are definitely interested in pursuing programmatic acquisitions in the Dedicated sector.

Okay. Yes. Great. And then one on the freight cycle...

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

I need your insight on something, Mark. We heard from two major intermodal competitors. JBL mentioned that intermodal volume was somewhat better in June compared to the previous year. Hub noted that sequentially, you performed about 2 points better than the typical seasonality from July to June. They showed some optimism regarding intermodal improvements. This might relate to your pricing strategy, which you've mentioned is competitive. Are you seeing any reasons for optimism in intermodal or truck results, or is the situation different from what those two companies indicated?

I would say your question relates to July compared to the second quarter. We've observed an unusual trend in July, with both truck and intermodal volumes being somewhat stronger and a higher fulfillment rate from our customer community regarding allocation. This is generally uncommon, but it is emerging from smaller bases and may indicate moderate restocking, as we've discussed. The trend is there, though it's not significant, and it's also unusual to see a stronger performance in July building from a June level.

Our next question comes from Jack Atkins with Steves.

Okay. Great. So I guess maybe going back to 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 buying it, I mean, could you maybe give us a little more color on why you would decide to maybe buy a fleet versus slowly over time, building it out? Because it would seem like there's such a large addressable market there that you could grow your fleet by 500 trucks organically maybe cheaper than it would be to buy it. So maybe talk about post-deal the opportunity to maybe grow faster than you would have otherwise.

Yes, Jack, thank you for the question. With our strong financial position, we view our growth as both organic and through acquisitions. We anticipate implementing at least a couple hundred units in the second half organically, which remains our main focus. We believe we can grow without needing to prioritize acquisitions. It's beneficial to pursue both paths, especially as we build relationships with new customers that we haven't tapped into due to regional differences or market segments where we have less presence. This is similar to our dedicated businesses, where we establish long-term, deeply integrated relationships within the customer supply chain that provide mutual value. Our strategy centers on positioning ourselves well with customers. Our priority will always be organic growth for the reasons you've mentioned, but we see opportunities to enhance value for our business and shareholders through both organic efforts and strategic acquisitions.

Okay, that makes complete sense. I appreciate the additional information. Now, regarding the Intermodal operations, Jim, I would like your input on this if you're willing to share. When we consider box turns, we've been facing pressure in this area for the last few years. At what point do you think we might start to see improved asset efficiency? I know the current cycle hasn't been favorable, but do you believe we've reached a bottom in the last couple of quarters? How should we approach this as we look at the second half of the year?

Yes, thank you, Jack. You're correct. We have everything necessary to enhance our box velocity, except for customer demand. Our train and rail performance are at record high levels, and customers are unloading at rates similar to those seen before the pandemic. During discussions with them, they've implemented changes to their warehouse operations to avoid the backlogs we previously faced. We also have the drayage companies and providers in place, and chassis availability has returned to normal. Thus, we have what we need to at least reach 2018 levels. The key is determining when we will see the normal restocking processes begin. We anticipate a moderate peak season later this year and in the next year, which will create opportunities for over-the-road conversions during the upcoming bid cycle.

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

And 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 pretty meaningful. Is that the right way to think about it?

Absolutely. It’s a powerful flywheel.

Our next question comes from Jonathan Chappell with Evercore ISI.

Jim, I 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, on a sequential basis than most of your peers. But the 14% year-over-year decline in orders was quite high. Are you kind of being very price disciplined and pushing away business even given some of the macro challenges because you want to keep the base higher when that cyclical recovery does start?

Yes. So what I'd characterize our volume decline is primarily being pressured due to West Coast import volume driving the majority of that, but also as 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. And that gives us better opportunities to grow long term in a sustainable way.

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

Yes, I understand your question, Jonathan. We believe we are seeing a return on the trailer assets we provide in Power Only, which is better than what we would typically achieve through a third-party complete move in brokerage. The return profile appears to be sustainable. While we still face pricing pressures like other areas of the business, we also have similar opportunities available. We evaluate customer and carrier acceptance and our ability to integrate more efficiently within our dedicated offerings as a supplemental capacity option and throughout our network configuration as we engage with customers. We are continuously improving in these areas. Therefore, we view this as a long-term solution and a significant contributor to our network within our trucking operations. Even though it operates through a third party in our Logistics business, we are much more integrated in our market approach.

Our next question comes from Jason Seidl with TD Cowen.

Wanted to focus a little bit on the Intermodal side. You said a lot of good things about some of those new transit times coming across borders. Wanted to sort of dive into that and see how much you think that could become a percent of your total business, those cross-border moves, and how we should think about the yields on those going forward?

I am very pleased with the performance of that business. I mentioned that the transit time from Monterey to Chicago is stated as four days, but we're actually achieving about a half day faster. This aligns us well with our truck business. This segment of our Intermodal business just started in May, and we have seen a 5% growth in that area. We are excited about our current position and believe there are opportunities to continue growing and expanding as we go through a full bid cycle. Additionally, we anticipate more near-shoring in the future, which presents further growth opportunities. Overall, the North-South Mexico business is performing very well.

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

It's a long length of haul. So it's on the higher end of our average.

Yes. This is Steve. I'll take that one. We did incorporate that into our full-year guidance. As we mentioned, of course, M&M Transport's a programmatic-type acquisition. So if you take five 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. M&M just helps us move a bit upward within that same range.

Next question comes from Jordan Alliger with Goldman Sachs.

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

We don't expect significant benefits for the Truckload side of the segment. Our assessment indicates that there is ample capacity among the LTL providers. Therefore, we have not experienced and do not anticipate this being a driving factor for us.

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

Our next question comes from Scott Group with Wolfe Research.

So when I look at the one-way revenue per truck, 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 utilization pieces in Q2? And then I guess I'm wondering how much of the bids would you say are implemented at this point? Any color on how to think about rev for truck and margin from Q2 heading into Q3?

I don't know if I can exactly answer maybe what you asked there, Scott. But I would tell you that we are through the allocation season. Certainly, the third quarter 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. And so those are the implications of getting it a little higher reduction on the revenue per truck. Utility, for the most part, it's 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. Then the question is, in our view, there is a percent of the book that we don't consider sustainable and how quickly can we pivot when better opportunities start to materialize.

Okay. And then just secondly, when I just look at Truckload margins today versus '19 and Intermodal today versus '19, Truckload is actually holding up better than '19, Intermodal maybe now a little bit worse. Any thoughts on why we're seeing those two businesses perform a little bit differently? And then 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?

There are several questions there. Steve?

I'll start on the first part of that compared to '19, which was a prior downcycle of 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 much larger representation from our dedicated operations within our Truckload segment than what we had even 3 or 4 years ago as we've continued to grow and develop that. The stability of those margins is part of why we've been strategically pursuing that growth in Dedicated over the past several years. And so we're seeing some of the fruits of that purposeful steering. So Jim, the Intermodal question about that.

Yes. Stack containers and first of all, that's 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 pricing, I don't believe it's the same type of equation that we have in Truckload. The cost of having a driver, a truck, a trailer at the standby is not the same type of cost impact that you experienced with Intermodal having a container of that stack. So I believe that we'll still be disciplined as the market starts to correct.

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

Our next question comes from Bascome Majors with Susquehanna.

With the second quarter being the first where you've been active on the buyback, can you talk a little bit about how that's worked out with your expectations? Is it interplaying well with the dual-class share structure and limited float? And 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?

Yes, it's 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. So 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. And so 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 offset the dilutive impact of equity grants going forward, but 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. So this is our plan to behave as we look forward across the remainder of this year.

The next question comes from Ken Hoexter with Bank of America.

Congratulations on the recent acquisition, and it seems to be progressing well. There has been considerable discussion about imports and exports. Looking at your target range of $0.38 to $0.45 for the second half of the year, which is a decrease from $0.45 to $0.55 in the first half, Mark, I want to confirm if that change is mainly due to pricing. It appeared that you mentioned utilization is satisfactory, and that you have added a dedicated fleet, but it seems there is no contribution from that at this time, correct? Does that imply a higher margin on the new fleet? Perhaps you could elaborate on the factors that influence the upper and lower ends of your expectations, or if Steve has any insights to add.

Thank you for the question, Ken. There are a couple of factors at play. As we noted, the impacts in the second half of the year will differ from the first half. This aspect needs to be considered. Additionally, we anticipate that the third quarter will experience some pricing pressure, which we hope to address in a more effective manner starting in the fourth quarter, assuming the restocking trend and customer positioning occur as we expect. These are the two main points. Also, there will be a moderate seasonal improvement from the third to the fourth quarter. We believe the extent of these factors will ultimately determine where we land within that range.

Great. And then any update on the CFO search? Is this focused external, internal, any timing thoughts?

No updates for you at this time.

Wait a minute, what CFO?

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

Yes, our process is progressing for our plan. When we have something to share, we will do so.

Our next question comes from Chris Wetherbee with Citigroup.

I guess I wanted to ask a little bit about sort of the fleet, and so maybe 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. And 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 better freight environment ahead of us. Do you expect to grow back to the levels you were before or proportionately relative to Dedicated? I 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?

Yes. Thank you, Chris. I understand the question. 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 on 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 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 the increasing influence of Power Only in our network business from the customer lens. From a customer viewpoint, our network business feels larger than 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. Those are the capacity types that we'll operate in that random, more random network configuration. So it will be the combination of those two things. We're not anti-company driver, we're very pro in our network business, we like it a great deal. But our growth focus will remain in Dedicated.

Okay. So that sounds like somewhere in the 4,000-plus truck range is maybe the low watermark. You don't necessarily think you'll drop below that is what you're thinking?

It would not be our intention, not at all.

Okay. One quick follow-up regarding the acquisition. When considering its contribution, particularly in terms of revenue per truck per week, how does it compare to the larger context of 6,000 trucks that are being added? Are there significant differences in end market exposure or other factors that could influence the revenue per truck per week figures?

No, Chris, our approach is to acquire very strong companies that can consistently contribute to our goals. This will align closely with our current experience, and may even exceed it, depending on the regions they operate in. Therefore, it will be a positive contributor.

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

Great. Well, thanks, everyone, for joining us today. 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 dedicated organic truck growth efforts with M&M Transport. We look forward to not only what they bring to us, but our opportunity to drive synergies as we get them implemented. We'll continue to pursue those right acquisitive opportunities that advance our strategic priorities. We've 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'll 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. So I appreciate your time and attention and look forward to our discussion next time. Thank you.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.