Thank you for joining us. My name is Bailey, and I will be your conference operator today. I would like to welcome everyone to the Schneider 3Q 2023 Earnings Call. I will now hand the call over to Steve Bindas, Director of Investor Relations.

Thank you, operator, and good morning, everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer; Darrell Campbell, Executive Vice President and Chief Financial Officer; Jim Filter, Executive Vice President and Group President of Transportation and Logistics; and Steve Bruffett, Executive Vice President. Earlier today, the company issued an earnings press release. This release and investor presentation are available on the Investor Relations section of our website at schneider.com. Our call will include remarks about future expectations, 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 CEO, Mark Rourke.

Thank you, Steve, and good morning, everyone, and thank you for joining the Schneider call today. I'm going to start with some broader context on the market before getting to our third quarter results. We are operating in an elongated trough of the current freight cycle. As we've seen for the better part of the year, freight volumes remain muted and while inventories have normalized, shippers are facing an uncertain macro outlook. Despite pricing that in some cases is below operating costs, carrier capacity has been slow to rationalize. Last quarter, we shared that we were strongly positioned to capitalize on opportunities as they begin to materialize. While we did not see those opportunities in the third quarter, recent shutdowns of a few competing brokerage operations reflect the unsustainable nature of current pricing and the expectation of targeted near-term pricing improvements. We believe rates have fully reset during the third quarter and expect pricing to improve in the new year as the market begins to return to equilibrium. With that backdrop, let me provide context for Schneider's third quarter performance. We expected the quarter to be challenging, and it certainly was as the forceful impacts of pricing resets were realized, especially in our network offerings of truck and intermodal. The earnings impact of this recent pricing activity was compounded by a handful of cost items and the combined result was a sharp decline in our sequential earnings. At the same time, there is encouraging progress in elements of our portfolio and promising signals emerging in the broader market. So it's helpful to provide additional context to both sides of the equation. Regarding the cost items I just mentioned, rather than a typical quarter, which has a mix of favorable and unfavorable items, there were several areas that all fell in the unfavorable category during the third quarter. Their cumulative impact contributed to the sequential decline in quarterly earnings. First, we had unfavorable fuel dynamics during the quarter. We typically do not talk about fuel as over the course of time, fuel has a relatively neutral effect on our earnings. However, it was a notable negative factor in the third quarter of '23 compared to the prior quarter due to the rapid run-up in fuel costs. Next, we had expenses for bad debt that were much higher than normal as we typically have insignificant amounts of expense in this area. This quarter, a combination of customer bankruptcies and uncollectible receivables resulted in meaningful expenses. In fact, more expense in the quarter than we typically experience in a full year. Also, equipment gains were lower on a sequential basis due to the softening of the used equipment market. In aggregate, these costs represented a headwind of $18 million compared to the second quarter. These items are all part of the sauce, yet they are outside of the core elements of our business results such as price, volume and productivity. So let's transition to those topics. Volumes in our truck network business have been steady, but unseasonably tepid. We improved asset utilization, but that benefit was far outpaced by the reset contractual pricing, which was most acute in this part of the business. That impact was compounded by a low double-digit percentage of loads coming from the depressed spot market. In addition, the majority of cost items we called out in the third quarter resided within the truck network. The combination of these factors resulted in a pronounced sequential decline in margins and generated a margin profile in this portion of our business that is not sustainable. We have been proactively addressing our operating costs since the fourth quarter of 2022 and have implemented significant cost reduction initiatives that have enabled the maintenance of our variable contribution margins on a year-over-year basis. Yet a growing portion of the network book is not at compensable rates and therefore, unsustainable due to the remaining inflationary cost impacts of wages and equipment replenishment. We are diligently pursuing targeted price recovery and are prepared to pivot to more compensable freight when the market supply and demand condition rationalizes further. On a brighter note, our dedicated business continues to grow and deliver expected results. We absorbed meaningful new business start-up activity in the quarter and excluding a customer bankruptcy impact, we're still able to deliver stable sequential margins. The combination of organic growth and the addition of Midwest Logistics Systems and now M&M Transport as of exiting the third quarter resulted in 6,680 tractors operating in a dedicated contract configuration. We have a line of sight to a series of new business start-ups in the fourth quarter of 2023 and the first quarter of 2024, giving us confidence that our momentum in Dedicated will continue. We are growing our Dedicated service offering as we enjoy deeper, more enduring relationships with customers, and we leverage our ability to deliver unique solutions that address how our customers deploy their supply chain strategy to deliver differentiation in serving their end markets. Also, our professional drivers feel, participate and enjoy the experience those deeper relationships deliver at the local level. Turning to the Intermodal segment, we saw modest tender volume improvement throughout the quarter as we work to improve the balance into critical import markets such as Southern California and Mexico to lessen the financial impact of empty container repositioning. The work of improving network balance is ongoing even as we see a more pronounced lift in tender volumes in the month of October. Revenue per order was down 4% sequentially and 16% year-over-year through a combination of price contraction and a mix change with a higher percentage of shorter-haul regional volumes in both the eastern and western portions of the network. Despite not having the benefit of a meaningful customer allocation season, we have already grown our order count by 20% on the CPKC service into and out of Mexico since its implementation. Overall, we continue to believe there is a large opportunity to convert over-the-road freight to intermodal across the entire North American network. Encouragingly, discussions with several of our largest customer relationships in the consumer products, retail and automotive verticals indicate that over-the-road conversion is aligned with their 2024 transportation allocation objectives. We have at least 30% of pent-up growth opportunity in intermodal container and chassis asset productivity. Finally, in our Logistics segment, brokerage volumes and contribution margins are under pressure from intense competition. While challenged, our contract logistics and brokerage business remain soundly profitable as we nimbly adapt to the current market realities while continuing to invest in our freight power for shipper and carrier platform as well as in growing our power-only capabilities. I will turn it over to Steve Bruffett for a quick wrap up before we get to your questions. But before I do that, I want to highlight that this will be Steve's final earnings season with Schneider. I want to thank and recognize his many contributions over the last 5.5 years in advancing the company's multimodal and capital allocation strategy as well as the modernization of the company's entire financial function. I wish him and Susan all the best in retirement 2.0. I'm also pleased that Darrell Campbell has taken the Chief Financial Officer baton, and he is bringing a rich set of financial leadership experiences to our team and we feel very fortunate to have him. Welcome, Darrell.

Thanks, Mark. I'm thrilled to be onboard and part of such a strong team. Over the past months, Steve and I have been diligently executing on a well-crafted transition plan which will continue through the end of the year. I've also been actively listening, engaging and learning while getting integrated into the business. I look forward to playing an active role in building on our organizational strengths and executing on our top priorities in 2024 and beyond. I would also like to take a moment to thank Steve for his significant contributions to Schneider during his tenure.

Thank you, Darrell and good morning to everyone on the call. Mark provided some good color on our third quarter results, and I'll add a few comments from my perspective. Having been in the transportation space since 1992, this was a unique quarter, given the amount of sequential decline in pricing that we experienced from the second quarter to the third. We expected most but not all of this decline of all the freight cycles that have happened over the past 30 years, this one is in the midst of what I would characterize as an overcorrection to the freight environment of the prior couple of years. As such, the difficult pricing environment, especially in the network businesses, is temporarily masking otherwise solid execution across our company. While we still have work to do, the portfolio construction and diversification that we've strategically pursued over the past several years is proving to be beneficial. The growth in our dedicated business, both organically and through acquisitions, is supporting earnings in our Truckload segment. Over 60% of our total trucks are in dedicated configurations. Also, our intermodal business is well positioned for strong growth and an even more prominent role in our portfolio mix. Our logistics businesses, while not immune from the difficult market dynamics, are performing well on a relative basis and are a growth engine with compelling returns on capital. We've also been quite effective at managing variable costs in proportion to our volumes and have improved productivity on a year-over-year basis. These efforts are being overshadowed by the sheer force of double-digit price declines, but they are real, and I think our team has done an effective job in these areas. Switching gears to the fourth quarter, we expect the continuation of current market conditions, and therefore, are assuming little to no seasonal lift from volumes or project activity. I would also note that we are now through the repricing activities across our book of business and therefore, expect no further deterioration in pricing across our operations. Also, we do anticipate that some of the cost items that Mark mentioned will abate in the fourth quarter. For example, we expect fuel to be neutral to slightly positive rather than negatively impacting earnings as it did in the third quarter. We expect that there will be some bad debt expense in the fourth quarter, but not at the elevated level of the third quarter. On the other hand, we expect fourth quarter equipment gains to continue to be a sequential headwind and be lower than third quarter levels. Considering these and other factors, our updated full year guidance for adjusted EPS is $1.40 to $1.45. Given our year-to-date adjusted EPS of $1.20, our fourth quarter is inherently guided to a range of $0.20 to $0.25. So we expect fourth quarter earnings to be even with or modestly above third quarter levels. We also believe that this period of time from the third quarter of 2023 through the first part of 2024 will define the trough of this freight cycle. We'll provide more information on our next earnings call, but we're currently viewing 2024 as a transition year with freight market fundamentals slowly but steadily improving, barring a catalyst that could accelerate the pace of improvement, which could very much happen. Turning now to a quick update on our usage of cash. Our guidance for full year 2023 net CapEx has remained stable throughout the year as OEM production has been more stable and predictable this year. We updated and narrowed our CapEx guidance to a range from $550 million to $575 million. We've also made $51 million in share repurchases since the May inception of activity under our current $150 million authorization.

In closing, I would like to thank Mark and the Schneider organization for the privilege to serve as CFO since 2018, and I'm proud of our accomplishments over that time frame. It's a great team and a strong organization backed by a rock-solid balance sheet. Schneider's complementary services are operating at scale and set up for continued growth and success which will benefit our associates and shareholders. I'm also pleased to have Darrell onboard. He's already adding value, and I know that will only increase as he gets further acclimated. So it's great to have him on the team. And with that, we'll open up the call for your questions.

Your first question comes from the line of Tom Wadewitz with UBS.

It's been a pleasure working and talking with you over the years, Steve. Congratulations on your new position at Schneider, Darrell. I wanted to ask about the network business, Mark, and how we should consider the potential for improvement in that area and the timeline for it. You mentioned a transition and the importance of pricing, but how do you see the timing and potential factors that could lead to improvements? Are there cost considerations, or are we mainly waiting for market conditions to change?

Thanks, Tom. I think there's opportunities across the board, both on the cost arena, which we're leaning into and having success with. Secondly, as we and others have been monitoring the supply side of this market, it's been stubbornly uncharacteristic so to be this late in the cycle not seeing more improvement. We not only look at some of the governmental metrics that get published that have a little bit of a lagging effect. We also look very closely at things that are more contemporary than we have visibility to, such as what we're seeing in our brokerage carrier health, what we're seeing in new driver pipeline into our recruiting function, particularly from the experienced driver. We look into lease turn-ins and other things going on in the owner-operator community, and all of those are continuing to trend as if the market is correcting at an accelerated pace on the capacity front. And so I think that, first and foremost, the tougher the market, the quicker that those things should start to correct. So that's one of the things that we do expect as we get into the new year that we'll continue to see those trends. Secondly, we do think we have targeted price improvement opportunities across the book. We identified what we don't believe is sustainable positioning coming through particularly the second and third quarter renewal season. So we think of revenue quality, we think of cost and we think of capacity rightsizing as our elixir for an improved network business.

And then I guess a quick follow-up on Intermodal. You sound optimistic on potential for volume to improve in '24 that the comments on shipper interest is volume improvement do you think that will help on the margin side? Or do you think the pricing that's been locked in is going to keep us kind of stuck at that lower than normal margin level for a while?

Thank you, Tom. We have identified several significant opportunities to enhance our margins. First, we are encouraged by recent discussions with key customers as we plan for 2024 and beyond. Their strategies align with ours, particularly in increasing the percentage of intermodal volume in their supply chains, which is very positive for us. Secondly, we are currently facing challenges in our cost position within the Intermodal sector, especially in a slowing market. During such periods, our transportation costs adjust more slowly, which puts us at a disadvantage. Achieving stable and improving prices will benefit our cost structure and subsequently our margins. Additionally, we now have a year of experience collaborating with UP, and we have made significant progress with CPKC for operations into and out of Mexico, adding further potential to our intermodal services. Our strong relationship with CSX is also set to deliver notable improvements in our intermodal business.

I would just add on that I believe the correction in intermodal looks more like the 2017-2018 correction than what we saw in 2020-2021, meaning that it's more driven by dray capacity than by containers or rail or any other limiting factor. And I say that because during this down cycle, there's been a couple of new regulations, specifically in the State of California that are playing out capacity, specifically all the trade network. Number one, the injunction against AB5 was lifted during this time period that removing the ability of owner-operators in the state of California, and third-party dray companies largely rely on owner-operators as well as ACF, that is implemented. It goes into effect in January. So the last diesel truck that can be added to the dray registry is December 31st of this year. All new vehicles will have to be zero-emission vehicles added to that registry, really putting a cap on that.

Okay, I guess first one is on dedicated. You're leaning into the dedicated market for growth. You're not alone there. Some of your peers are doing the same thing. I guess how are you ensuring that business is being priced appropriately given that we're entering into sort of multiyear contracts and a much more competitive part of the cycle from a pricing perspective? How are you putting safeguards around that to make sure you're not going to have an issue there down the road?

Thanks, Jack, and good morning. We don't anticipate having pricing issues in the Dedicated business for all the reasons you mentioned, as these are multiyear deals. You're very integrated with the customer and providing either a very, very high level of service or specialty equipment or other type of configuration that requires protections within how you contract the business and how you price the business to include how you have escalators based upon market conditions over time. And so all of those points to very long-term benefits for both parties. That's our approach to that, Jack. We're not looking to play in the dedicated space that's just masquerading as one way based upon where you are in the cycle. Our approach to that, we have very strong disciplines as it relates to that within the business. The performance of the business through this cycle has been quite strong, and we will continue to expect it to be. On the cost side, just a couple of dynamics because the network is not completely where we'd like it to be from a balance standpoint. We did have higher empty repositioning into some of the head haul markets that I mentioned in my opening comments, particularly in service of Southern California and Mexico. We think over time we can balance that as a network and the actions that we have taken to do that. But secondly, I think it really just revolves around where we are in the cycle and the effect of when our purchase transportation costs adjust based upon market dynamics. In a declining market, as I mentioned, that’s the most difficult part of the cycle, and that's exactly where we are here in the third quarter. So I believe it does get better for us from here.

I wanted to tie a loop on the guide, if I could. You pointed out a lot of what I would consider kind of one-time costs, fuel, lower gain on equipment sales, and some of the other issues in 3Q. The 4Q guide basically assumes a pretty similar, maybe up a few pennies fourth quarter. So what I'm trying to get at is, is there any continued deterioration in some of the core pricing or margins across the main business lines? Or is this strictly that the gain on equipment sale is going to be substantially lower in 4Q, offsetting any of the type of improvement or dedicated tractor growth that you mentioned in the prepared remarks?

Yes. Good question. Thank you. I'll throw some perspective and then let anybody else chime in. As we look at the quarter, as we don't expect a lot of seasonal lift outside of perhaps the e-commerce-driven part of the supply chain as we get through the end of November. We also looked out to what we expect in December. And I think that's really the key for us as we look towards the quarter. We think, certainly, October and November will be fairly typical, at least based upon the current run rate in the month of December, particularly the back half, we're a little cautious of what we believe that could look like. So that's a little bit of an influence. Predominantly what you described, we don't expect the gain on sale levels to remain sequentially. We think, as Steve mentioned, that we're pretty much through the pricing reset, and we don't expect any further erosion, and we're only going to be building from here going forward.

As a follow-up, where you just left off, as we think about the beginning of 2024, I mean, obviously, seasonally, the first quarter is weaker. We're talking about bottoming in pricing and kind of all different business lines without giving any level of guidance conceptually. Should we think that 1Q at the very minimum and potentially 2Q looks very similar in a lot of the different metrics to the back half of '23 before you start to see more of a reset in contractual pricing or even spot pricing across all 3 business lines?

Yes, this is Steve. I think in our earlier comments, we suggested 2024 to be a year of transition. I think that, from what we can see sitting here today, there probably would be a sluggish start to the year. You never know, something often happens once you switch from December to January and find yourself in a different arena. But we also mentioned that we are seeing some signs of shifting of things and targeted opportunities to begin to see some pricing improvements across our book of business. So we'll continue to pursue those, but I don't see it just instantly snapping back. I think the first quarter itself of 2024 will probably be a bit more of the same, but we do believe that there's an upward ramp that begins as we begin to exit that first quarter.

I wanted to ask more about competition this time within intermodal. There's a lot of boxes stacked up there. I wanted to see if you could give us a sense of how you're treating that within your network? And then as we look at one of the main competitors on the Western rail, they said that they're going to tilt a little bit more towards volume growth next year, which implies at least maybe not pushing as hard on price as they might have been before. I just want to see if you can put that together and give us a sense in terms of how intermodal competition looks and if it's different by any of the quarters around?

Yes, in terms of stacks, there is likely around a 10% to 15% industry share in that area. Looking at the market opportunity within Intermodal, it is estimated to be between 2 million and 3 million shipments. This is based on reverting to the mix of over-the-road and intermodal seen in 2017 and 2018, which suggests that approximately 1.5 million shipments could shift from over the road to intermodal if we return to those levels. We are also noticing new markets emerging, with Mexico being a prime example where the mix of intermodal and over the road has historically been quite low. With our improved service levels, we are beginning to capitalize on these opportunities. Additionally, customers are increasingly making decisions based on sustainability, which is an emerging trend. Thus, I believe there are significant growth opportunities in this industry. Our main competitor in intermodal is not another intermodal provider but rather over the road, which is the source of those potential 3 million shipments, and that’s where we are concentrating our efforts.

As Jim mentioned, the #1 competitor here is over-the-road alternatives. And with the market that's particularly even some of the head haul markets, which is generally pretty unusual that there's been a closer competition with truck, and so there's been more choice from the customer standpoint to convert back and forth. But as we look at those discussions we've had, particularly with larger, more sophisticated shippers, looking at their total decision tree—which as Jim mentioned, is increasingly including the emissions reduction portion of that—there's really no better place to go to achieve that in the immediate and short term than over-the-road conversion to intermodal. And so there's still, obviously, a healthy gap that you can have between intermodal and over the road that can bring economic value to the shipper, fuel savings and now you have the emission piece. Again, I think that's why it's raised in prominence on our customers planning for 2024, and we intend to help them achieve that.

So obviously, 3Q was a really difficult quarter for you and pretty much all your peers. And yet you were saying that supply remains a little bit more resilient than you thought, and you aren't quite seeing exit of capacity in the marketplace. A, are you starting to see that right now? Obviously, you've seen some high-profile bankruptcies and exits. Are you already seeing that in the mom-and-pop side as well? And second, why do you think they have been resilient so far? And kind of how do you think that evolves in the coming quarters?

Yes, Ravi, it's been stubbornly resilient to your question. Part of that could be the buildup that people were able to acquire and retain during the highly unusual pandemic period. But I think any assessment that's been done to look at that would suggest that has been exhausted, which is why we're seeing the increase in our portfolio. We have visibility to look into things like owner-operator lease turn-ins just because of the overall health of that portion of the capacity mix. So those things—again, those are more leading indicators as opposed to lagging. That's giving us more confidence that we are long in the tooth here. But it has taken us longer than any of us would have expected at this point in reference to maybe some of the more high-profile bankruptcies that you referenced there. What we've seen is an outcome of that hasn't been moving from one brokerage to another brokerage but moving from brokerage solution to more of an asset play as customers are sensing that, that is something that's probably in their best interest after what we would consider an overreliance in the last year to 18 months on the brokerage industry. Because of some of those signals, a move back to more asset allocations within those customers, and we've certainly seen that in a much bigger way coming through the most recent news.

That's helpful. And maybe as a follow-up, kind of you said that you don't snap back early in 2024. I'm just trying to figure out kind of is that something that you feel like given how bad the market is right now? Or is that what you're hearing from your customers and kind of what you're seeing in terms of early moves in the early bid cycle for '24?

Yes, we're not very much into that piece of actual events, Ravi, just yet. We're into more of the discussion phase of planning and the fourth quarter is a big time just to get together and start planning and discussing each other's goals in the year ahead. So we haven't got any real data for you on that yet. But I would say customers feel and this is a general comment that the inventories and all the actions that they've taken; they feel pretty good about where they are. There's perhaps just some trepidation of understanding where the consumer is. I think the holiday season here will give good insight into that as we move and understand the actual amount of goods that are moving through this holiday period. I just consider that the customer may be a bit more cautious. But at least I don't think we're going to take in this inventory overhang issue that we obviously took into 2023.

I think I'd just add on to that, Mark, that at least from where I sit, the comments I made earlier about entering 2024, we're really on a historical basis; volume levels of January and February are typically fairly light. And then once you get to March, things begin to pick up. So there was that side of the equation I was referring to. When it comes to the customer renewal and the tone of those types of conversations, I actually feel more upbeat about those going forward than where we've been over the past. So if I separate those two things for broader context as we enter next year.

Some of the industry data would suggest there's still a pretty wide spread between spot rate and contract rate. Do you see that in your data? And I guess, I'm wondering that in the context of you're talking a lot about price recovery. Are we confident that we're going to get that in '24? And then maybe just within that, like where are you more confident you can get it? Is it in truckload? Or is it in intermodal?

So I'll maybe just open with that, and I'll let Jim kind of weigh in. Yes, there is still—particularly between our contract and spot rates, and that's certainly influential in our network business as we add preserve more of our capacity, looking for more opportunities here than it's actually arrived in the fourth quarter. That's impacting our overall revenue per truck in the network because of that gap. We've also seen the gap, but we've seen it stabilize. It's not getting any better or worse, but it has stabilized now for Jim, probably 8 to 10 weeks. So with that, I think you have to have stabilization before you can have improvement. I think we have arrived at that location. We know that we have a certain part of our book, particularly in network trucks more than in the other parts of our portfolio that we have opportunity even within this market to reallocate our capacity to more compensable freight. That's the process we're on presently and having price discussions to avoid that or start taking action to move and improve the book, and that's an all-hands-on-deck effort right now.

Yes, we're looking at the same data that you are, Scott, and our internal information would say that it's actually very similar to the spreads being about 30%. Historically, we have not seen a cycle where the recovery is that contract rates come all the way down to the bottoms of the spot market; rather, you see things like the recent bankruptcy causing a flurry of activity for our shippers. When they go through that, what they often find is the rates that you could have gotten locked in at a contract rate just weeks or months before are no longer out there and available. The longer you get into this cycle, shippers start to look for the opportunity of how can I lock into a contract rate that's durable rather than taking risky opportunities with capacity that might not be available for you or available at that price. I believe that's where the targeted opportunities reside.

Okay. And then just separately, it strikes me—the earnings guidance has been coming down throughout the year, and you're telling us CapEx is at the high end of what you thought. I don't think you're alone in that dynamic of earnings down and CapEx up a lot. You've got packers talking about slots for next year filling up quickly. It's just—it's a weird dynamic going on. Just any perspective on why this is happening? How do you think about CapEx for next year? It's sort of a puzzling environment. I'm just curious how you think this plays out into '24?

I was just going to say I think what we're dealing with here is, again, the backside of the market environment for the OEMs over the past couple of years where carriers like us were not able to get all the equipment that we would have otherwise gotten in, say, 2021 and 2022. So there is a bit of catch-up CapEx in 2023. As we are working toward our targeted age of fleet profile, that is part of the dynamic. It's not that we are tone-deaf to cash flows and how we're deploying our capital.

Yes. And we have the other—probably secondary contributors, Scott, is our dedicated growth and a couple of the acquisitions that we've picked up that we're getting into a place that we think is best and most appropriate. So we have a specific Schneider event there as well. But the predominance is just a catch-up from—and some inflationary impacts on those trucks. The ones that we're buying today certainly have more cost than the ones that we're getting out of the fleet.

Any early thoughts on CapEx for '24?

We're working on nailing those numbers and will provide that guidance on the next call. I would expect the net number to be lower than the level of 2023.

Steve, good luck in 2.0 has got to know you had multiple stops through your career, and Darrell congrats on the new position. I guess I just want to dig into Scott's thoughts there on the well below contract. So spot is still well below contract. I just want to understand, given that record gap. I know you don't have contract come all the way down to spot, but would your outlook now still be negative contract pricing if those contracts continue to at least close that record gap? Or do you think something changes and you see that adjust?

Yes. I think we're really at the floor for contract pricing that there will be targeted opportunities from here on out to be able to raise that as well as our mix of spot that we have in our business. Right now, it's higher than what we would like. I see opportunities to reduce our exposure to spot while it remains lower than contract.

And we said earlier, basically through our book of business of renewals. So the bites have been taken at the apple, and there's no apple left.

Yes, we're looking at the same data that you are, Scott. And our internal information would say that it's actually very similar to the spreads being about 30%. Historically, we have not seen a cycle where the recovery is that contract rates come all the way down to the bottoms of the spot market. Rather, you see things like the recent bankruptcy causing a flurry of activity for our shippers. When they go through that, what they often find is the rates that you could have gotten locked in at a contract rate just weeks or months before are no longer out there and available. The longer you get into this cycle, shippers start to look for that opportunity of how can I lock into a contract rate that's durable rather than taking risky opportunities with capacity that might not be available for you or available at that price. So I believe that's where the targeted opportunities reside.

And Steve, best of luck in retirement. I wanted to drill down a little bit on the CPKC business that you talked about. You said it grew 20%. So a couple of questions. One, sort of how big is this and how big, more importantly, is the opportunity going forward? And how do these early margins compare to the margins in the existing core business?

Yes. So we don't break down the margins within the geographies, but it is a really great opportunity for us to be able to grow. Currently, there are opportunities of freight that's running over the road. We'd say that there's a few percentage points of difference between penetration between intermodal and over the road in Mexico versus other similar long-haul freight. Overall, it's a very small part of our book, but the percent of increase is much higher as well as the overall market growth in Mexico driven by near-shoring. So the incremental volume is still relatively small, but we'd say that longer-term opportunity is larger.

Jason, it just opens up some new markets for us as well as it relates to the automotive sector, as we made a couple of acquisitions now that are more automotive-centric. We've established some deeper, more meaningful relationships there. Most importantly is a reliable service product that is truck-like in service transit and the consistent ability to deliver that, which has always been the difficulty we've gone through ebbs and starts with growing share of intermodal out of Mexico; we've had difficulty over time sustaining just because of the service reliability. This combination, I think, has certainly changed that, but it's also—we have a lot of changing of perceptions to do because of all the prior experience of not being so consistent. A lot of our efforts jointly are getting after that with a series of customers. We've been very, very active with that the last several months because we didn't get a chance to do that in front of the allocation season as much because of the timing of all this. What we also now have is the benefit of some experience and some proof points. Now getting in front of the allocation season is a great opportunity. When you can deliver truck-like service for a cost benefit and also emissions benefit, it doesn't get much better than that.

You guys are growing this at a double-digit clip, and the rest of the business is obviously under a lot of pressure. Are you experiencing at least some upfront cost to reposition equipment?

I would say the two markets, the head haul markets, we would consider Northbound Mexico and particularly Southern Cal as two primary head haul markets because we're priming the pump there. It's a higher percent of costs as we're seeing on empty repositioning, particularly on the West Coast based upon current rate structures as well. So it's a bit more punitive in the short term, but again, I think we've a balance and with the actions that we've gotten, we can limit that going forward.

Yes, that's a good insight there, Jason, and we would anticipate very little, if any, CapEx needs in 2024 for either container or chassis in our intermodal operations. We can leverage the investments we've made in that business over the past couple of years to position ourselves there, whereas we did have some CapEx in 2023, particularly for chassis. That will be part of it and just an overall assessment of things. But to Mark's earlier point, we have a new acquisition in the fold with M&M Transport. There will be some amount of incremental CapEx that just comes from the increased size of the fleet.

Mark, you had mentioned that there were some pockets of maybe better-priced freight that you could potentially move some assets around depending on what the market environment was. Just want to be curious as to think about what that might look like? Is that taking assets out of network and potentially putting them in dedicated? Or are there other types of business out there that you think you could capture here?

Yes, Chris, thanks for the question. My comment was more intra-network, but we'll be opportunistic as well and looking to put our capital in the best place for a return. If we get even more growth than we anticipated and dedicated, that could be a secondary decision. My primary comment there was opportunities within the network itself and within the current environment.

Yes. We've changed our thinking on that over time, Chris, that we don't have really upward bounds of where we see dedicated growth either organically or acquisitively, as long as it returns hits our return profile and hits our contract profile of what we're after for durable dedicated. From that standpoint, we would be all oars in the water and growing as makes sense for us. That being said, we do believe over time that we benefit from having a healthy one-way offering or a network offering. I think increasingly, though, we could see that being more trailer-centric over time. We're looking at how we best optimize against our company capacity, owner-operator capacity, and other third parties around power only. As I mentioned before, you look at our truck count and describe it in network; that's one definition of our network. But the other definition gets supported via power only that resides in our brokerage business, and that's really how our customers see it.

Just two quick clarifications on the quarter. Even if you add back the $0.08 in uniquely negative items, and considering that you were pretty in touch with how the bid season went when you gave us your outlook in August. It feels like what happened was a pretty significant negative surprise to what you expected and certainly seasonality. Is there any way to kind of rank order the biggest surprise as to kind of where you were 3 months ago to today, knowing what you knew then outside of the $0.08 or so in charges that you called out earlier, just trying to understand a little better about what happened that was unexpected?

Yes, I understand the question. I think when we certainly expected to see a bit more of seasonality in the business return after not having—and particularly is what we were projecting relative to the capacity attrition that we expect it to take place in the marketplace. So the lack of seasonality that's unfortunately continuing now a bit more than we would have originally expected even into the fourth quarter as part of that. Some of the final price negotiations in our truck business, I think 30% might have renewed in our intermodal business—vice versa, somebody got that backwards. But that's the order of magnitude of the renewals. And so those weren't quite as favorable as we initially planned as those occurred. The third element of that is what do you realize out of that? What's the mix of realization that your customers are tendering based upon their business and how they're doing? That's also something we try to project and generally are pretty good at. But this market has more variability and more uncertainty on a series of factors to include where our customers are as well.

Thank you for that clarity. And we kind of hit this in other ways before, but I just want to go back to it. From the dollar-ish run rate that you're guiding now, you've been pretty clear that there's not a lot of seasonal opportunity to improve on that in the first quarter, which makes a ton of sense. But as we get deeper into the year, are there meaningful opportunities besides the price lever to change that trajectory in the back half? Or anything else about seasonality that may not hold versus where you've looked historically in the first half of next year versus the second half of this year?

Seasonality was the question first half versus second half. I guess as I'd look at it is where are we having the opportunity to continue to improve results. A higher mix of our dedicated offering, which we're continuing to grow and having great momentum, I think, is a real positive not only for 2024, but beyond. We've, I think, articulated the intermodal opportunity as well, which I think can be a real adder to what we're doing in 2024. Then the question always is where do we stand on the network business, and that's the one that we are leading most into and have the most improvement opportunity. I believe we have good momentum in two key strategic growth drivers for us, namely intermodal and our positioning now that we are no longer in the approve stage with our new relationships in UP. We're going through now a full allocation with UP, with CPKC and our long-standing alignment with best-in-class provider CSX. We're also addressing our largest improvement opportunity in the network truck business by looking at ways to optimize our contract and spot market response to price and capacity commitments through how we combine company drivers, owner-operators, and third-party resources, including our power-only options. Finally, our strong balance sheet gives us optionality to enhance shareholder returns through reinvesting in our core business and services but also by providing attractive dividend yields and pursuing additional acquisitive opportunities that advance our strategic priorities and continued targeted share purchases toward our previously announced $150 million buyback program. Thank you, and I look forward to our follow-ups.

This concludes today's conference call. You may now disconnect.