Schneider National, Inc. Q4 FY2023 Earnings Call

Good morning. My name is Krista, and I'll be your conference operator today. I would like to welcome everyone to the Schneider Fourth Quarter Earnings Conference Call. I will now turn the conference over to Steve Bindas, Director of Investor Relations. You may begin your conference.

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; and Jim Filter, Executive Vice President and Group President of Transportation 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 CEO, Mark Rourke.

Thank you, Steve. Hello, everyone, and thank you for joining the Schneider call this morning. Let me start by offering our perspective on the current freight cycle by placing that in context for our most recent quarter results and our long-term strategic priorities. A consistent theme emerged from the discussions we have had with our highly diversified customer base through the back half of 2023. While customers still find themselves in a heightened state of uncertainty heading into 2024, virtually no one believes the current demand and capacity cycle is a new normal or even that it's durable. The consistent question is, when does it change? In alignment with that theme, at the end of January, Schneider's Internal Truckload Freight market index crested 600 days of being below neutral, while the prior six cycles, three up and three down, have lasted an average of 575 days. Therefore, historically, we are quite long into this cycle. Invariably, macroeconomics and the demand and capacity balanced environment adapts sometimes at a slow and steady pace and sometimes more abruptly due to capitalism. In respect of the market, we are intently focused on company-specific initiatives to return our diversified and scaled operating segments of Truckload, Intermodal, and Logistics to their long-term margin targets. Let me recap the important developments in the most recently completed quarter regarding those initiatives. First, in Truckload segment, our average dedicated truck count in the quarter is up 674 units over a year ago, and up 283 units sequentially from the third quarter through a combination of organic and acquisitive growth. Included in those numbers is truck count attrition across dozens of operations, particularly in retail support applications due to less overall demand this fourth quarter versus a year ago. Encouragingly, this serves as a built-in growth channel with even modest demand improvement. Revenue per truck per week and dedicated improved both year-over-year and sequentially, primarily due to asset productivity improvements as a result of those operation-specific truck count adjustments. Our dedicated value proposition of strong operating performance, combined with a robust new business pipeline, gives us visibility into several hundred units of additional organic growth in 2024. Dedicated's consistent revenue and earnings profile places it at the top of Schneider's strategic growth priorities alongside intermodal. Presently, the growth and performance impact of dedicated within truckload is muted due to the challenges of generating returns in the network offering. Over 100% of truckload's earnings in the quarter were associated with the dedicated offering. Revenue per truck per week in the network improved sequentially driven by asset productivity, aided by volumes improving modestly compared to the third quarter. However, at this time, there is not a compelling reason to allocate additional capital in the network until freight rate levels are compensable for the service provided. Our second strategic imperative is to grow intermodal earnings, primarily through accelerating over-the-road conversion opportunities. That objective was a driving force behind our new rail partnership alignments with Union Pacific and CPKC. We are not gauging success with the UP network conversion off the first four quarters of operations. We are playing the long game here. Achieving our desired outcomes in the West requires not only service reliability, which the UP team has urgently and successfully addressed, but also flexibility in the solution commercially. 2023 was a year we took a step back in Western intermodal order volumes. The corresponding mix change is reflected in the 11% lower year-over-year revenue per order, evenly distributed between a change in mix and a change in price. That said, I am pleased that we are working in a highly collaborative manner with the UP to reverse that trend in the 2024 allocation season, and I am confident we're going to be successful. We are also committed to leveraging Schneider's considerable strength in Mexico with the leading intermodal service capability of CPKC. The CPKC's best-in-class solution is one that improved its value in the quarter by eliminating handoffs and keeping freight in motion, which is the best way to avoid theft and other disruptions. However, to unlock the full potential of the intermodal conversion opportunity requires changing long-held market beliefs and experiences on the reliability of intermodal solutions into and out of Mexico. Again, we're playing the long game here, and we expect that by the time we exit 2024, we will be well on our way to realizing that potential. Thirdly, the logistics and brokerage market are hyper-competitive, and I appreciate how our team has nimbly navigated the environment by leveraging its own freight generation capability and the resilient power-only model to stay profitable. I am pleased with the advancement of Schneider Freight Power and the growth of our digital connections. Despite market softness, the number of orders that we acquired digitally increased approximately 25% over a year ago. This creates significant leverage for Schneider when the market begins to improve. Before I hand it over to Darrell for his commentary, let me offer some additional insight into fourth quarter results, including context to our guidance coming out of the third quarter earnings call. From a safety performance basis, our operations, safety, and professional driver teams have reduced the frequency of auto liability incidents by 19% as compared to the pre-COVID 2019 baseline. That is an important trend line as cutting exposure is the first line of defense against rising settlement costs. However, in the quarter, we experienced adverse development, primarily on two accident claims from earlier in the year. Those two incidents snapped a 60-quarter consecutive period without a significant claim adjustment. On the positive side of the ledger, we posted a lower tax rate for the year. The net of the adverse safety developments and lower tax represented a 4% drag on earnings per share from what we contemplated in our prior guidance. Otherwise, the quarter played out nearly as we expected in terms of freight yields, cost performance, and lack of equipment disposal gains. Encouragingly, year-over-year volumes were up in December for both network truck and intermodal, but overall volumes in the quarter were more tepid than expected, especially around the holiday weeks in November and December. Let me now turn it over to Darrell for his insights on the most recent quarter and update on our capital allocation expectations and our 2024 guidance.

Thank you, Mark, and thanks to each of you for joining us this morning. I'll provide a financial recap of our fourth quarter and full year results and some perspective on our 2024 guidance. You can find summaries on Pages 20 to 25 of our Investor presentation. Our adjusted earnings for the fourth quarter were down $116 million or 78% from prior year. Adjusted earnings per share for the fourth quarter was $0.16 compared to $0.64 in the prior year. The fourth quarter of 2023 included a loss on the sale of revenue equipment versus a $10 million gain in 2022. As Mark indicated, compared to our most recent guidance, fourth quarter earnings per share was negatively impacted by $0.04 related to two unexpected items. Firstly, adverse development, primarily related to two accident claims that Mark mentioned. While higher claim costs were predominantly in truckload, all segments were impacted. Secondly, the favorability in our income tax rate, which related to increases in tax credits from our investments in new electric trucks and research and development activities in addition to changes in our valuation allowance for losses associated with the sale of our Asia business. Truckload revenues, excluding fuel surcharge for the fourth quarter of 2023 were slightly above 2022 as the network pricing shortfall was more than offset by revenues from solid organic growth in dedicated and our recent acquisition of M&M Transport. Truckload margins and earnings for the fourth quarter were also lower on a year-over-year basis, primarily due to network price, the adverse claims development discussed earlier, a loss on equipment sales, and inflationary costs. In our Truckload network business, 2023, and particularly the second half, was challenging, and we believe that rates have largely reset. As we communicated last quarter, our spot exposure was uncharacteristically high, as we have sought to avoid entering into contracts at rates that are non-compensable. During the fourth quarter, we continued to rebalance our spot to contract mix and saw a marginal seasonality in pricing. We believe the pricing and volume stabilization seen sequentially in the fourth quarter are an indication of the bottoming of the current freight cycle. We expect to build on this momentum and to improve contract rates during 2024. As Mark mentioned, we remain very encouraged by the performance of our dedicated business as we continue to see solid start-up activity in the fourth quarter and new business already awarded in the first quarter of 2024. We're seeing strong organic growth and stellar performance from our recently acquired businesses. Dedicated revenue per truck per week for the fourth quarter increased 3% from the prior year and 4% sequentially. We remain disciplined on customer acquisitions, which should continue to support our growth and earnings expectations. As of the end of the year, dedicated truck count represented over 60% of the truckload segment total as compared to 57% a year ago. This trend reflects progress on our stated commitment to strategically grow this business organically and through opportunistic acquisitions. Turning to Intermodal. We continue to see our intermodal business representing a key structural growth opportunity. We are well-positioned with our existing container and chassis to grow our business 25% to 30% without the injection of trailing capital. For the fourth quarter, intermodal revenues, excluding fuel surcharge, declined by 17% compared to 2022. As in the Truckload network, significant pricing pressures weighed heavily on results. For the quarter, volumes decreased 1% compared to 2022. However, December marked the first month of year-over-year growth since February. Intermodal earnings were impacted primarily due to price in addition to lower orders year-over-year, and increased empty repositioning and claim costs. Logistics revenues for the fourth quarter of 2023 declined by 20% versus 2022, primarily due to decreased revenue per order as well as lower brokerage volumes. In addition to pricing and volume declines, logistics margins and earnings for the fourth quarter were also impacted by the adverse claims mentioned earlier. Our logistics businesses continue to operate profitably through our challenging freight cycle. We saw sequential improvements during the quarter in both net revenue per order and orders per day in part due to seasonality. The asset-light nature of these businesses also continues to support our optimism for continued growth and long-term return on capital. Turning to capital allocation for the year. We ended 2023 with net CapEx of $574 million, just below the top end of our most recent guidance of $575 million. During the year, we increased our debt balance, partially related to our acquisition of M&M Transport in August. Our net debt leverage was 0.3x at the end of the year, and we generated $680 million in cash from operations. Despite current operating conditions, the strength of our balance sheet gives us a conviction to remain confident and committed to our capital allocation strategy, including returning value to our shareholders. As such, we paid $64 million in dividends during 2023, which was 14% above 2022, and we continue to strategically repurchase shares with total activity of $66 million for the year. In addition, we recently announced an increase in our quarterly dividend to $0.095 per quarter, a 6% increase from 2023. Moving now to our forward-looking comments. From a macro perspective, while higher inflation and interest rates have pressured consumer demand, inflation has been moderating and the Federal Reserve's indication that interest rates could be lower by the end of 2024 has been a key factor in recent optimism and consumer confidence. Given the normalization of inventories, we believe shippers will pivot to restocking in 2024, if consumer confidence persists. In addition to the actions we're taking to recover pricing and volume, we continue to maintain discipline in managing costs across our business segments in an inflationary environment. As we do throughout all market conditions, we continue to identify incremental opportunities during 2024. We expect safety costs to be higher than 2023, primarily because of increases in premiums and the full-year impact of M&M Transport. Despite our ongoing focus on and investments in safety, we're also not immune to increased litigation, inflated settlements, and elevated insurance premiums. We expect equipment gains to be approximately $30 million lower than realized in 2023, given the current and expected state of the used equipment market. Also, our 2023 adjusted EPS of $1.37 included $0.09 of net equity gains from strategic investments, while our 2024 guidance assumes not. As is our usual practice, as we record equity gains or losses, we will incorporate them into our guidance throughout the year. Taking all these considerations into account, our guided adjusted earnings per share for 2024 is $1.15 to $1.30. This guidance assumes a normalized effective tax rate for 2024 of 24.5%. While we believe we're at the bottom of the cycle, both the timing and pace of recovery during 2024 remain uncertain. The continuing effects of lower contract pricing in our network businesses of truckload and intermodal and net revenue compression in logistics are expected to impact our results as we enter 2024, and we expect sequential recovery in the freight market as the year progresses with a heavier weighting toward the second half of 2024. Finally, I'll provide some guidance on our net CapEx plan for the full year 2024. During 2023, we made notable progress towards our tractor and trailer Asia fleet targets as OEMs have recovered from their production constraints. We also remain confident in our ability to grow intermodal volume without the need to add any containers or chassis in 2024. We, therefore, do not expect the same level of CapEx investments in 2024. In addition to continued technology investments, we'll invest in growth capital in dedicated and intermodal tractors. We also anticipate moderating proceeds from equipment sales as compared to 2023. As a result of these considerations, we have net CapEx to be in the range of $400 million to $450 million for the full year 2024. With that, we'll open up the call for your questions.

Yes. So the first place, when we think about the competitive landscape for intermodal, the largest competitor is over-the-road. That is the number one place that we're looking, where the largest opportunity is. Across the competitive landscape, there's a lot of containers that are up on stacks. So there isn't necessarily a strong need to put all of those back into service to be able to continue to operate. So I think there's discipline in terms of what's needed to take containers off the stack. We're not going to take containers off the stack for pricing that is not compensable. Well, it's very early in the season. There's a really wide spectrum out there. So there are not very many that have closed out at this point. I'd say there's a couple of themes here right now. Number one, as Darrell mentioned, we're staying disciplined. There’s just no room to take a step back further. But also our customers approach that there are customers that are putting a lot of work and effort into these bids and at the same time, don't expect their bids to hold together through the entire bid cycle.

Darrell, welcome to the call, and it's always great to have another analyst in the mix. But maybe just a question here on the competitive environment in intermodal, what are you seeing as far as price discipline or maybe lack thereof from your peers right now? And given that you and others have quite a bit of capacity that's kind of waiting to be unleashed there, how do you expect that competitive environment to trend if and as we see a recovery?

So EPS guidance down year-over-year seems very conservative, even with some of those cost headwinds that you mentioned, kind of the equity gains and the loss on sale, etc. Are you guys assuming that current conditions stay stable through the rest of the year? Or, I know there's tremendous uncertainty on the timing of inflection, but what exactly is underpinning this guidance?

Yes, Ravi, it's Mark. I'm hesitant to classify the guidance beyond what we've already communicated. As we evaluate our company-specific initiatives and consider the market conditions and our expectations around pricing and productivity, we believe we have provided a balanced perspective on the range as we currently understand it. We are confident in our ability to adapt quickly based on how conditions develop, especially on the upside, and our model and assets will be utilized effectively alongside our brokerage business. Overall, we've taken into account what we can realistically anticipate at this stage, and I would prefer not to label our approach as conservative or aggressive.

Yes. Firstly, we see opportunities in the broader market. The truckload market represents the largest chance, followed by imports. As for our rail provider in the West, this is our first year with UP. I commend UP for accommodating additional volume and improving service, but it has also been a learning year for both parties. We have long-term, market-based, and competitive deals that are contingent on normal cycles, though there are instances when we experience some irregular cycles.

Just a question, sir, once again, thinking about the guidance for the year. You talked a little bit about the second half being better than the first half, but is there a way to think about the shape or the SKU? I mean, as you're seeing it now, is it going to be pretty sharply second half versus first half? And is there a difference between your three business segments in terms of how you think about the year progressing in terms of profitability?

I just want to go back, first, Jim, to your question about some of the customers expecting their bids, maybe not to hold through the cycle. I don't know how to read into that. Does that mean you're expecting an inflection? Does that mean they're trying to take one more bite to the apple and see what happens in the back half of the year? Maybe you can give us some context around that.

Yes. Thanks for the question. So it was the former that customers expect that there's going to be an inflection at some point and that they may have overreached and trying to dig as far as they did. At some point, during the year, these aren't going to hold.

Yes, I would say broader conversations across the broader spectrum as folks are being, in our view, much more balanced towards the fact that we are long into this cycle. I think what Jim is referencing, there are customers that look, based upon their approach, to be more aggressive, and we think those folks, as we communicate with them, will take all of that into account on what type of commitments we will or will not make on behalf of that approach. But I think increasingly, those conversations, as I said in my opening comments, no one believes we're in this condition for the long-term. It's just a matter of when. And I think you're seeing more balanced thinking going forward than we would have described as we were coming into this juncture in 2023.

Mark, can we revisit the outlook you and Darrell discussed with Ravi regarding the $1.15 and $1.30 projections? If we exclude the $0.10 gains from this year, it appears that's why the outlook seems relatively flat. Could you elaborate on the factors influencing this, particularly your volume and pricing mix? It seems like fleet growth is supported by the CapEx. Is the inflation impacting your fleet and yield growth? I'm trying to understand the factors contributing to your flat outlook.

Yes, I'll begin, and then I'll hand it over to Darrell shortly. Regarding growth, our CapEx guidance of $400 million to $450 million has significantly decreased from last year due to catch-up with the OEMs and the fleet's age. We feel well-prepared in this area, but depreciation has increased due to inflationary costs related to new equipment over the past couple of years. From a growth perspective, Ken, we are concentrating on two main areas: dedicated services, where we have consistently succeeded and have strong visibility for start-ups in both the first and second quarters, which gives us confidence in maintaining momentum into 2024. Additionally, we are focusing on expanding our intermodal business. While we won't be adding more containers and chassis since our ratios are where we want them, we do have significant opportunities for organic growth without increasing trailing capacity.

The only other thing I would add is, besides the equity gains that you mentioned, which we're not assuming in the model, there's a lower gain on equipment sales of $30 million, which I've mentioned in my comments. I also talked about safety costs, which we're expecting to increase, primarily due to premium increases in the market, insurance premiums. And then obviously, our tax rate, which is at 22% in 2023 is expected to normalize. So all those things are headwinds that slightly impact some of what Mark talked about in terms of growth.

So there's about 15% of the containers that are on stack.

Yes. I hate to be so short-term focused, but it seems like this is going to be one of those years where it's tougher to make a call with visibility until you get closer to see the whites of the eye. So as it relates to 1Q, typically seasonally weaker, but coming off of a kind of a muted peak season, does 1Q in basically all of the different segments look similar to 4Q? Or are there some maybe idiosyncratic reasons why 1Q should be better seasonally as we look at it sequentially?

Well, it's a little early in the quarter, obviously, and we've been dealing, at least initially, through the first couple of weeks, we had some adverse weather impacts, particularly in comparison to the last couple of years. So we'll keep our, really, thoughts as it relates to the shaping of the year is what we said to this point. We do think it will continue to improve throughout the year and be a bit more robust in the second half, but not offer any more specific guidance yet here in the first quarter.

I wanted to ask a little bit about the intermodal margin. I think there's been this kind of anticipated help on purchase transportation, it seems like it just hasn't been visible yet in terms of helping on the margin side. Is that something that you think will continue to be elusive? Or is it reasonable to think that if you look at whether it's 1Q or 2Q, that you would see sequential improvement in that intermodal margin supported by that kind of lagged reduction in purchase transportation?

Yes. Tom. So yes, we still have our long-term margin targets out there, and we still believe that those are the right target margins for all three of our segments, and we believe there will be a point that we get to that spot. I couldn't give you a timing of which quarter we get back to that, but we do anticipate that we'll get back to those long-term margin targets.

Yes, Tom. And I think our approach, particularly on intermodal, is well positioned to be highly competitive and effective through normal freight and business cycles. I think, obviously, we've been through a significant upside. Now, we've seen the backside of that, and we're working to become more nimble commercially with our customers, how we partner with our rail providers, particularly our newest ones, to deal with those market abnormalities. But I think overall, we're positioned well. We would continue to expect improvement there, operationally as service improves.

Mark, I wanted to ask you a question about the current cycle. Looking at these results, you mentioned that the network is experiencing some losses, and Heartland is also losing money while there are other pressures in the market. It seems to me that we have not seen such significant pressure on well-run large truckload carriers during a cycle downturn before. Do you think this might lead to a larger adjustment in capacity at some point? I'm trying to understand the implications of this, as it feels like a more challenging downturn than previous cycles.

Yes. We've all observed the slow exit of capacity. While it's happening, we might have anticipated a more significant exit at a quicker pace based on past experiences. However, there are new market dynamics at play. The compression you mentioned can be attributed to the pandemic-driven growth, which was also influenced by inflationary pressures, especially in equipment and driver wages. These factors are proving to be more challenging to navigate in the short term, particularly following a market correction. This situation may be more noticeable compared to previous downturns, like in 2009.

Following up on Tom's question about the network margin, would network have operated at a loss without the claims charges that you dealt with in the quarter? And can you give us any historical context on where you are in the gap between what dedicated is earning now versus what network is and how that's looked at other cycle troughs? Just to understand how different this environment is today. And just to extend that, how necessary is pricing above inflation in intermodal, and one way, to get to your second half objectives?

Yes, Bascome, let me explain that. The safety implications were significant in the truck segment during the quarter and clearly impacted our network results, which would have been positive otherwise. This serves as a strong indicator. From a pricing perspective, we believe dedicated is very well positioned. When experiencing growth, there can be some additional costs related to startups and recruitment, which are typical in that area of the business. Despite these costs and our acquisitions, there remains a substantial gap due to the pricing volatility in our network business. Therefore, we need to focus on pricing and improving our business portfolio. This is why we won't be adding capital; our top priority is to focus on restoring margins, which involves enhancing productivity, controlling costs, and recovering rates.

This is Uday on for Jason Seidl. Maybe just a longer-term one on intermodal. I appreciate that this is a fairly distinct possibility at this stage, but with China tariffs sort of creeping back into the conversation, how do you evaluate the volume and pricing dynamics in intermodal if those play out? Maybe it would be helpful if you could remind us how the intermodal business adapted to the imposition of tariffs in 2019? Did it have any predictable mix implications? Anything on the cross-border? Any color there would be appreciated.

Yes. And certainly, of all of our service offerings, the one that leans in most heavily towards imports and the effect of imports is our intermodal business. The West Coast is a place that we have not maintained share that we would have typically expected. And so import recovery is an important component, particularly in the western side of our network. We also have some real positives on some of the response to those geopolitical factors, which is the near-shoring activity that's going on, the investment taking place in Mexico that, I think, is the biggest winner here. Some of those investments take time to mature and to take hold. But clearly, the biggest opportunity is how much freight moves over the road on the long lengths of hauls that make most sense economically, emissions-wise, in and out of Mexico, so while there might be some, over time, geopolitical pressure, there's another part of the network, there's also some winners and other parts that we want to make sure we're well positioned to take advantage of. And we have seen some shifting obviously from port activity to Eastern ports and Southern ports in addition to Mexico. So which are more generally attractive to truck as opposed to intermodal over time.

If I look back to 2019, there was a slight short-term disruption as some of our customers sought alternative sources for their products. However, when they returned, we experienced a significant increase in demand. We observed both aspects of this situation right away. Most of our customers learned valuable lessons and have been minimizing risks in their supply chains by utilizing other Asian countries and low-cost nations. This is why Mexico has become increasingly important for us, as more customers are viewing it as a viable low-cost alternative, and we offer excellent services to support them.

I wanted to ask on the dedicated side. So we've heard a little bit of, I think, competitive dynamics on the dedicated side picking up. I guess, as you'd expect where we kind of are in the overall cycle here. So I just want to kind of touch base and get a sense of what the health that you think of that market? Obviously, the metrics you, guys, post is whether it be revenue per truck per week or the addition of trucks looks reasonably good in that context. But I wanted to get a sense, as you think about the guidance and how the outlook for 2024 looks, where that fits in? Is that market stabilized? Is it sort of doing what you'd expect it to do at this point in the cycle?

Yes, Chris. As it relates to dedicated, it generally has a little longer sales cycle. The work that you do in the year prior, you've got a lot of work under your belt. And so you generally have a little better visibility to at least six months out where you expect both your retention levels of your current business, but also as we have been leaning into the extension of our reach here. So that's part and parcel of what you see into our guidance. We would say the market and our pipeline is still very, very robust. We've successfully are in the process, not only new business in the fourth quarter, but we have scheduled starts that we have visibility to both in the first and second quarter. Not as visible yet for decision-making out into the third and fourth quarter, but based upon that pipeline and our recent experience and success gives us confidence that that's going to be another really good story for us through calendar year 2024.

Yes. We need to be able to see that we're getting back to the long-term margin targets. As we get back to those levels and we see the level of quality demand, that's when we'll be turning that back on and increasing capital.

Yes, we have just such productivity opportunities in front of us, not even having to get back to pretty high as it relates to box turns. I think the good news is we're seeing our customer base, for the most part, be very efficient with the container. We're getting back to a more normalized turn focus with our customers. And this past year, we did some investments in the chassis front to make sure that we could take advantage of that. So our ratios are where they need to be there, Chris. And so we like the incremental growth margins that come with not having to invest in additional capital and cost to bring things on to get after improved volumes. Thank you, operator, and I really appreciate everybody's attention this morning. We had an opportunity to talk about our commitment to advance our strategic growth drivers of dedicated truck, our confidence around intermodal conversion, and the aggregation of our capacity and demand through our freight power platform and logistics. So we do see, at least as we get in here to 2024 early, that we're in a bit of a transition year, with capacity and balancing improving as the year progresses. And as we've talked about throughout this call, a bit more heavily weighted to the second half. So thank you for your attention, and we look forward to engaging here as we get into conference season.

This concludes today's conference call. Thank you for your participation, and you may now disconnect.