Schneider National reports 10% revenue growth despite unexpected claims costs, lowers 2025 EPS guidance amid persistent market challenges

OPERATOR - (00:01:04)

Thank you for standing by and welcome to the Schneider National's third quarter 2025 earnings conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Star followed by the number one on your telephone keypad. If you would like to withdraw your question again, press star one. Thank you. I'd now like to turn the call over to Christine McGarvey, Vice President of Investor Relations. You may begin. Thank you Operator and good morning everyone. Joining me on the call today are Mark Roark, 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 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 websiteat schneider.com Our call includes remarks about forward expectations, forecast plans and prospects for Schneider. These constitute forward looking statements for the purposes of the safe harbor provisions under applicable federal security 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 10K and those risks identified in today's earnings release. All forward looking statements are made as of the date of this call and Schneider does not have a duty to update such statements except as required by law. In addition, pursuant to Regulation G,ulation G Regulation G,ulation G, 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 Roark.

Mark Roark - President and Chief Executive Officer - (00:02:51)

Thank you, Christine. Hello everyone. Before Darrell provides a financial overview of the third quarter results and shares our updated 2025 guidance, I will start by sharing my perspective on the freight market as well as the ongoing structural improvements we are making in the business. After we'll answer your questions. One item I'd like to address before I turn to the broader market is claims related costs. During the third quarter, we recorded roughly $$16 million more in these costs than we had previously expected. This was also higher than we had incorporated into our previous guidance. Even at the low end, this was driven primarily by unfavorable developments on three claims from the 2021 and 2023 policy years. We do not expect the cost associated with these developments to repeat in the fourth quarter. Now with regard to the freight market, when we updated our expectations for the second half during our last earnings call, we experienced a solid uptick in market conditions in the back half of July. That gave us some cause for optimism as we moved further into 2025. However, that strength faded as the quarter progressed with August and September market trends largely sub seasonal. This was evident through pockets of softer volumes with existing customers retreating spot rates, modest peak activity to date, and an overall softer September versus typical patterns that would see strength into quarter end. Looking forward, these conditions are likely to persist into the balance of the year. Despite this, we continue to see traction in several of our key initiatives, which I will discuss in more detail shortly. Though this down cycle has been extended, several new dynamics have been introduced over the last few months that are definitive catalysts for the removal of excess capacity after several years of expecting but not seeing more significant supply rationalization. This includes dynamics such as enforcement of English language proficiency and the impact of non-domicile CDL renewals, but importantly, it also reflects self regulation driven by the mere threat of enforcement. At the same time, we are seeing a pickup in carrier bankruptcies and the industry is now approaching a year of Class 8 production below replacement levels, a trend that may accelerate given tariff-related dynamics. Collectively, we believe these have the potential to drive more supply rationalization than the impact we saw in 2017 from requiring electronic logging devices for hours of service enforcement. Against this backdrop, we continue to press on our efforts to drive structural improvements in our business, especially in three main areas. First, when it comes to our revenue strategy, we saw further traction on our continued efforts to lean into our areas of differentiation. Second, we are also continuing to execute on our productivity actions which are driving asset efficiency and lowering our cost to serve and in any cycle dynamic. Relatedly and third, capital discipline is driving our focus on doing more with less, which leaves us well positioned for strategic investment and the ability to act opportunistically on ways to add shareholder value. I'll provide a bit more detail about each of these efforts, starting with the progress we have made on our revenue strategy by leaning into our areas of strength. In doing so, we are creating growth opportunities and it has the added benefit of enabling us to stay more broadly disciplined. More specifically, dedicated experienced some sub seasonal demand in select areas such as consumer products and food and beverage which weighed on volumes. However, wins from new and existing customers were realized at a rate three times the level we've seen in the first half of the year. We ended the quarter with our fleet count in line with the end of the second quarter as implementations are ongoing and we continue to see productivity gains looking forward, our dedicated pipeline remains robust with a strong skew to our targeted areas of specialty equipment, which has historically been sticky and required a high level of execution and equipment capability. The strength of this pipeline will add accretive business in the coming quarters and we plan to leverage this growth into upgrading the overall portfolio by moving away from select lower yielding operations as the new startups come online. This shift plus continued traction on our productivity efforts will be reflected primarily in revenue per truck per week gains as opposed to just fleet growth, and it will contribute to our efforts to restore truckload margins within network While we finished the bid season achieving low to mid single digit contractual rate increases, we continue to believe the rates are not yet at a level that supports the service we deliver and the cost needed to achieve it. As a result, our spot exposure remains elevated to historical norms. While this was a headwind to our mix, having continued price discipline will position us to maximize our leverage. As market trends improve, we continue to see a wide range of approaches to the market from our customers. Retention rates of incumbent business jumped 10 points quarter over quarter in intermodal. The strength of our win rates throughout 2025 is translating to market share gains which was a driving force behind our 10% volume growth in the quarter, several times the industry rate in Mexico. A solid track record for our service offering that is one to three days faster than our competitors continues to resonate with customers. Third quarter volumes grew over 50% in the region. We also seen the highest growth rate in the east since 2022. This volume strength allows us to effectively navigate the choppiness of the environment. In the third quarter, rate renewals were flat in the quarter with revenue per order negatively impacted by mix. The mix reflected softer outbound volumes from the west coast, shorter length of haul and relatedly more modest peak surcharges. This was intentional as we chose not to chase incremental transcon volume and rates were not commensurate for the service. By continuing to lean into areas of differentiation, we were able to grow operating income and even modestly improve margins while overcoming select cost headwinds which I will discuss shortly. In Logistics power only, revenues grew from the sixth quarter in a row driven by resilient volumes which remain at 98% of peak levels. Net revenue per order also showed high single digit percentage improvement year over year and this strength is helping to offset continued pressure in our traditional brokerage volumes as shippers remain inclined towards asset based solutions. As they anticipate a cycle turn. While we look forward to transitioning to a more supportive market, we are, as I mentioned, continuing to press on productivity actions which will improve asset efficiency and lower our cost to serve. These actions will help drive the enterprise back to our long term margin targets faster and in a wider range of market conditions. Third quarter saw progress on our established cost reduction target of over $40 million including synergies from Cowan Systems which will continue to ramp into 2026. Beyond synergies, the bulk of our savings will be driven by productivity enhancements. This includes targeted headcount reductions, though the full benefit is likely to be more pronounced next year as the run rate builds. Since the start of the year we have reduced non driver headcount by 6%. In truckload, we saw Cowan margins improve even with revenues remaining roughly flat as synergies continue to ramp. Network represents the bulk of our productivity initiatives. These include reducing unbilled miles and improving tractor to driver ratios. The majority of headcount actions to date were concentrated in truckload. The quarter saw short term noise related to the timing gap associated with the previously highlighted dedicated churns and startups for intermodal. Third quarter saw impact from aforementioned claims related cost and headwinds in third party maintenance costs associated with with trailing equipment. As it relates to the latter, actions are already underway to address this and these challenges were combated by ongoing efforts to balance the network and reduce repositioning costs. Logistics has a long history of being testing ground for our latest technology applications and AI is no exception. For example, our overall orders per day per broker in third quarter were up double digits from levels seen in 2023. And in areas where we have more actively deployed our AI tools, we productivity is several times better. This technology is helping our brokers move away from routine, less fruitful workloads and enabling them to spend more time on value added activities. As we have seen success in our logistics offerings, we are also rolling out agentic AI to all of our other service offerings in a variety of support functions. These efforts dovetail their ongoing use of our decision science platform which has been deployed for some time, which enables automated decision making and enhanced productivity while effectively balancing customer and network needs. Finally, we remain disciplined but nimble in our capital allocations as we look forward. Darrell will discuss in more detail in a moment, but I'll say that our continued efforts to do more with less the strength of our balance sheet and the tactical decisions we have made related to our fleet equipment leave us with ample firepower to execute our strategic initiatives let's now turn over to Darrell for his insights on the third quarter and our 2025 guidance.

Darrell Campbell - Executive Vice President and Chief Financial Officer - (00:12:15)

Darrell thank you Mark and good morning everyone. I'll review our enterprise and segment financial results for the third quarter and provide insights on our updated full year 2025 EPS and net CapEx guidance. Summaries of our financial results and guidance can be found on pages 24 to 30 of the of our investor presentation available on the Investor Relations section of our website. Starting with the third quarter results, enterprise revenues excluding fuel surcharge were $1.3 billion, up 10% compared to a year ago. Adjusted income from operations was $38 million, a 13% decrease year over year. Enterprise adjusted operating ratio increased 80 basis points compared to the third quarter of 2024. Adjusted diluted earnings per share for the third quarter was $0.12 compared to $0.18 for the third quarter of 2024. Third quarter results also include the impact of claims-related costs that were $16 million more than anticipated, which as Mark referenced, was primarily as a result of unfavorable developments of three prior year claims. Regulation G,ardless, we remain committed to our ongoing investments in safety performance, including recently enhancing the camera technology we deploy with AI enabled features, not just because frequency remains a lever most in our control to combat these costs, but also because it's the right thing to do. We previously announced a $40 million structural cost savings target which will continue to build in the fourth quarter and we're focused on pursuing additional opportunities that will structurally lower cost to serve to improve our performance in all stages of the cycle going forward. From a segment perspective, truckload revenue excluding fuel surcharge was $$625 million in the third quarter, up 17% year over year. This growth was primarily due to the common acquisition as well as modest growth in network truck count partially offset by dedicated churn and network spot rate headwinds. Truckload operating income was $20 million, a 16% decline year over year operating ratio was 96.8%, an increase of 130 basis points compared to last year. The majority of claims-related costs discussed earlier were reflected in our truckload segment. Restoring profitability in network remains a key focus of our cost initiatives, including efforts to improve equipment ratios, consolidate facilities, streamline non driver headcount and reduce on build miles. Dedicated operating income benefited from the addition of Cowan but was also adversely impacted by the claims-related costs as well as churn that was highlighted in the second quarter. The latter dynamic was exacerbated in the short term as a result of retaining equipment in areas where we had line of sight to new startups, though this was partially offset for the segment as a whole by deploying some equipment into network. Intermodal revenues excluding fuel surcharge were $$281 million for the third quarter, up 6% year over year. This reflected volume growth of 10%, which more than offset the mixed impact in revenue per order. The third quarter marks the sixth consecutive quarter of year over year volume growth in the segment. Intermodal operating income was $$17 million, a 7% increase compared to the same period last year, reflecting the strong volume growth which more than offset headwinds from claims-related costs and maintenance expense. Operating ratio was 94%, an improvement compared to the third quarter of 2024. Logistics revenue excluding field surcharge totaled $$332 million in the third quarter, up 6% from the same period a year ago driven by Cowan acquisition and growth in par only. Logistics income from operations was $6 million, down 16% year over year. Operating ratio was 98.1%, an increase of 50 basis points primarily due to lower brokerage volumes partially offset by productivity gains. Turning to our balance sheet and capital allocation, as of September 30, 2025 we had $$522 million in debt and lease obligations and $$194 million of cash and cash equivalents. Our net Debt leverage was 0.5 times at the end of the quarter, an improvement from 0.6 times at the end of the second quarter. In the third quarter we paid $$17 million in dividends and $$50 million for the year. Net CapEx was $$108 million compared to $$93 million last year due to the timing of purchases of transportation equipment. As a result, free cash flow declined in the quarter. As we continue to grapple with macro uncertainty, disciplined capital allocation remains our focus. Our organic growth aligned with our strategic initiatives is our first priority, but our asset productivity efforts enables us to execute on this growth in a capital efficient way. In dedicated we have the bandwidth to meet new demand by leveraging our productivity initiatives and reallocating resources away from lower performing operations in intermodal. Our investments to date have left us well positioned to grow up to 25% with our current trailing equipment. We now expect net CapEx to be approximately $$300 million for the full year compared to 325 million to $375 million previously. The reduction was primarily related to our decision to pause tractor orders originally planned for November and December, bills which had been included in our previous capital plans. This decision was driven by the actions we outlined related to productivity and asset efficiency and it allowed the enterprise to manage the impact of new tariffs. As we reevaluate our total cost of ownership model, this will drive higher free cash flow without placing an undue burden on our fleet age. We continue to be well positioned to act opportunistically to enhance shareholder value, including through accretive acquisitions and share repurchases. Moving to our updated full year 2025 guidance, our adjusted earnings per share guidance for the full year 2025 is now approximately $0.70, which assumes an effective tax rate of approximately 24%. The new guidance incorporates the impact of higher than expected claims-related costs in the third quarter, the majority of which we assume will not repeat in the fourth quarter, though insurance remains inflationary overall. As such, excluding this impact, the new guidance is aligned with the low end of our previous range which had assumed more temperate seasonality in the second half of the year. For our truckload network business, we expect volume trends to remain sub seasonal and spot rate conditions will be an important swing factor. Dedicated earnings are expected to benefit from the pickup in new business implementations. Those startup friction costs will be felt as they ramp up for intermodal segment, we continue to expect roughly flat pricing for the remainder of the year which assumes minimal peak surcharges. Similarly, we believe there was some degree of pull forward in the third quarter which could drive an earlier end to peak season than is typical. Though we continue to expect our volume growth to be above market, our logistics segment outlook reflects continued pressure on truckload volumes which is likely to continue to weigh on operating income and despite solid execution in managing net revenue per order. In closing, while market conditions have yet to materially improve, there are clear catalysts on the supply side that have emerged which have the potential to significantly shift market dynamics. Regulation G,ardless, we're not standing idly by. We're offsetting certain areas of tepid market conditions by leaning into our areas of strength, which is helping to drive incremental volume opportunity and enabling us to remain disciplined on broader strategies. At the same time, we continue to execute on our acquisition synergies while looking to do more with less across the enterprise, a reflection of capital discipline and our efforts to lower cost to serve in any market condition. With that, we'll open the call for your questions.

OPERATOR - (00:20:31)

Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star one on your telephone keypad. If you would like to withdraw your question, simply press star one. Again, we ask that you limit yourself to one question and one related follow up question. Your first question today comes from the line of Jordan Ellinger from Goldman Sachs. Your line is open.

Jordan Ellinger - Equity Analyst at Goldman Sachs - (00:20:52)

Yeah. Hi. Morning. I wanted to ask about dedicated. You said that the win rate I think had accelerated three times or considerably than the first half. But just sort of curious, would you. Say those wins are sort of Schneider.

Mark Roark - President and Chief Executive Officer - (00:21:06)

Specific, you know, taking business from other trade carriers or is it more industry driven demand, you know, such as private fleets deciding they want to move back to dedicated, etc. Thanks. Good morning, Jordan. Thank you for the question. The vast majority of those wins were in our pipeline and so our pipeline started to convert at a more accelerated rate in the second half, which we're really pleased about because it really does set us up well against our strategic intent, which is to grow predominantly in the specialty segment, which is what we consider to be our most favored target because of its characteristics of durability and unique special services that we can bring with the strength of our dedicated offering, our balance sheet, et cetera. It's where we can really offer our most differentiation. So we're pleased. Now, of course, when you have some churn that we outlined the second quarter and when you have the new startups, you have some friction that goes on because all those things don't friction perfectly sync up between some accounts that are going away and the new ones that are coming onboarded. And we expect that we'll still have some of that in the fourth quarter, but are looking at least at this juncture that we'll have that largely behind us as we go into 2026. But our pipeline remains strong. We expect that we'll still have great opportunity to continue our momentum and dedicated, which is at the heart of our truckload strategy. And then just a follow up, the friction you mentioned in the startup costs, it sounds like that'll be behind you, I guess you just said in 26, but is there a sense for timing? I know you've mentioned also you'll start to see gains in revenue per truck per week. Can you maybe talk about the timing of the friction easing and the ramping? Thanks. When you're growing dedicated, Jordan, you're always having some element of startup and friction that's associated with that. And we also have identified how we can best serve our margin restoration actions, which will also include working on some of our lower operating performing margin accounts. And our primary objective there is to work with the customer to come up with a collaborative way for both organizations to win. But when that's not possible either because their business changed their Strategy changed or it's just not possible, then we're going to look to upgrade and use that capital to redeploy to more favorable margin profile business, which is what's in our pipeline. So we'll always have some level of that. We just had an extraordinary amount in the third quarter just because of the magnitude of the new business startup and the timing sometimes of when you exactly expect the timing of the startup and exactly expect the ramp down is not always perfectly predictable. But we had an inordinate amount of that in the third quarter.

Jordan Ellinger - Equity Analyst at Goldman Sachs - (00:23:55)

Thank you.

OPERATOR - (00:23:57)

Your next question comes from a line of Tom Wadowitz from UBS. Your line is open.

Tom Wadowitz - Equity Analyst at UBS - (00:24:05)

Yeah, good morning. So let's see, I guess one quick. Follow up on the dedicated and then I wanted to ask you about kind of broader truckload market view. Mark, I think you mentioned be qualified on Jordan's question. Tom. No, just kidding.

Mark Roark - President and Chief Executive Officer - (00:24:23)

Go ahead.

Tom Wadowitz - Equity Analyst at UBS - (00:24:25)

So on the specialized, so I guess I think if you know, like trailers being specialized, maybe some of you got what you got from Cowan, that that is, you know, it's like sticky. How do you think? And you highlighted that, right? You like the sticky dedicated business. How much of the current book of dedicated is, you know, specialized trailing equipment or whatever other kind of, you know, dimensions you would use to say, oh, it's really specialized. Can you give us a sense of.

Mark Roark - President and Chief Executive Officer - (00:24:52)

Just how much of that is in the kind of, you know, stickier category? And I don't know if that evolves over time or just how you think about that. Yeah, well, certainly that's our focus around our pipeline and the things that we're most targeted towards. Tom. But we do and we always think that standard equipment will have a place in our portfolio. Some of it is not only our standard equipment, but it might be what the customer brings to bear. So there's a spectrum of dedicated solutions across the board and they're all important. But what we're really focused on is we want over time more percentage of our book, which we believe is again more sticky. And the renewal rates are much, much higher because you're getting into more specialty services beyond just delivering product from point A to point B. So our new business and our portfolio is skewed to specialty equipment. But we still have, and we will always have standard equipment solutions as well, particularly around the retail support, DC to store and some of those operations that are critical to our customer base.

Jim Filter - Executive Vice President and Group President of Transportation and Logistics - (00:25:55)

And Tom, this is Jim, just one add on to that. As we've made acquisitions, specifically we've been focusing in on our growth. There and acquiring companies that have more of a specialty lens, something that they are able to help us differentiate out there in the market. And it's just become a larger percentage of our total pipeline.

Tom Wadowitz - Equity Analyst at UBS - (00:26:17)

If you say skewed, I guess it implies maybe over half would be specialty, something like that. I don't know, I don't want to.

Mark Roark - President and Chief Executive Officer - (00:26:22)

Parse words too much. Yeah, yeah. Well over half. Well over half. Yep. Well over half. Okay.

Tom Wadowitz - Equity Analyst at UBS - (00:26:30)

Yeah, thanks for that. And just on broader truckload market, I mean I think this topic's been coming up, you know Carl, for the different providers and you obviously have a great look at broad look on the market. The regulatory actions seem like they could have a really large impact. Right. And so you've got that. But then you got kind of October freight seems poor, worse than normal seasonality. You said August, September, sub seasonal. So it's like you got two factors to supply demand and which is the more visible or more dominant driver when you look into 26. So I don't know how you kind. Of set those up. You know, if you get 200,000 trucks out of the market and freight demand is still poor, is the market a lot tighter? How do you think about those pieces. And kind of how much we should. Focus on one or the other when we look at the, you know, truckload market in 26. Thank you.

Mark Roark - President and Chief Executive Officer - (00:27:19)

Sure. Tom. We'll have full discussion about 2026 just yet. But I guess I would look at where we're going to finish this year and let's maybe look back a year ago to this time. We do believe that the supply picture is much more constructive going into 2026. For all the notes that you just related there, we can see obvious impacts in our power only business. We can see obvious impacts to non domiciled CDL and some of our brokerage carriers. We can see it really across the spectrum and it's real and it's having an impact now and we only think that that's going to continue to ramp. So the constructive nature of the supply side going into next year is in our view much different than what came into 2025, which also wasn't a necessarily overly robust demand environment. So I think we have different factors at play. You throw in the lack of new Class 8 builds, the pipeline there, the tariff impacts are yet to come and be felt. I just think all of that puts more pressure on the supply side. So a dynamic that we really haven't had for a number of of years, which I think is going to be quite constructive. Of course the wildcard is a demand side harder to predict that. But I think I'm confident that Schneider is going to be able to better handle those dynamics across our portfolio with our optionality of offering and services. And I think that's going to be a more positive setup for the Schneiders of the world heading into 2026.

Jim Filter - Executive Vice President and Group President of Transportation and Logistics - (00:28:52)

And Mark, just this, Jim, just want to add on to that. This is something our customers are already talking to us about this because they are concerned about the mix of carriers that they're, they're running with running, you know, coming into this changing marketplace and you know, seeking to get ahead of this.

Tom Wadowitz - Equity Analyst at UBS - (00:29:10)

Great, thank you.

OPERATOR - (00:29:14)

Your next question comes from the line of Ravi Shanker from Morgan Stanley. Your line is open.

Ravi Shanker - Equity Analyst at Morgan Stanley - (00:29:20)

Great.

Mark Roark - President and Chief Executive Officer - (00:29:20)

Thanks for the comments on the supply side here. How is that influencing your bid rate conversations for 2026, the early conversations you're having kind of, if customers are concerned, kind of can you try to be opportunistic here and maybe go for mid to high single digits? Thanks, Ravi. Thanks for the question. If you look at 2025, even without some of those factors, we were able to achieve mid to low single digit increases in our network business, truck business in 2025. And so we do believe we need to have and the industry needs to have more rate recovery in 2026. At this juncture with customers, we're predominantly just in the kind of the strategy phase of the allocation season for 2026. So we're in a series of discussions just where their priorities are, what their strategies are and how we might best align with those. And so I don't have a lot to report yet on what 2026 renewals look like, but we do believe that the environment, as I mentioned, because of the supply side is more constructive as we go in to next year.

Ravi Shanker - Equity Analyst at Morgan Stanley - (00:30:31)

Understood. And maybe a follow up there. Obviously very weird environment, but demand continue to remain reasonably soft, but then supply may be tightening up a little bit. How does that influence power?

Mark Roark - President and Chief Executive Officer - (00:30:45)

Only in particular on the logistics side going into next year and kind of do you think supply alone will be able to drive kind of rates and market tightening next year or do you really need to see the demand side also pick up? Thank you. Yeah, I think we have to ultimately see both. But again being more constructive on the supply side I think will help. I think there will likely be a more flight to quality from a customer standpoint. We are seeing impacts in certain elements of our power only carrier base who may have more reliance on some of those capacity types that are most under fire here based upon the increased regulation or regulatory enforcement. But so far we've been able to adapt and adjust with others and continue to see that being a very viable part of our truckload network offering to our customer base. Ravi so, but there are going to be challenges there and that's why we're confident that this is a kind of a real effort. And you know, what we're going to lean into is how we just help ourselves become more productive with our assets, how we use emerging tools and AI and others to help us be more effective in our cost to serve in our people costs and our investments there. So continue to adapt to the environment. But overall, I do think the supply side issue is real. We've been talking about it on this call for several quarters that I thought it was underappreciated fact and now I think it's becoming more visible to more players throughout the industry, particularly our customers. Very helpful, thank you.

OPERATOR - (00:32:30)

Your next question comes from the line of Jonathan Chappelle from Evercore isi. Your line is open.

Jonathan Chappelle - Equity Analyst at Evercore ISI - (00:32:37)

Thank you. Good morning. Hey, Jim. As it relates to intermodal, obviously really strong load growth or order growth, but the sequential move in revenue per load is down, which kind of bucked the Trend of most IMCs and the rails themselves. So just wondering if that's a mix and kind of a shorter haul issue. And you mentioned, or I think Darrell mentioned, kind of flat RPU through the rest of the year. Are you trying to manage for volume, throughput and potentially efficiency at this point of the cycle and kind of worry about the price element of it later?

Jim Filter - Executive Vice President and Group President of Transportation and Logistics - (00:33:10)

Yeah, John, you know, first of all, we'd say that, you know, if you adjust for mix, our rate didn't change. We were no different than anyone else. We were flat as we went through renewals this year. And you know, the growth that we're seeing, it's, it's really a function of the strategic actions we've taken over these last couple years that's differentiating our business. We've been able to expand in new verticals like automotive, improve service levels, and that's what really drove the larger allocations as we went through the first half of the year that we have been talking about. And then this quarter, what you're really seeing is the realization of those awards that we had in the first half of the year. And you know, we think that really positions us well when the market starts to recover that we'll grow that business even further. But yeah, it's not just a reflection of price.

Mark Roark - President and Chief Executive Officer - (00:34:03)

Yeah. Year over year, Jonathan, the impact on Mix is less transcon and more east and more Mexico. Whereas where the growth overcame some of the contraction in the west, just because of some of the. We expect some of the pull forward was most prominent there. But also trying to stay disciplined, not to overextend our repositioning costs beyond how we could adequately have yields in the business. So we tried to be smart about how we allocated our resources and that meant more Mexico and more east. Okay. Yeah, that makes complete sense and 100% related. A lot of talk this quarter about moving chess pieces as it relates to share shift in Intermodal, I guess, particularly in the Southeast. You mentioned, Jim, some of these are wins that you'd had before that are starting to come through now. But are you also a beneficiary of some of the disruption around the potential merger that seems to be happening around among the rail partners?

Jim Filter - Executive Vice President and Group President of Transportation and Logistics - (00:35:02)

Yeah, I think it's still a little bit soon to say that there's a bunch of disruption related to the merger. I think really what you're saying is what I talked about earlier, that we've had this differentiation and we've been able to leverage that differentiation to grow our business.

Jonathan Chappelle - Equity Analyst at Evercore ISI - (00:35:21)

Okay, thanks, Jim. Thanks, Mark. Thanks, Sean. Thank you.

OPERATOR - (00:35:26)

Your next question comes from the line of David Hicks from Raymond James. Your line is open.

David Hicks - Equity Analyst at Raymond James - (00:35:32)

Great. Thanks for taking the questions. I wanted to follow up on Intermodal. Yeah. It's obviously been three months since the announced UNPN NS acquisition time. You're taking a wait and see approach kind of where we sit today. Are you positioning the network any differently kind of ahead of any potential combination, kind of. What are your customers been saying kind of on the subject? Yeah.

Jim Filter - Executive Vice President and Group President of Transportation and Logistics - (00:35:55)

David, this is. Jim, really, it's still very early in this process and you know, we're very engaged with the rails as the process is evolving, there's still a lot more details that need to reveal themselves and when they do, we'll be able to start saying more about that. But you know, we're really confident our Intermodal team, our customers have a lot of confidence in our team. We've navigated two of these changes over the last couple of years and obviously we came out of it stronger than we went into those and that's what really enabled our market share go grow.

David Hicks - Equity Analyst at Raymond James - (00:36:30)

Great. Thanks, Jim. And then box terms obviously inflected up pretty sharply here in 3Q. Well, and you're also taking containers out of the Intermodal network kind of. Where do you see that those box turns ultimately going as we kind of launch into 26 and obviously you have a lot of excess growth potential. So do you see any need for investment in your container fleet from here?

Jim Filter - Executive Vice President and Group President of Transportation and Logistics - (00:36:59)

Yeah, we really don't see a need to make additional investments into our trailing equipment. It was a nice improvement here in the quarter based on the volume growth. The reduction in trailing equipment is really just a function of normal, you know, salvages coming out of our business. But there's nothing planful of reducing that any any further. But in terms of where box count or container turns go in, it's really just a function of our ability to continue to onboard more customers, get greater allocations going forward, growing our areas of differentiation and then with a more supportive truckload market, believe that will enable growth in terms of intermodal. But ultimately, you know, we're seeing better and better performance from the rails. That's also our, our company Dray is very effective and that tells me we can get back to container turns that we've had, you know, historically or even better. And that's where, you know, Darrell had mentioned 25% volume growth with this current trailing equipment.

David Hicks - Equity Analyst at Raymond James - (00:38:08)

Yep. Appreciate it. Thanks.

OPERATOR - (00:38:12)

Your next question comes from a line of Brian Ossenbeck from J.P. morgan. Your line is open.

Brian Ossenbeck - Equity Analyst at J.P. Morgan - (00:38:18)

Hey, good morning. Thanks for taking the question. Two ones more, Mark. The two ones on, I guess, the strategy and how you're balancing the assets during these times. So mark first for you, in terms of the spot exposure you mentioned, there's still a little bit more of that than I guess you'd normally like or plan to have in the network business. So maybe you can put a bit more context around where that is, how it's trended through the year. And if you think you're kind of at the high point of that spot exposure or if there's other things you might need to do to address that heading into next year. On the network side, we historically and typically because of our contract focus, have been in the 5 to 6% range just on repositioning normal market imbalances, etc. This has been a bit more purposeful as we've gone through allocation and looking at where we can get operating leverage as we do not sign up for business that we don't think long term is in our best interest. And so we really have two options at that point leading into an improving spot market because of some of the other items that we made we've talked about here earlier or we redeploy it on future better contract business. And so as we sit here today, Brian, we're double what we typically are because we want to make sure that we leave ourselves optionality and leverage into the business to redeploy in the where the returns will be more favorable and so double what we would historically be is where we're presently at and we'll likely carry that in to 2026. Okay, thank you then Jim, I guess a similar question on intermodal network balance and he made some comments about the focus and where the growth was and I guess where it wasn't. Again, was that purposeful from a rate and return perspective or was that more of a network balance when you think about east and west and balancing out some of the lanes across the network?

Jim Filter - Executive Vice President and Group President of Transportation and Logistics - (00:40:19)

Yeah, thanks Brian. It was intentional in terms of growing into our areas of strength, growing into Mexico where we have a lot of differentiation both in terms of our velocity and really superior claims ratio there. So we want to be able to grow there. In terms of what's going on with the west, we had an opportunity to take more backhaul freight and earn more backhaul freight. So that also had an impact in terms of our overall pricing as it shows here in our results. And then in the east we were able to work with some customers that we knew we'd be able to provide a superior service and that enabled us to grow as well.

Mark Roark - President and Chief Executive Officer - (00:40:59)

Yeah, I would highlight on the intermodal margin business with not only growing the volume 10% but having some of the headwinds that associated with the claims expense and what we would anticipate more short term setup issues on maintenance of the trailing equipment. We still improve margins and so I think we're continue to lean into having an effective balanced network. Playing to our differentiators again should allow us then to accelerate our margin performance in an improving truck market as we're already starting to see some over the road conversion. But we think there's much more ahead of us relative to what we can adequately and effectively serve for our customers that is present in moving over the road. Okay, thanks for the time. Appreciate it.

OPERATOR - (00:41:51)

Your next question comes from a line of Basco majors from Susquehanna. Your line is open.

Bascom Majors - (00:41:58)

Mark. And early on in your prepared remarks you made a somewhat provocative comment about. The supply side rationalization. Not just the English language and immigration enforcement, but also what's happening with new. Truck orders could be more impactful to. The market than the eld saga of 2017. 18. Can you high level walk us through. Looking back what Schneider's view on how. Much capacity exited the market because of. The ELD mandate at the time and maybe if you're willing to, you Know. Bottoms up from these two or three. Factors affecting the market into next year. Just help us size those up in.

Mark Roark - President and Chief Executive Officer - (00:42:42)

A really sort of succinct way. Thank you. Sure, Rascomb. I'll try to do my best at a very, very high level. We would assess back in 17 that the ELD or the electronic logging device had somewhere in the 3 to 4% impact on capacity coming out of the industry. And as we look at the confluence of factors that we're talking about presently that we outlined that we think it's north of that. So how far north? You know, it's hard for us to predict, but when we can see it already evident in certain parts of our business and our trade partners, I can, you know, it's our belief that it is real and it's manifesting and it should only accelerate from here.

OPERATOR - (00:43:42)

Your next question comes from a line of Reed Shea from Stevens. Your line is open.

Joe Ederlin - (00:43:50)

Hey guys, this is Joe Ederlin. I'm for Reed. Thanks for taking the question. It sounds like you have a more positive outlook on the supply side for 2026, given the regulatory changes. Could you maybe just give some additional thoughts on the demand environment for the network business, dedicated or specialized? Are you seeing any green shoots, better demand from those customers as more pivot to asset based offerings and your value proposition and then looking to next year? Why? What do you view as the biggest potential demand catalysts or are you more so just expecting more stable demand with capacity rationalization to drive an acceleration from here?

Mark Roark - President and Chief Executive Officer - (00:44:29)

Sure. We would obviously characterize the demand picture as being fairly steady, if unspectacular. And so I think the consumer has held in there very well. All the metrics that you see associated with the consumer has been fairly steady. What has been, what has not been much of a catalyst to date for us has been the industrial side of the economy. As you look at the ISM and other indexes, we've been in the contraction phase there for a very, very long time. Can the big beautiful bill, some of the rate cut activity, the project work that's going on in the building side of the industrial economy, can that be something that finally turns into a Demand catalyst in 2026? We think it's again a more constructive environment for that. But then the question is how firm is the consumer and how does that portend for next year? We are obviously in conversations with our customers. They're in various levels of optimism and concern based upon which segment of the economy that they serve. So it's a little bit of a mixed bag and so we don't have a great prediction at this juncture about the demand picture yet. But, but it's been incredibly steady. And even though it's sub seasonal, it's increased in the third quarter a little bit. We see, you know, some improved demand as compared to September here in October, but we would still consider it less than what would typically be a building period for a peak holiday season. So.

Jim Filter - Executive Vice President and Group President of Transportation and Logistics - (00:46:06)

That'S the, you know, as we look in the short term next year. Jim, I don't know, maybe some other comments you have as our recent conversations with customers. But yeah, this is Jim. And you know, the first thing we think about is having a really broad portfolio of customers that we're operating with within each one of these segments. And then we're specifically targeting who are those customers in those segments that are most likely to grow. And so that's where we've been allocating our assets just to prepare us for any market change that's ahead of us.

Joe Ederlin - (00:46:38)

Got it. Thank you guys.

OPERATOR - (00:46:42)

Your next question comes from the line of Ken Hexter from Bank of America. Your line is open.

Ken Hexter - Equity Analyst at Bank of America - (00:46:48)

Hey, great. Good morning. Good afternoon, Mark, Darrell, Jim, Christine, maybe following up on that talk about the speed of change. Right. So what's happened? You've, you've, you've cut estimates a couple times this year, but it sounded like you were building into July or the, and then into the second half and then August, September, things really changed. And it sounds like you're still talking sub seasonal into October. Maybe just to understand the backdrop here with the fading demand being sub seasonal.

Darrell Campbell - Executive Vice President and Chief Financial Officer - (00:47:17)

Yep. This is Darrell. I'll start here. So if you recall when we gave our guidance in July, we, you know, we talked about variable, you know, varying levels of seasonality that could play out. So on the low end of the range, which was $0.70, $0.75 at the time, we described that as a scenario where we saw subdued demand. That's largely how the third quarter played out. So if you adjust for, you know, the claims related cost, that was 7, a 7 cent headwind that, that I talked about in my prepared remarks. Yep. We're pretty much aligned with the low end of our previous range. So, you know, it's really a function of what did seasonality look like, which was, which was more subdued, which was one of our scenarios in terms of a downside.

Mark Roark - President and Chief Executive Officer - (00:48:03)

So it's a, you're not again, if you add the 7 cents back and you get closer to the bottom end, you're not saying things are deteriorating faster in October. It's just a little Subsea. I just want to understand the magnitude of your commentary. Yeah, absolutely, absolutely. It's improving from September, but still at a sub seasonal level to a typical October is what we would frame it as. Ken. So not, not suggesting it's getting getting worse in October and Mark maybe or Daryl, just digging into that. Right. So like normally at this point you're seeing some project business, is that what you're talking about? Kind of sub seasonal. Still not. I think you mentioned that in the opening comments. Right. So still delayed on those conversations or. I just want to understand how, how peak season kind of pans out from here. You know, the pre shipping versus the just. It's not happening. Yeah, peak season, a component of that generally is project work, specialty seasonal business. It's not the entire definition of seasonality because there's a number of customers that ship additional volumes that aren't necessarily project based. But we've had a series of discussions with customers, we have a series of structures in place with customers to address seasonal project work. The question is how prominent will they actually have to have the demand to utilize those structures? And so we're prepared, we're ready to pivot. We have the capacity, particularly in our network business, ready to go to those type of yield opportunities. So the question just becomes how prevalent are they through the season and which customers find themselves in a position to deploy them and then just totally big picture. If I can step back for a sec. Autonomous is not something we've heard about much yet. We've got now, you know, two companies in the public market. What's your relationship and your testing phase. Where are you and where do you think it's developing at this point? All right, you're breaking our rules here. We did really well on the three question rule today. Ken, take it offline. But so real quickly on the autonomous vehicle. Yeah, we've been aligned really since the get go with and looking at assessing who we think the winners are going to be ultimately in this space. And our belief continues to be those who are best aligned with OEMs who are engineering from the ground up, have the best mousetrap. And presently we are testing actively with both Aurora and TORC are our two primary and those are the folks that we've aligned to and continue to advance the process with. I'll leave it at that. Thanks. Thanks Mark. Thanks. Thank you.

OPERATOR - (00:50:53)

Your next question comes from a line of Chris Weatherby from Wells Fargo. Your line is open.

Chris Weatherby - Equity Analyst at Wells Fargo - (00:50:59)

Hey, thanks. Good morning guys. You know, I guess I just wanted to ask a question about sort of the current environment. So have you guys seen the spot market in October get stronger sequentially? I think there's been a little bit of debate around that. We see the little load boards and what they tell us, but when you talk to companies, you get sort of different answers about what they're seeing. So maybe some perspective on what you're seeing actually in the spot market in the month of October.

Jim Filter - Executive Vice President and Group President of Transportation and Logistics - (00:51:24)

Yeah, thanks, Chris. This. Jim, you know, you're absolutely right. You're seeing a lot of variety here across different markets. And part of that relates back to what we were just talking about. There's parts of the country where there are carriers avoiding those states where there is additional enforcement. We've seen some bankruptcies that creates pockets of demand that are popping up. And but at the same time, we mentioned that while there's some seasonality, it's a little bit normal than what we normally feel or what we normally experience here. So you put those in. It's a little bit choppy out there right now. And so we're focused on deploying our assets to where we get the best returns.

Chris Weatherby - Equity Analyst at Wells Fargo - (00:52:08)

Okay, so sounds like maybe geographically isolated, there are some pockets, but not widespread in terms of improvement sequentially. Okay, that's super helpful. Appreciate. Okay, super helpful. And then just really quick, on the dedicated side, revenue per truck per week, I think you talked about a little disruption. Just wanted to get a sense of the drivers of the sequential decline in that number. And then I think Mark, you noted that that probably gets better as we move. Is that a 4 4th quarter comment? Just want to understand some of the moving parts in revenue per truck per week and dedicated. Yeah, Chris, part of what, when you were in the state of flux of ramp down or ramp up, you had just underutilized assets. So the truck count is in the denominator, but the revenue isn't as clean because you're in various stages of ramp up and ramp down. So it's an inefficient period. And so that really gets manifested in the revenue per truck per week. It's not so much a pricing element as there's some elements of price, obviously in revenue per week. But when we're talking about the friction, it's just the underutilized asset because of that gaseous state, as I call it.

Jim Filter - Executive Vice President and Group President of Transportation and Logistics - (00:53:21)

And we had clear visibility this, Jim. Clear visibility to these new businesses that were ramping up. Wanna make sure that we have that equipment available ready to go and just not perfect timing between when we're taking equipment off of one operation and then moving it over to Another, and so expect that as we go through Q4 that we'll have that business starting up and that's ultimately what's going to enable us to drive margin improvement.

Chris Weatherby - Equity Analyst at Wells Fargo - (00:53:50)

Okay, very helpful. Thanks so much. Thank you.

OPERATOR - (00:53:55)

Your next question comes from the line of Bruce Chan from Stifel. Your line is open.

Bruce Chan - Equity Analyst at Stifel - (00:54:00)

Hey, good morning everybody. Maybe want to touch on your productivity improvements and especially some of the early efforts in AI that you talked about. Certainly a lot of discussion about that this earnings season. You mentioned the $40 million cost opportunity. How much of that is assumed for this year? How much do you have budgeted for next year? And maybe just some general thoughts around how you're thinking about the incremental opportunity from there, especially in an upcycle. I imagine it's a little bit more pronounced in logistics. Maybe you've got some routing and utilization opportunities in dedicated. So any color there would be great.

Darrell Campbell - Executive Vice President and Chief Financial Officer - (00:54:36)

Sure. This is Darrell, so I'll start. So the $40 million is an annual target, but it includes synergies, including Cowan. So in our opening remarks we talked about just the sequential improvement in margins for Cowan. So that's just the impact of the synergies coming through in the numbers. But a big part of that $40 million is productivity based, as you mentioned, not just people productivity but also asset productivity. So from a people standpoint, Mark mentioned some headcount reductions that were targeted in the non driver side. From an asset perspective. We're tightening asset ratios as it relates to tractor to driver ratios, continue to tractor trailer to tractor ratios as well as. And that's coming through also in our CAPEX spend, we're reducing on Bill miles, we're looking at third party spend, we're looking at facilities. So we're on track for that 40 million. We said previously that those costs were expected to ramp throughout the year and we're seeing that more back half weighted savings. Savings. Right. The savings would ramp, but we're not done. So everything that we're doing here is structural in nature to lower cost to serve. We've seen that coming through. We talked about intermodal improving margin. So we're always looking for incremental ways to add to those savings targets. So a lot of that is continuing on the asset productivity front, continuing on the people productivity front and just looking at things that are sustainable in nature going forward.

Mark Roark - President and Chief Executive Officer - (00:56:14)

Certainly the AI, the agentic AI in particular, we think holds great promise. As we mentioned, our logistics business and brokerage generally becomes a great test bed for us to deploy new technologies. Very, very encouraged by it. We believe it's going to be a key driver our ability to grow our business at a much different rate than we have to grow our people to achieve that growth. And we are presently deploying across multiple work streams in our business, both on support function, but our line of services that support either drivers that support customers or supports our third party carriers. And ultimately just taking the work that's less value added that we can get in a much more efficient way as opposed to deploying people resources against. It helped us with certainly some of the numbers of the headcount performance that we've had this year, but we think it has great promise and we're continuing to lean in and it's a combination of what we're doing in house and what we're collaborating with others on. Okay, got it.

Bruce Chan - Equity Analyst at Stifel - (00:57:18)

That's very clear.

Mark Roark - President and Chief Executive Officer - (00:57:18)

So just to follow up, any thoughts on how to quantify the tech based productivity benefit beyond the $40 million synergy target? Yeah, it's. Well, we said double digit productivity on the people side in some quarters it's several fold that on very effective AI can, we've experienced 50 to 60% improvement. So there's a lot of leverage and operating leverage in our cost structure there and we increasingly will be looking to leverage that further. Okay, great, thank you.

OPERATOR - (00:58:00)

Your next question comes from the line of Jason Suttle from TD Cowan. Your line is open.

Jason Suttle - Equity Analyst at TD Cowen - (00:58:05)

Hey, thanks Mark, Darrell, Jim, Christine, good morning here. Still wanted to go back, Mark, to your comments as you sort of compared this future capacity issue to back to ELDs. Because you know, I think that's probably the only really comparable event. But it was a much different event. Right, because you know, people were able to find workarounds with the ELD that you know, are still in existence to this day. Is, is the capacity that we're expecting to come out, could that actually last maybe a little bit longer and give us more of an upcycle for the truckload sector? And also are there anything that you're starting to see in conversations with insurance companies and or clients around non domicile drivers that could maybe accelerate this a little bit beyond the norm?

Mark Roark - President and Chief Executive Officer - (00:58:56)

Hi Jason. That's Margaret. It's very insightful and we're soon to be on our insurance circuit here, so might have more to discuss about that next time we get together. But it's a very logical extension of the issue relative to some of the very pronounced headline activity around this issue as it relates from a safety perspective. But I think you're right, this is not just adapting and changing. This is actually taking capacity out of the industry, not only what's in it, but it also stems the flow of backfill because it just changes the dynamic of the entire pool that gets associated with being a professional driver. And so credentials are important. We do think safety is impacted by the quality of training, the quality of the infrastructure at a carrier. And so we think this a the right thing to do. But also certainly we think has a staying power relative to the, to the overall capacity pool that's available for professional truck driving.

Jim Filter - Executive Vice President and Group President of Transportation and Logistics - (00:59:59)

You know, maybe one more add here Jason, was go back to the ELD implementation. It was implemented and carriers were onboarding these, you know, matter of months or sometimes just weeks ahead of the requirement and then everything was stabilized after that. This is something that's going to play out over the next two years. So just because we get to a level of equilibrium, capacity will continue to come out. There isn't a spot where it starts to regrow. And that's why it's really important that we're having our discussions with our customers. Customers are being strategic not just about what the market is right now, but through the wife's lifetime of the allocation event.

Mark Roark - President and Chief Executive Officer - (01:00:44)

That makes sense. And so for my follow up question, I promise I'll keep it at 2. Just wanted to talk about sort of the near term weakness that most companies are sort of calling out here in the marketplace because it doesn't feel like the industrial market got that much worse. Is some of this related to the government shutdown? And then in that light when you look at your food and beverage exposure, is, is there a potential exposure for the snap benefits running out to you guys? Yeah, we're not probably versed enough to understand the entire government impact here or seeing it. We do, we do. And we have seen a trade down from our customer base relative to a big box retail, perhaps down to the discount retail is really a very healthy part of the segment base now of our distribution of retail customers. And so I think that possibly could be related Jason, but again I would just caution it. I think the demand level has been relatively stable. It just hasn't followed typical seasonal patterns. And so I think maybe that's at least that's our view. It's the kind of the lift that you would normally see in September, end of quarter that the lift that you would normally, normally see perhaps just start peak season here in October doesn't mean that it's eroding. It just means it's not growing at the kind of historic levels which we've been in the last couple of years, you know, quite frankly. So maybe before more supply driven, this one perhaps may be more demand driven, but I wouldn't interpret everything to mean that it's going, that it's eroding. Fair enough. Appreciate the time as always, everyone.

Jason Suttle - Equity Analyst at TD Cowen - (01:02:33)

Thanks.

OPERATOR - (01:02:35)

And we've reached the end of our question and answer session, and this does conclude today's conference call. We thank you for your participation, and you may now disconnect.