Pat Costello - Director, IR Chris Lofgren - Chief Executive Officer Mark Rourke - Chief Operating Officer Lori Lutey - Chief Financial Officer.

Tom Wadewitz - UBS Chris Weatherby - Citi Ben Hartford - Baird Ken Hoexter - Merrill Lynch Scott Group - Wolfe Research Ravi Shankar - Morgan Stanley Allison Landry - Credit Suisse Brian Ossenbeck - J.P. Morgan Matt Young - MorningStar.

Greetings. And welcome to Schneider National 2017 Second Quarter Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded.

I would now like to turn the conference over to your host, Pat Costello, Director of IR. Please go ahead..

Thank you, Operator. Good morning, everyone, and thank you for joining our second quarter earnings call. By now you should have a copy of the earnings release for the company’s second quarter 2017 results. If you do not have one, it is available on our website.

Joining me on the call today are Chris Lofgren, our Chief Executive Officer; Mark Rourke, our Chief Operating Officer; and Lori Lutey, our Chief Financial Officer. Before I begin, I would like to remind you that some of the comments made on today’s call, including our financial guidance are forward-looking statements.

These statements are subject to risks and uncertainties, including those described in the company’s filings with the SEC. Our actual results may differ materially from those described during the call.

In addition, any and all forward-looking statements are made as of today and the company does not undertake to update any forward-looking statements based upon new circumstances or revised expectations.

Also, non-GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the tables attached to our press release. I would now like to turn the call over to our CEO, Chris Lofgren.

Chris?.

Thank you, Pat and good morning. We are pleased with our second quarter results as we saw the capacity demand relationships start-up somewhat sluggish at the beginning of the quarter but continued to improve through the end of June.

Additionally, we saw pricing improve which was more from our ability to exercise choice in tighter markets with our Quest platform then from significant changes in contract rigs. However, this pricing improvement was offset by driver pay and recruiting expenses. In our business we compete for drivers in the same way we do freight.

The market required us to take on increases in driver related costs faster than we were able to see gains in pricing. This is something we do only in rare circumstances.

We saw growth in our intermodal business in a very competitive market, although this growth came at reduce margins, we continue to effectively implement our owned versus leased chassis program and we're pleased with both the cost and productivity impacts being realized.

Our growth rate in the logistic segment was less than our historic levels, but this demonstrated the impact of our Quest technology allowing us to balance growth against acceptable operating contribution to lessen the margin and earnings degradation in this business.

June mark the one-year anniversary of our purchase of both Watkins & Shepard, and Lodeso businesses. Without any doubt we've been pleased by customer response to adding to these two businesses, creating a national footprint, first the final mile capability for hard to handle freight.

The synergies expected have been delivered in a timely manner, our efforts to reshape the middle mile network in response to the growing e-commerce business, while bringing these businesses onto our Quest pricing platform will ultimately produce a unique and profitable growth engine for the company looking forward.

Looking now to the remainder of the year, we become more bullish as it relates to pricing from the market across all of our segments. The annual DOT Road Check Event validates our estimate of a minimum of 2% to 3% truck capacity coming out of the market when full enforcement of the yielding mandate becomes reality.

The impact on the spot rates and significant number of oversold markets associated with the weaker road check and the volume surged at the end of the second quarter give us confidence looking out to the rest of the year. Additionally, we had an unusually large number of customer wins in the second quarter for our dedicated contract offerings.

We're starting to see the beginnings of increases in contract rates for our network businesses. July is historically a slow month of the year and this year will not be an exception. We will look to August is the bellwether month to establish our expectations on the market for the remainder of the year.

Finally, we are pleased with the early results of programs put in place to improve driver recruiting and retention. This will continue to be an area of intense focus for us throughout the remainder of the year. With that, I will turn it over to Mark to provide more color and commentary on our operating results..

Thank you, Chris. I will open with a few macro-environmental comments and then quickly transition into specifics around our three business offerings. First, we experienced the improve freight demand conditions throughout the second quarter, particularly in our for hire base networks in both truckload and intermodal.

Increased demand for our services and truckload was evidenced by marked increase in daily pre-book percentages turned down volume of freight orders and double-digit increases in rate per mile in the spot market as we compare back, excuse me, to Q2 of 2016.

Inflationary cost pressures persisted in the second quarter and the driver-related expense categories and our ability to execute positive price movement across most of our truckload services is not yet sufficient to overcome the driver-related expense inflation and the erosion year-over-year and used equipment disposal gains.

Now moving on to truckload specifically, our truckload revenue per truck per week metric excluding fuel surcharge improved 2.9% over Q2 of 2016. The improvement was a combination of price gain and asset productivity gains.

The for hire standards the largest segment of truckload increase revenue excluding fuel surcharge revenue 3.4% year-over-year in the quarter and we do expect tractor count to grow slightly in the second half.

The for hire specialty business experience the largest tractor growth within the truckload segment and that's largely represented by June's acquisition of the year ago by first the final mile capability serving large format freight commodities.

As Chris mentioned, our dedicated business both standard and specialty had a successful quarter of new business contract closures that will result in over 300 driving positions and work configuration that we expect to be highly desirable by the professional driver community.

Most of those contracts implement in the third quarter with a few starting early Q4. As we turn towards our intermodal segment, our Q2 intermodal volume count grew by 11% over the prior period of Q2 to 16.

The East remains the fastest growing element of our network as shippers we believe are beginning to strategically convert to intermodal from over the road, perhaps in preparation for the pending ELD mandate.

While 80% of the growth occurred in the East and the inter-West regions of our network, accelerated growth of the transcon movements is a positive sign for volumes in the second half of the year.

Our revenue per order was 6.2% lower versus prior year, but improved from our Q1 8% reduction and this reduction is nearly evenly distributed between change in network mix or length of haul and price impacts, again primarily due to the second half 2016 award allocations.

Furthermore if you consider the $1.6 million of duplicate chassis rental cost that we experience within the quarter, our margin contracted 70 basis points in comparison to Q2 of ‘16 or 6.6% margins on an adjusted basis. Finally, the logistics segment grew revenue 7.2% excluding fuel surcharge revenue compared to Q2 of ’16.

Our brokerage order per day growth did slow within the quarter to 8%, we did trade off volume growth to adapt to the rising purchase transportation costs to focus on margin performance. Brokerage gross margins compressed as contract pricing remains muted and that contributed to 100 basis point margin reduction year-over-year to 3.4%.

I will now invite Lori to cover the enterprise financial summary..

Thank you, Mark. For the second quarter of 2017 enterprise operating revenue increased 8.1% year-over-year to $1.1 billion, while adjusted enterprise revenue excluding fuel surcharge increased 6.5% to $982.6 million.

Enterprise income from operations for the second quarter of 2017 was $97 million, a decrease of 0.8% compared to the second quarter of 2016, primarily due to inflationary driver costs and lower gain on sale of equipment. We did see improve freight conditions throughout the quarter particularly in June.

The company made two adjustments to earnings during the second quarter to arrive at adjusted income from operations. First, the company eliminated the impact of the $12.9 million contingent consideration liability true-up related to the acquisition.

The adjustment which was recorded in other was caused by an update to the contingent liability which was based on three-year growth targets establish by the seller as part of the purchase agreement.

Second, the company recorded an adjustment to remove exact venture and 81.6 million e million of duplicate chassis from its income from operations as owned units replaced record units, a process we expect to be completed by the end of 2017.

Adjusted income from operations for the quarter was $67.7 million, the decreased of 15% compared to second quarter of 2016. Net income for the quarter was $46.5 million or $0.27 per diluted share as compared to $44.2 million and $0.28 a year ago. On an adjusted basis EPS for the second quarter was $0.23.

Adjusted EBITDA for the quarter was $136.3 million, a decreased 5% compared to second quarter of 2016. Adjusted EBITDA as a percent of enterprise revenue excluding fuel surcharge was 13.9% for second quarter 2017 compared to 15.6% for second quarter of 2016.

Second quarter operating ratio increased 70 basis points year-over-year to 92.7% and increase 170 basis points year-over-year on an adjusted basis to 93.1%. Adjusted operating ratio improved 200 basis points from first quarter. Now turning to our results from a segment perspective.

In our truckload segment, revenue excluding fuel surcharge was $543 million, operating income was $53.2 million. In our intermodal segment revenue was $194.3 million and operating income was $11.2 million. Finally, in our logistic segment, revenue was $191.8 million, operating income was $6.6 million.

As of June 30, 2017, Schneider had a total of $449.6 million in outstanding debt in various instruments compared to $699.4 million as of the end of December 2016. At June 30, 2017 our cash and cash equivalents totaled $259.9 million compared to $130.8 million at the end of December 2016. These changes in capital were driven by the IPO proceeds.

Our free cash flow increased $23.2 million during the first half of 2017 compared to the first half of 2016. The market conditions we experienced in the first quarter continued, however, June indications of improved market conditions begin to appear and as such we're cautiously optimistic that we will see strengthening in the second half of the year.

Based on these expectations and our efforts to increase driver capacity and newly won dedicated contracts we're increasing our full year 2017 net CapEx to be in the range of $350 million to $400 million, which includes approximately $100 million for chassis.

Additionally, we are raising the bottom end of our guidance for the full 2017 adjusted diluted earnings per share to be in the range of $0.94 to a $1.02. Operator, I'd like to now open up the call for questions..

Thank you. [Operator Instructions] Our first question today comes from Tom Wadewitz of UBS..

Hi. Yes. Good morning. I wanted to ask you long lines of how you think the progression in second half in terms of revenue per tractor per week.

And I think in for hire standard in particular, I don’t know you could comment more broadly? And also how you would anticipate some of the fleet growth you are progress in that area, I guess, recognizing that there is some constraints in terms of driver availability?.

Good morning, Tom. This is Chris. I'm going to have Mark take your question..

Good morning, Tom. Just coming on, perhaps, maybe I would start with for hire standard, we've had some success in the last really six weeks of improving our driver count there. So we are increasingly confident. We have been working on a number of initiatives to do that.

Obviously it's the market that's most exposed to the spot market and we are also pursuing a number of elements relative to contract pricing that we had some early success. So our confidence is increasing there.

It’s -- our most responsive segment, our largest segment and we are not going to close the full gap of tractor count from a year ago, but we think we can increase evenly throughout. So we are prepared for the search period in the fourth quarter..

Okay.

And how quickly does the tightening in the market affect your revenue per tractor per week, is that something you would expect in a meaningful way or just given the kind of bid season, is that something that you're just more optimistic on contract rate next year?.

Well, I think, a little bit of both, certainly we think of price and revenue per tractor improvement being in two areas.

First in increased choice relative to our platform and making better decisions on the mix of freight that we can do every day and the second pieces is the market responding some of these inflationary pressures which has to do relative to the driver community and again we believe that is playing out both in the dedicated specialty contract that renewals and even out of cycle increases.

So to us that is a both exercise to drive improve revenue per truck per week..

Okay. Great. Thank you..

Thanks, Tom..

The next question is from Chris Weatherby of Citi. Please go ahead..

Thank you. Good morning.

I want just a little bit on sort of preliminary reads on the third quarter, I know in the press release you mentioned that you have a better sense you got into sort of middle of August, but seen that we have the entire month of sort of July in the rearview, just want to get a sense of how you're seeing these trends develop relative to expected seasonality in the truckload space specifically?.

Good morning, Chris. Historically July come an off of the holidays and kind of in the mid-part of summer is just never been a great month and why we typically don't want to use as a big indicator. I think Mark has some good views into that and it's positive.

But it’s not the month we would choose to use to be the draw the trendlines for the rest of the year. But Mark maybe you can follow up..

Yeah. If I interpret the question correctly, it is certainly, July moderated a bit from June, but from a seasonality standpoint and virtually every metric similar sort what we discussed about the second quarter around pre-book percentages turned down spot rates, all of those were above typical July seasonality.

But it’s still moderated a bit, moderated throughout the month, so but still as we look at the other indices a pretty positive metric month from that perspective..

Okay. That's helpful. I appreciate that.

And then follow-up just on the logistic side of the business, trying to get a sense of maybe the timetable of some improvement there, obviously we've seen the cost of purchase transportation rise, just want to get a sense of, how normal you should think about sort of the lag between that increase in purchase transportation and the profitability of the segment..

Well, it’s going to get -- this is Chris. It's going to get driven by two things. It can change and change very, very fast. It will be availability of capacity will be a big trigger for that. But it's also sort of the demand and who has in some sense relationships out there. So it can change fast.

I think it's going to be a little bit of a demanding market given where we said, I think, we are just going to continue to operate in a very disciplined fashion and I think we will probably see some improvement, not great improvement as we get through the year. But let me just check with my colleague Mark and see if he shares my perspective on that..

Yeah. No. I think so much of this business is what’s your mix between contract and spot contract generally lags change in the market either up or down and we are not immune to that the facet. But we have a good portion of our exposure in that brokerage business in the spot market which allows us to be a bit nimbler.

I think as we held onto margin fairly effectively still, obviously, we eroded a bit year-over-year and we would expect that trend to continue..

Okay. Thanks very much. Appreciate it..

Thank you, Chris..

The next question is from Ben Hartford of Baird. Please go ahead..

Hi. Good morning, everybody. Chris you had mentioned in your opening remarks that you decided to take these driver related and other costs on board ahead of rates and I think you did acknowledge that this is a rare circumstance to do that.

Why make that decision this quarter? What is rare? What is unique about the spirit to go ahead and make that decision, make that commitment here?.

Good morning, Ben. Typically we know that we have to bring our drivers along with us and as we can get rate we understand we have to bring them along with that. What was different this quarter is that it was highly, highly competitive out there.

We couldn't just sit back and watch our competitors put price increases or I mean pay increases into play and we had to get more effective in terms of advertising and sign-on bonuses, and all kinds of other things to make sure we had the capacity we needed, because if you don't have the truck filled, one thing you know for sure their revenue per truck per day is zero.

And so we just knew with I think I believe this year that things would tighten and we wanted to make sure we were in a position to have the trucks to put into the market and to ideally benefit in some upside here.

So, Mark, I don't know if you want to add to that or?.

No. Good..

Okay..

Yeah. Obviously a is also pressures in the labor market that extend beyond trucking options and where the economy is, so it's a broader pressure point than just the competitive set..

Sure. Understood.

And turning to the second half outlook and some of the cautious optimism that you do have CSX has run into some service issues that have been noted here in recent weeks and months, you have been experiencing healthy load growth in the East, but what extent does that -- does some of the service issues and experiences of late temper any sort of second half outlook, is it relates to intermodals growth in the back half of the year? Thanks..

Ben, Chris, I'll just start by saying we have a terrific relationship with the CSX Railroad. We believe long-term the precision railroading approach is going to deliver great service on that product, so I will say from a long-term standpoint we are supportive and committed, and we appreciate that relationship.

But I think Mark has some views into this and I think that's probably that the detail you're looking for here, so Mark?.

Well, I think, you captured the key component of that, while the actions are predominantly targeted towards the car load business, there is secondary effects and we've experienced some growing pains of CSX transforms their network.

But we have experienced working with precision railroading in our past and highly confident when that is fully implemented. CSX will have a network that's faster, more reliable from a transit time standpoint, which is all very conducive to our goal to be position, particularly in the East for over the road conversion. So we are working closely.

We have to make sure that our interests and our customer interests are protected. But in the end we think overall this will be very good for the intermodal business and our ability to grow share..

Thank you..

The next question is from Ken Hoexter of Merrill Lynch. Please go ahead..

Great. Chris, you give a bit of caution on July in one of the earlier answers and I guess a bit surprising given that the bid wins you've noted, you anticipate a rebound in August.

But just wondering what leads that confidence if you're seeing a continued deceleration in that pace through July?.

Sure. Good morning, Ken. July is just notoriously you sort of see a little bit of the pressure coming off of the accelerator.

So this is a seasonal issue that shows up at least for us every year and we -- while we look at it and understand that we don't simply start using that as a major point to draw trend line, a lot of the business that we have won in the second quarter starts, being implemented later in the third quarter. So that's the other part of it.

And I think as Mark mentioned earlier, if we look at the metrics, we see generally stronger than typical like in ’16, so it's not that it was worse than 2016, but it's just not a strong month from which you want to be deriving all of your views looking out into the future.

I don't know Ken did that help your answer or not?.

I guess if I -- just to follow on to understand maybe a little bit further, but you're talking about a tough driver market, so you're having -- you are raising rates there, you are increasing CapEx, so you are accelerating the build.

I'm just a bit confused by the message that you want to go faster, maybe it's because you won the contract already, was it because of price, was it just a better environment.

I am just trying to understand why the conflicting signals of the deceleration, but yeah, we are going to go and spend more, we are going to even despite raising -- rising driver pay?.

Yeah. Sure. The spending is going to happen around business that we have won, there's 300 drivers that are coming on. We are not going to put stuff and sit it out there before, we can get it rolling. So that was a full year number and most of that will start kicking in in the late August timeframe for us.

Mark, I don't know if you want to add to those comments or?.

Yeah.

Maybe, Ken, I can clarify what were confusing you on, I am sorry?.

No.

I think that -- I guess that's it, it's coming on -- the competence of the contracts coming on in late August, so that's where the confidence comes in of increasing spend, I guess, that's the message, right?.

Yeah. Absolutely, we -- and these are, when I mentioned the 300 driving plus positions, those are closed contracts that are closed in the second quarter and predominantly implemented in the third. It's a combination of private fleet replacement. It's very broad relative to retail manufacturing, food and beverage, home improvement.

So we feel very good about those prospects.

And the other part I feel good about is the work configuration is generally very attractive to the driver community, so that allows for better retention, that allows for better attraction and all the things that, I think, we need to do to set up to be a very attractive from a work balance standpoint for our driver community..

Can I just get a quick clarification from Lori on the Watkins contingent adjustment, is that because you anticipate a lower growth rate, so you're paying out less or that maybe just explain that that adjustment there?.

So, we structured the purchase agreement based on the fair market value using the last 12 months of EBITDA, sellers believe that there was significant growth potential in the next three years of for EBITDA, we want it an opportunity to have them participate if they delivered on those numbers.

So as a result we booked an initial estimate as part of the purchase accounting and in fact they are not quite hitting those incentive levels so we had to make that adjustment..

Okay. Appreciate the time in fact. Thank you..

The next question is from Scott Group of Wolfe Research. Please go ahead..

Hey. Thanks. Good morning, guys..

Good morning..

So, first, just wanted ask within the for hire truckload piece for utilization, revenue per truck was up a little over 3%.

Can you give us some directional breakdown of price first utilization in the quarter? And then, Chris, when you talk about getting more bullish on pricing for the year, can you just put some numbers around where you're seeing contractual increase is coming right now?.

Sure. I am going to have Mark just start with your first question..

So as you noted, Scott, the for hire standard a little over 3%, that's about 60% price and about 40% productivity, again price is a combination of contractual increases and our ability to just make better choices relative to our network, which from a contribution standpoint price plays a part in that. So that's how played out in the quarter..

And just on the contractual increases you're seeing right now?.

Yeah.

We are up for a series of renewals on dedicated contracts and also the bid season is largely complete, not I completely done, but largely complete in the second quarter and we went out and had some success from an incumbent standpoint of improving our price position knowing and talking to our customers about the inflationary cost position and what's ahead of us relative to the tightening of the market.

So it's a broad combination across really all of our segments. We are not back to 2014 hay day but we are making positive progress relative to this contractual price line..

But I guess just a thought like, I think, Chris mentioned, you're getting more, I think, he said more bullish on pricing, so are you seeing those contractual increases accelerate as bid season are now in order to the extent there still some bidding activity going on right now.

I just don’t understand the comment around being more bullish on pricing?.

Yeah. So, certainly, it’s improved from the first quarter part of the of the bid process, the second quarter has been more effective relative to those increases. And as I mentioned, a number of contract renewals in the dedicated space..

Okay. Thank you. And then….

And the other thing that does happen, Scott, is that, clearly the investments we have made is allows us as markets tighten, that have a pretty significant impact as to what is the realized price that we run across the assets, because of our ability to choose and understand market dynamics and so that's also us.

We got some good increases, not rate increases, because we’re not quite sitting quite on top of this mandate yet, but as we saw the road check environment kick in end of the second quarter we feel good about our ability and tightening markets to have realized price to move in many cases stronger than the contracts, which are going up..

Make sense. Thank you.

And then, just lastly just for Lori, can you give us just some guidance for third quarter on tax rate and the other income that I think was a small positive in the second quarter, do you think that continues in third? And then, just as we think about your guidance some truckload guys are earnings the typically are lower in the third quarter than the second quarter, are you seeing -- are you expecting that or do you think you have better earnings in the third than the second?.

Hi. Let me try to unpack those. I will start with your final question on guidance for -- we only provide annual guidance and we don’t provide guidance by segment. So I will just stand by the guidance that we republished. From a tax perspective we did have the resolution of a tax credit that impacted our tax rate this year or this quarter.

I do think that over time you will see our tax rate fluctuate because we are always pursuing tax credit that are just part of our business and we view those really just part of our operating performance.

And moderate in terms of this was a little bit of an unusual quarter and that we did have the resolution of significant -- of a particular distinct credit. That said, I think, it will moderate from what happened in other that is where we booked, it’s important note that’s where we booked the $12.9 million adjustment captured in other.

So if you adjust out for that it will look more normalized from what we have guided in past on other. But that’s a onetime item that we adjusted out..

So, I was saying that the other income that was positive below operating income that was a little over $200,000 that we thought was going to be a negative?.

Oh! Okay. That’s really related to some realized gains in foreign currency exchange rates, I am sorry, okay, you are talking about the other segment..

Okay. All right. Thank you..

Thanks, Scott..

The next question is from Ravi Shankar of Morgan Stanley. Please go ahead..

Thanks. Good morning everyone. Mark thanks for clarifying earlier that July was running above seasonality, which I think is more consistent with all your peers you said. But if I can just follow-up on that, can you help us understand either quantitatively or quantitatively what your internal contribution margin metrics have done in 2Q and in July.

I'm just looking for like -- has there been a consistent trend of improvement in that number?.

Well, as you look across our various segments of truckload in particular, Ravi, you note that particular and dedicated we know where we’re seeing the improvement in revenue per truck per week. On a contribution basis though we had offsets there particular year-over-year, because in contribution is the driver related expense line in particular.

So while we’re improving across the business to the tune of about 2.9% on the truckload side the revenue per truck per week, not completely offsetting some of all of really two primary components which center around the driver related expense and then year-over-year changes to equipment gains based upon the user -- equipment market.

So that’s how it represent where we are in a contribution basis. So doing better on the revenue line but not covering all the cost creep..

Understood. That’s helpful. And can you elaborate a bit more on the, as you said the unusually large number of dedicated customer wins in the quarter, was this a particular effort that you guys made to chase that business, was it something you are, I mean, was it a competitive condition.

Can you help us with like the sustainability of the -- of this win rate, the profile of the customer, anything else?.

Yeah.

Ravi, it’s probably a little unusual, because we didn’t have a great deal of new business start in the second quarter and so either as a function of our pipeline and where things came to closure, so wasn't any particular change to our approach or change to our methodology to go out and grow dedicated to just as opposed to those hitting and starting in the second quarter.

They hit from a closure standpoint in the second quarter and will start predominately in the third quarter. So that’s the unusual part. We usually a little smoother throughout the year relative to that, so are down a bit and the second quarter and startups we are going to be up quite a bit in the third quarter and startups..

Great. Thank you..

The next question is from Allison Landry of Credit Suisse. Please go ahead..

Good morning. Thanks. So earlier you mentioned an acceleration in transcon intermodal, so are you expecting that to help from a mix standpoints in the third quarter and then it sounds like you sacrifice price in favor of volumes during the first half of the year.

So should we think about market share growth as a strategy going forward and if so how should we think about segment margins in the foreseeable future?.

Good morning, Allison. I think that we were a little surprised that the growth that we saw in the transcon again, some of that could be just the configuration of freight and some of the opportunities that we can be more competitive when we land on the CSX in the East. We are delighted, happy about it.

What -- we’re not going to have a strategy in intermodal to chase market share. You can't just completely ignore the market and just walk away from things. But we're not going to have a market share view into this business. We think the business is running well.

We think that the chassis program is helping us execute and be a lot more effective with the assets that we have in it. But I'll let Mark fall along. But I wouldn't want you to think when we can win business and win it at a reasonable return we’re going to do that, but we are not going to chase market share..

All right..

Mark?.

Yeah. From the transcon standpoint, we have been shrinking on that because of the highly competitive nature and particularly a competitor that has some distinct advantages there. And so we did have a good solid quarter, perhaps, that's allocation methodologies by customer.

But it also, I think, points to the health of the West Coast relatively intermodal market and it gives us some confidence when we see our share growing there that that portends well for volumes at least in our view in the second half. So our strengths continue to be the inter-West and the conversion from over the road in the East.

But we are very pleased to see the growth that we experience in the transcon business..

Got it. Okay. And then, I wanted to ask about the Quest platform, just given your earlier remarks about the upside from better choice, better freight selection and how that should help to increase the realized price.

So with that in mind, is there a way to frame how much upside you have left from Quest from a margin standpoint?.

Well, this is Chris. Our response to that when we were on the road show was, we are in the six inning to inning, little different across each of these businesses. We continue to look at the investment that we make in analytics to continue to squeeze out the opportunities.

This -- where this -- where your question comes is in the area of dynamic contribution, so the ability to recalculate the value of a given piece of freight on a given day out of the market into a market that we will be sending that asset into.

And so it’s a disability to choose particularly as you get into very, very tight markets is -- it’s probably as good as any direct contract price increase you can get as well.

And you can do it in a way that is allowing you to essentially preserve customers and not necessarily always have to rely on the spot market as the vehicle in which to get that.

Does that help you?.

That does help.

I guess, maybe just to qualify the sixth inning to seven inning, is that in terms of the implementation or I guess the margin potential from the investments?.

I would say the six inning and seven thinning is really based on, I mean, is implemented a lot of it is we continue to refine the analytics and they're not just analytics looking backwards it’s really predictive analytics and we’re spending more investment to get the predictive analytics that allow us to or I mean prescriptive analytics that that really let us horn in on those numbers.

So that's I think the opportunities that that we've got and it is different across these different businesses, I think, on the truck side where we were in early and that we really proved out a lot of this work. That's where we’re probably a little bit further down the road.

That said bringing that capability and technology into Watkins & Shepard is going to be an accelerator for us there..

Got it. Okay. Thank you..

The next question is from Brian Ossenbeck of J.P. Morgan. Please go ahead..

Hey. Good morning. Thanks for taking questions..

You bet Brian. Good morning..

So just going back to the adjustment for the contingent liability the payout for the acquisition, I think it was recorded on the books for [ph] 13.5 (44:12) it's almost all been reversed was contingent hitting I think 80% of EBITDA target.

So, I heard Lori’s earlier comments, just wanted to expand a little bit on that, I know you are making some healthy investments there in the first quarter, that's probably tailed off, but maybe little more context as you get into this business after 12 months now, what's been things that have caused this to kind of back off here and on the same token what’s actually been a little bit more positive than you first expected?.

Sure. This is Chris. I won't go into complete depth, but essentially when we go and look at purchasing a company, a lot of the debates come around, people want to be paid for the future and what we’re certain of is, is the present and the past.

And so earn outs are weighted to get at that and the structure that we used in this case was accumulative earn out. So if things got missed in the first year that wasn't just paid in the second year it's kind of a rolling thing.

And as we looked at the -- that the contribution -- operating contribution, where we were at, it just pretty difficult, we would be thrilled to have them catch up and move ahead. But looking at where things are today from an accounting standpoint that we were required to bring that back.

What's going well? Boy, I will tell you what, we picked up about 2,000 new customer logos that were serving today, that were -- that we weren’t before, industries where we hadn't really played, so the customer response has been very good. It's a -- in some cases on the e-commerce side it's a longer sales cycle.

But we’re delighted of what's happening on the revenue side of the business and even the cost and that on the first and final mile, but what we found is that there is opportunities to improve pricing and there's opportunities to improve the productivity and cost structure and what I refer to as the middle mile of the network and that's where we’re focusing our efforts.

We would like to obviously be further down that path, but we have a clear line of sight to what has to be done and the work is ongoing and so in general word we continue to be very, very positive about the acquisition. But we got plenty of work to do here..

Okay. Yeah. That’s good detail.

And I guess the quick follow-up to that would be, do you think you need to get bigger in terms of scale, sounds like you picked up a lot of customer wins as far as executing on that and perhaps attracting more, getting to a critical mass, is that something you can do organically or do you have to add on some other capabilities or perhaps geographies?.

Yeah. You are correct that the clearly and you can -- it can be a little bit lumpy, but across an asset base growth and more volume changes the expense to revenue ratios and so you move the margin that way. We think right now we are able to grow organically when we look at the pipeline that we've got and the interest that we've got.

So sum of it is growth and then some of it is execution of the growth..

Okay. And just one last one on the tractor count, you mentioned growing little bit back half of the year for the standard. Just give us an update on used vehicle market, it’s stabilizing a little bit, what you expect to see [inaudible] (48:24) cliff coming down for the industry year-over-year.

I think the last guidance we had there was just the proceeds about $60 million to $70 million, I was curious as to what sort of gains were embedded in that forecast and if that included some growth in the fleet here in the back half of the year?.

Right. I will have Mark take it and then see if Lori wants to fall..

Yeah. We don’t have any different guidance relative to what we have already provided prior on the proceeds and you're right the market has stabilized. It's not as attractive. Obviously it was a year ago or two years ago. But we don’t see it getting any worse and it's really a tale of two cities.

The trailing equipment is doing very well and the tractor equipment is a bit more challenged but it's certainly stabilized really the last quarter..

Lori is there anything you want to add..

There is nothing to add. I am just looking at our forecast now and proceeds are pretty much exactly where we were before. There is not any real update to that..

Okay. Then no gains embedded in that that you shared or can update us on..

No..

Okay. Thanks for your time..

Thank you, Brian..

[Operator Instructions] The next question is from Ben Hartford of Baird. Please go ahead..

Yeah. Just sneaking other one in, Mark, maybe this is for you, more conceptual, there's been a lot of talk about autonomous vehicles and electric vehicles and the impact on truckloads.

I am curious how you think about kind of both facets, the autonomous vehicles and electric vehicles and the timeline of adoption is one more of a relevant concept than the other in terms of autonomous versus electric.

But maybe you could give us kind of five-year view on some of the -- two of those topics there and how you see some of the applications in your own business and the opportunities and threats if there are any?.

Yeah. Ben, obviously, top of mine, I am for us and a whole host of ways and we've gotten a little bit closer, particularly on the electrification process and quite honest we are very impressed and the question is, can you scale the production and can you do some things relative to the players that are currently doing that.

But so very encouraged by what that does from at least the testing that we've done with the current player. So we think that's really and we think that's we’re going to play a much bigger role in the future.

Autonomous, we are adopting everything we can reference things advance along that pathway just because of the benefit that we get from a safety performance standpoint.

So we’re going to embrace the future as it relates to that and we’re staying very, very close, whether I can be smart enough at this juncture to give a timeline reference where we see all of that exactly playing out. I -- not comfortable yet doing that, but, yeah, we are not denying the future here.

And encouraged by both of those elements and think will be a significant player as those things develop..

Okay. Great. Thanks. That’s helpful. And then, maybe in that vein, the used equipment markets, obviously, you noted the headwind here in the second quarter, but it sounds like, perhaps, some bottoming out and the weakness particularly among the newer Class 8 equipment.

But what is the overall state of the used equipment market as you see, what are the expectations for the back half of the year ‘17 and ’18?.

At present, we believe we are going to be bumping along above where we are for the remainder of ’17, so we don't really see any improvement and as our planning for ‘18 very, very similar in that regard.

What -- as I mention just prior the trailing equipment market is held up much, much better than the tractor market and just based upon how many, you just have to look back at the how many purchases of three years or four years ago and you can pretty much predict what's going to happen three years or four years out and so we think we’re in this bumping along states here at least for next 18 months..

And the challenges as you think about the used equipment market out in ‘18 is clearly if we’re correct in our believe the capacity will exit, the question is, is it will create a glut of equipment or will that equipment be of such quality that the -- that people will wants to essentially go and purchase it and that's a -- we will know when we get there and when we see it.

But that that I think is the open question as to what will happen as you look out into ’18..

Okay. Thank you..

You bet..

The next question is Ravi Shankar of Morgan Stanley. Please go ahead..

Thanks for squeezing me in.

Just to follow-up your last response on the truck electrification, I was very hesitated to hear your takeaways there, I mean, clearly we have an upcoming catalyst here with Tesla showing us a prototype of truck lease in the couple of months, without getting into any specifics on your desk who you're working with, can you just share kind of some of your early learning so far, I mean, what do you think might be the -- might be the hurdle you putting this on the road and what are you seeing in terms of the early benefits?.

Well, that, my comments Ravi were more as our delving into the engineering side of all of this and seeing in some test track, in some performance related to that, obviously battery life and how that all plays together, we’re not quite sure where all that stands and don't have full confidence there yet.

But certainly the early work, if you go into those things just a little bit skeptical, you get your eyes opened and we’re very encouraged and we will be doing much more around that in the coming quarters..

Great. Thank you..

The next question is from Tom Wadewitz of UBS. Please go ahead..

Yeah. Thanks for the follow-up as well. I don’t want to call because you run over an hour, but there are couple minutes left here.

So, Chris, you’d -- there, I guess, I really have the questions on consolidation the industry, I think, you probably had -- chances to comment on Knight, Swift before, but then you have Heartland with your acquisition that the little more recent.

How would you -- I don’t know if you can comment on highly fragmented industry when you see some consolidation among big players.

Can that be helpful to you if you stay with the biggest shippers, work with the biggest carriers or is that something that the market is just so fragmented that you'd be surprised if you really see any impact as you see some of these sizable players that have gone to get a reasonably early listed on field?.

Sure. Well, first of all, I don’t want to get in the business of speaking for my competitors, because they are terrific and we have a great deal of respect for them. I think the Swift organization and the Knight organization are both terrific competitors.

They certainly have had a different view of sort of how they came into the market and how they competed. We -- I am confident that that will be a strong and competitive organization and it will -- from our standpoint, we’re watching very closely to understand how we’re going to compete with it in total and in those separate parts.

I think when you think about the customer base, Tom, I always draw this long tail chart and if you rank shippers from the ones with the largest budget to smallest and you put that budget up on the vertical axis, it really is this very interesting typical long tail kind of a curve and on that far left area the large shippers need large carriers because of the investment that they can make in trailer pool, because of the -- how they can respond to their capacity needs.

And so that's a little bit different than as you get out on that long tail where you'll see more people who do live load and unload, and have a much smaller tractor or trailer to tractor ratio.

And it is a fragmented industry, I think if you look at, at least from my perspective, what Heartland had a very, very specific objective that I think they were trying to meet, I'll let them give you their view on that.

But so I think these things can make sense if you're either acquiring a geography or you are moving in to a set of customers that you have not been able to sort of reach back into. From our standpoint we find it a little bit hard to see how we would go and make a big drive van acquisition given what we think is our ability. We have got a network.

We've got the customers and so it's more organic in its nature. And again our strategy as we look at acquisitions is going to be around specialty areas where we can acquire new customers, new capabilities and that there is in some cases some defensibility in terms of ease of entry into those businesses..

So that will make sense, I guess, one element that I'm not sure if you touched on in that is it in incremental positive for you if what’s perceived to be players with a little more price discipline, acquire players with a little less price discipline, so is that an incremental positive to pricing or it’s just too fragmented market matter?.

Well, no, I think, clearly, particularly as you get into that part of the market to the left of that curve, it does -- it is helpful, because there's costs that are inflationary in this business. Now we have seem fuel do things that that one point a few years ago we were all talking about $100 plus a barrel oil and it's a different world today.

But every industry can benefit from disciplines around pricing. The reality is is that it is a fragmented market and people who have the means to come in and serve the large shipper, if they are not disciplined then that kind of opens up the lid and that's rest of us have to essentially figure out how we have to deal with and compete with..

Okay. Great. Thanks for the insight..

In general, I think, the two that you mentioned, I think, are good for the industry..

Right. Right. Okay. Thanks for the insights Chris. I appreciate it..

You bet..

Our final question today comes from Matt Young of MorningStar. Please go ahead..

Good morning, guys. Thanks for setting me in. Just a quick follow-up on intermodal, I think, you guys mentioned, you are seeing kind of better truck to rail conversion activity.

Could just comment on the general magnitude of that, you say the markets in the very early stages of recovery for conversions or are you actually seeing material acceleration at this point?.

Mark, why don’t you take that..

Yeah. Good morning. Yeah. What a catalyst for intermodal conversion is truck availability and truck pricing where it is in the cycle and so those conditions I still think will be the catalyst for material conversion.

But we can make some of these assessments by looking at the bid activity coming through the second quarter and knowing what moved over the road prior and now is moving on intermodal conversion opportunity just because we had some insight into the before and the after.

So that that’s the basis for the comment and it's not robustly accelerating, but it's noticeably different than what we've seen certainly last 18 months..

Okay. Great. So we’re still on the early stages here. Appreciate it..

Yeah..

There are no additional questions at the time. I’d like to turn the call back over to Chris Lofgren..

Well, first of all, thank you for joining us this morning. I just want to reiterate that while we were still kind of coming out of a difficult environment in the second quarter, we’re pleased with how we weathered that.

We spent some time talking about our wins and how we started to see some movement in price, my colleagues are slipped me a little note while we were sitting here saying, Chris, you are kind of hard on July, I don't want to come across that way, I just never use the month of July as the definitive metric for how we want to think about the year.

We are cautiously optimistic here, because of the things that we've been able to see in our contract renewals what we've seen in terms of business that we been able to win and what we've been able to see relative to metrics in these markets that we serve and that we think are very good indicators of what we will see as we get out into the latter part of third quarters and fourth quarter.

So I would want you to walk away with I think the operative word is we’re cautiously optimistic and we've seen some things and I always use August as a strong indicator personally as to what I think we should be driving towards and holding ourselves to as we get out towards the end of the year.

So, with that, let me just thank everybody for their time. Appreciate the coverage that people have provided us and hope you all have a great day..

This concludes today’s conference. You may now disconnect your lines. Thank you for your participation..