Greetings, and welcome to Schneider's First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Steve Bindas, Director of Investor Relations. Thank you. You may begin..

Thank you, operator. And good morning, everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer; and Steve Bruffett, Executive Vice President and Chief Financial Officer. Earlier today, the company issued an earnings press release, which is available on the Investor Relations section of our website at schneider.com.

Our call will include remarks about future expectations, forecasts, plans, trends and prospects for Schneider. These constitute forward-looking statements for the purposes of the safe harbor provisions under applicable federal securities laws.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from current expectations. The company urges investors to review the risks and uncertainties discussed in our SEC filings, including, but not limited to, our most recent Form 10-K and those identified in today's earnings press release.

All forward-looking statements are made as of the date of this call, and Schneider disclaims any duty to update such statements, except as required by law.

In addition, pursuant to Regulation G, a reconciliation of any non-GAAP financial measures referenced during today's call can be found in our earnings press release, which includes reconciliations to the most directly comparable GAAP measures. Now I'd like to turn the call over to our CEO, Mark Rourke.

Mark?.

Thank you, Steve. Hello, everyone, and thank you for joining the Schneider call today. I will open with the company context for 2021 trends and expectations and with commentary on our segment results for the first quarter.

Before we get to your questions, Steve Bruffett will provide some additional insight on our updated full year 2021 earnings per share guidance, affirm CapEx range expectations and close out on some brief overall enterprise result commentary.

First of all, the freight market catalysts that were evident in the second half of 2020, in our view, have only intensified in early 2021 and, as a result, we expect the constrained capacity supply and excess freight demand condition to persist at least through the remainder of the year.

The freight market catalyst of supply chain bottlenecks, particularly those involving internationally sourced freight flows, healthy consumer spending, fresh government stimulus, record low sales to inventory levels and especially a heavily constrained professional driver market provide optimism for the current up cycle continuing.

We see this market condition further accelerating a full load industry consolidation toward companies that efficiently capture and aggregate freight and capacity across multiple modes of transportation.

Our growth strategy of scaled offerings and mode mix across our Truckload, Intermodal and Logistics segments is anchored on that trend and by addressing the varying needs of a large medium and increasingly now, the micro shipper and carrier communities.

Each of our segments offers varying degrees of asset and capital intensity, margin return profiles and professional driver requirements. Truckload being the most Schneider driver and asset-centric, with Logistics requiring minimal Schneider driver and capital assets and Intermodal falling in between the two ends of the asset intensity spectrum.

We believe this aggregation execution capability will demonstrate increasing value for our shareholders. Let's start with how the strategy played out in the first quarter. The overall contract and spot pricing environment are running slightly ahead of our original expectations.

On the contract front, we are solidly into the low to mid-double-digit percentage range territory, with renewals in our Truckload network business and high single-digit percentages in Intermodal. We would expect Intermodal to climb further by the end of the second quarter renewals.

We finished the first quarter with slightly less than 40% of our book renewed in both the Truckload and Intermodal network segments. Also running ahead of our expectations are the cost impacts of the professional driver condition.

We grew driver counts year-over-year and sequentially in the company driver positions that possess the most desirable driver configuration, specifically in dedicated and Intermodal dray.

The irregular route network is the most challenging due to the combination of less predictable daily schedules and the opportunity to transfer it to, for many, the more desirable, dedicated and intermodal growth opportunities which we enthusiastically support as a driver satisfier and retention differentiator for Schneider.

The net impact of the strong pricing environment, segment business mix implications in contrast to the heightened inflationary cost realities is reflected in our increased earnings per share guidance that Steve will cover here momentarily.

As it relates to the business mix, again, in the first quarter, the Logistics segment delivered outstanding results. Logistics' 49% year-over-year revenue growth and 279% earnings improvement were both first quarter records.

Brokerage benefited from truckload synergies in the quarter to include strong execution in our core services, complemented by the continuing maturation of our power-only offering where third-party carriers gain access to Schneider's nationwide trailer pools through Power Only movements.

After the successful launch of FreightPower for carriers in 2020, we launched FreightPower for shippers in the first quarter. The initial launch was targeted to the long tail micro shipper to digitally automate the quote, book and track process functionality to more easily serve their freight coverage needs.

We are already enjoying several hundred orders per day coming through this frictionless channel of brokerage, and as the year progresses, we will be introducing FreightPower for shippers to other elements of our service offering portfolio.

Also during the quarter, the above-normal weather impacts in February were extraordinary, not only in their intensity, but also in the expanse of geographies impacted.

The industry-wide impact to rail and intermodal spaces have been well chronicled, however, it should be noted that our Truckload segment, both network and dedicated, were highly impacted in some very non-traditional areas, namely Texas and the Southwest region of the country.

In Truckload, Texas represents the highest concentration of Schneider drivers and freight flows in the country, including support of freight into and out of Mexico. In fact, Texas has 2.5 times more Schneider driver activity than our second highest freight activity state.

Our strategic growth drivers of dedicated contract services and Truckload and Intermodal solutions were evident in our first quarter results. Dedicated set a new first quarter company revenue record, with 6% growth in average truck count, including 150 units in early-stage startup in the quarter.

Our existing customer growth, strong new business pipeline gives us confidence in additional full year growth of several hundred more units in various specialty dedicated configurations.

On the topic of truck counts, our stated goal of returning the irregular route truckload network fleet to 6,000 units by year-end does not appear achievable considering the extended capacity market challenges and the other alternative opportunities for growth. A more appropriate target for year-end now just 5,500 units.

Finally, moving to our Intermodal segment. We delivered first quarter records of total orders delivered and revenue per order despite the mix change to a higher concentration in the East. For the fourth time in the last five quarters, Intermodal volumes in the eastern part of the network grew in the mid-double digit or higher percentage levels.

We have targeted adding several thousand intermodal containers in calendar year 2021. New business award levels, confidence in additional over-the-road conversion opportunities as well as double-digit percentage company trade driver growth support our desire to step up our container count. So I'll stop there. I'll turn it over to Steve.

And then we'll get to your questions..

Thanks, Mark, and good morning to everyone on the call. I'm going to reverse my typical sequence and begin with our forward-looking comments. Our initial guidance for adjusted EPS was $1.45 to $1.60, and our updated guidance is $1.60 to $1.70.

So what was the upper end of the range is now the lower end, and the midpoint has increased by 8%, and that represents over $30 million in pretax earnings.

The updated guidance is based on the ongoing combination of robust demand and constrained capacity, and as Mark stated, this is a condition that we expect to remain in place throughout 2021 and likely beyond. Our portfolio of services is functioning well and providing shareholder value by serving a broader portion of our customers' needs.

Regarding the portfolio, we expect that our asset by Intermodal and Logistics segments will deliver 45% to 50% of our total earnings for the year. And we feel well positioned to deliver strong results across the remainder of 2021.

We continue to expect a full year effective tax rate of approximately 25% and are updating our net CapEx guidance to a range of $375 million to $425 million. The range allows for some potential delivery delays resulting from OEM supply chain issues.

However, nothing has changed about our underlying intent to purchase the budgeted number of tractors and lower the average age of fleet and, at the same time, continuing our ongoing funding for the development of new tech capabilities. I'll now shift to a recap of our enterprise results for the first quarter.

Beginning with revenue, excluding fuel surcharge, our first quarter 2021 was up 12% on the strength of record revenue from our Logistics segment. Our adjusted income from operations of $76 million was the most profitable first quarter in our history and was up 42% compared to the first quarter of 2020.

Strong January and March helped compensate for a weather-challenged February. Looking at our quarterly income statement, I'll note that 1Q '21 is a relatively clean comparison to 1Q '20 as COVID had only a limited impact on the first quarter of last year.

We were initially starting to see effects in mid-March of 2020 in our Intermodal operations, but there was not a material financial impact. As such, there are not a lot of notable items on the income statement other than the higher purchase transportation costs to support the revenue growth in the Logistics segment. Moving now to the balance sheet.

I would just point out that we now have $100 million of debt maturities in the next 12 months, $40 million in November and $60 million in March of 2022. It's our current intent to repay both notes at maturity.

On the statement of cash flows, you'll see a limited amount of cash used in investing activities, and this is due to light CapEx in the quarter along with strong proceeds from the sale of used equipment.

Given our full year expectations for net CapEx, we obviously anticipate considerable amounts of cash being used over the final three quarters of the year. Closing, we're well positioned and off to a solid start to the year, and we look forward to crisply executing our plans over the remainder of the year and delivering shareholder value as a result.

So with that, we'll open up the call for your questions..

Thank you. [Operator Instructions] Our first question comes from the line of Ravi Shanker with Morgan Stanley. Please proceed with your question..

Thank you. Good morning. Thanks for the update.

And kind of given where the new guidance is and where we are in the cycle, and kind of many of your peers are saying that it feels like they're still fairly early in the cycle and this will continue to '22, Steve or Mark, I'm wondering if you have a sense of where kind of normalized mid-cycle margins and EPS can be? But obviously, there's a lot of debate right now about exactly where we are or what - if we are close to peak, et cetera.

Kind of based on where you think we are at the cycle right now, what do you think is that normalized EPS number? Is it $1.50, is it $1.60, is it $1.30? What's your view there?.

This is Steve. I'll jump into that, Ravi, There's a lot in that question, I suppose. And what the definition of mid-cycle is, is, I guess, subject to interpretation and definition.

We do feel well-positioned with the portfolio that we have in market and its adaptability to changing market conditions, and we think that provides some resilience as we go through different market conditions.

We've stated for a period of time now our target margin ranges that vary from - in Truckload, they're 11% to 13% that we've stated; and Intermodal, 10% to 12%; and Logistics, 4% to 6%. So it really is kind of by segment where it makes sense for us because they have different growth trajectories and so on.

And I think we remain, at this point in time, comfortable with these ranges. And as we get a little later into the year and into our strategic planning cycle, we'll review those guided ranges like we do on an annual basis. So we will do that.

And if anything, I think the one under most scrutiny would probably be our Truckload margins and what we think we can do with those over the course of time. But I think that would be my response. I'd rather not get into the normalized or mid-cycle EPS number because that's a tough one to answer, I think..

Okay. Got it. No, that's a helpful framework.

And when you say kind of evaluating the TL margins, again, are you talking about evaluating them up or down?.

I don't see them going down..

Okay. Just want to clarify that. And maybe as a follow-up, can you give us a sense of what your conversations with customers are like right now? Obviously, it's very well known that we are an unprecedented tight truck market.

As a counter to that, are your customers like willing to sign longer-term contracts with more visibility on the trucking side? Are they looking to more actively switch to rail intermodal? Kind of what's their initial reaction when you tell them, hey, drivers are hard to find and you may not get your trucks?.

Good morning, Ravi. It's good to hear from you. This is Mark. It's been a really interesting period for a whole host of reasons, obviously. And certainly, what we're trying to do is provide solutions to our customers that - across the various services that we have.

And I think what we're finding, whether it be Intermodal or whether it be our Logistics offering, we have a lot of receptivity to that because they're looking for solutions to get freight moving and getting their customers served. So I think it does play to our strengths.

And customers have - obviously, when you're under a little bit of difficulty, things are -- everybody is open to a little more creativity generally to make that happen. So we're seeing at times people convert from truck to intermodal for capacity coverage.

And then other places, we might see some conversion the other way because of looking at increased service requirements and reliability. And so it's why we're kind of agnostic to how that happens. We want to make sure we're offering options and letting our customers take advantage based upon what's the most important to them..

Very good. Thanks for the color, Mark and Steve..

Our next question comes from the line of Ken Hoexter with Bank of America. Please proceed with your question..

Hey, great. Good morning. And great job on the results despite the storms and tough environment.

So just a quick clarification, Steve, can you throw out the gains on sale in the quarter? And then I just want to understand that getting back to 5,500 trucks in over-the-road adding a few hundred and dedicated, so still sounds like you're looking for fleet growth in this environment.

And then your - I guess, contrast that with the driver commentary? Thanks..

I'll tackle the first part of that, and then Mark can take the second part. The gains in the quarter on sale of equipment were modest. They're modest gains, a couple of million, I believe, and compared to last year, modest losses of a couple of million. So year-over-year, there's a $4 million or $5 million difference in that space..

And Ken, as it relates to kind of the truck segment there, what we're really looking to do is stabilize our truck count to the best of our ability in this environment relative to our network business.

We are seeing some recovery in the team configuration which was a key strategic priority for us, slow and steady, but the good news is we're making progress there. And there's just a tremendous amount of, obviously, competition for the driver community.

And while we're fairly pleased with our retention levels across the board, it's when we do have turnover is where the difficulty has been. And we're competing with private fleets and LTL providers and all kinds of folks that generally don't -- we don't see to agree that we're seeing today.

So that's why the 5,500 number would be just modestly up from where we are presently, and the whole focus is on how do we sustain those numbers because we do like that business.

We just don't want to chase it too hard on the cost front to grow it, and that's why our focus on growth in Truckload centers around those longer-term commitments and value-add services and dedicated and were up not only year-over-year, we're up sequentially, and we had a good deal of start-up activity in the first quarter.

Unfortunately, the largest component of that happened to be in the state of Texas as well, so we took a little bit of a double hit on not only start-up, but then our customers struggled to stay up and obviously, we were less efficient because of the unusual weather pattern there as well.

So dedicated is - we're very optimistic and feel great about where we're performing there..

Great. And if I can get my follow-up, it sounds like a phenomenal pricing environment, obviously, given all the backdrop. Maybe just a little bit on Intermodal.

How is the rail service levels meeting your conversion growth needs? Are you still seeing that accelerate? And maybe a little bit more of an outlook on Intermodal?.

Yeah. Certainly, good question, Ken. And as it relates to Intermodal, in the East, we are back to reliability that's pre-pandemic, so performing very, very well.

As I mentioned in my opening thoughts, four or five quarters now where we've grown in the mid-double-digit range in the East, and that continues to be a real area of strength across our network because of our dray performance, but also we have a rail partner that's performing very, very well there.

The West is improving, still not back to, I think, where anybody would be satisfied, but at least showing signs of improvement. But there's just a lot of other constraints going on there relative to the port activity, customer delays of getting equipment turned.

And so it's a little more challenging in the West than it's proven to be in the East, but improving..

Wonderful. Appreciate the color. Thanks..

Our next question comes from the line of Todd Fowler with KeyBanc Capital Markets. Please proceed with your question..

Great. Thanks and good morning. Mark, in your prepared comments, you talked about seeing some consolidation towards carriers that are able to offer multiple modes of service. Obviously, you guys sitting at that area.

Can you expand a little bit more on that comment? Is that something that you feel is more anecdotal? Or are there things that you can point to that you're seeing within big results that are supportive of that trend?.

I think strategically, Todd, we're under the belief that there is opportunity for multimodal providers to be a source of aggregation both on the demand side and the capacity side because of our reach and tech investments in connection with large, medium and increasingly now, small customers and small carriers, that offer some - a form of consolidation.

It wouldn't be the traditional like - I don't think we're going to get down to four or five airlines and half a dozen-or-so LTL providers type.

But I do think it could be a - our view is that's a form of consolidation that the big multimodal providers that are tech-savvy and are investing heavily to make that as easy on the shipper and the carrier as possible and bring their own assets to bare to offer great value in that exchange as well. It is really at the heart of our strategy.

And customers, I think, respond to that. They respond to a service spec and an acceptance spec and, at times, increasingly less concerned about how it gets done..

Yeah. Okay. That makes sense. And then a little bit of a follow-up, maybe along the same lines.

The strength that you're seeing within the Logistics segment and the substantial revenue growth there, how sticky do you view some of that business? Is that more transactional in your view that maybe once we see less capacity constraints, some of that goes away? Or is this business that when you look out once you've provided the service, you think that, that revenue is going to be more consistent going forward? Thanks..

Well, there's no doubt that all parts of our portfolio are benefiting a bit from the demand and supply condition as it exists today.

But increasingly, the role of effective third parties or 3PLs in the middle of solutions, I think, for customers, have durability to them, and it can have a bit more of a variable cost structure to adapt to the varying markets that allows, I think, to perform well in really all market conditions.

So - and the fact that we're increasingly being able to bring and maturing this whole trailer pool of concept with third parties, particularly for the mid- to large shipper who needs those efficiencies, again, I think that's another element that allows us to have some staying power and stickiness, but certainly benefiting from the market, no doubt about that..

Understood. Thanks for the time..

Our next question comes from the line of Jon Chappell with Evercore. Please proceed with your question..

Thank you. Good morning, everybody..

Morning, Jon..

Mark, to follow-up on that last question and comment, so your Logistics operating margin is solidly in the long-term guidance range where TL and Intermodal are still kind of grinding higher.

Is there something about the Logistics business, whether it's the asset-light model, whether it's your new Power Only, whether it's some of your technology investments that are structurally changing the potential margin opportunity at that business? Or is it just that this is kind of a leading edge or kind of frontrunner based on the favorable macro in industry dynamics right now? A - Mark Rourke Jon, I think there is many things at play there, some contemporary to the market, but many of them based upon the investments that we have made and have continued to make.

That segment of our business generally is our incubation for new tech. It's where we start with our decision science, and we're very sophisticated there relative to the buy-sell arrangement, which, again, that is beneficial in all market cycles, and so that continues to be an area that I think we create differentiation and margin enhancing.

And what comes with that generally and the investments we've made in FreightPower are relative to both the carrier and the shipper side now is to certainly drive productivity into those -- into that segment. It's still, in my view, too people-intensive. We got great people. We've got great technology.

And I think over time, we can scale that business via transactions without growing the people side of the house to the same degree that traditionally has been done. And so you're seeing some of that certainly play out in our margin performance.

You're seeing the value being created in some of our Power Only solutions for the large shipper play out in that. So it's a multifaceted kind of strategic thrust there that's delivering the result..

Okay. That makes sense. And then just second on the dedicated contract renewals, I noticed in the KPIs that the revenue per truck per week was essentially flat year-over-year despite the significant increase in the network side.

Is there a period of time where there's more contract renewals than others where we can see a more representative move in the dedicated revenue per truck per week vis-à-vis kind of what you're seeing in the spot market today?.

Yes. And we still have more work to do on the dedicated contract renewal side.

Part of what we like about that is they're more stable for both parties, but we are in the midst of a series of renewals and rate discussions there and certainly looking to keep our drivers competitively paid, but also having -- making sure that our customers are coming along that process and those dedicated contracts at the same time.

And so a good deal of effort going on there that I think will certainly play out, and it's going to -- and our expectations for the remaining quarters of the year. So stable business, renewals and retention levels are extremely high, and we'll continue to work through the driver component of that, most predominantly on the rate increase front..

Understood. Thank you, Mark..

Our next question comes from the line of Jack Atkins with Stephens. Please proceed with your question..

Great. Good morning and thank you for taking my questions.

I guess first for Steve, is there a way to quantify the weather impact in the first quarter, I guess, specifically to your Truckload operations? And then, I guess, more broadly, if we look back to 2018, ex the First to Final Mile business, the Truckload operations were doing something around that 13% margin.

It seems like the guidance this year is more like maybe 11.5% to 12% at the midpoint.

Is there a way to kind of think about what's preventing you in such a strong freight environment from getting back to those -- that upper end of that longer-term guidance range this year?.

Okay. Jack, this is Steve. I'll take the first part of that for sure. We haven't specifically quantified the weather impact. When you look across the spectrum of the quarter, did March benefit somewhat in a bounce back from the constraints of February and how do you quantify all that. But there's no question the net effect was negative on the quarter.

I guess another way of responding to that, if we've seen some analyst reports that say we had a miss in Truck and a beat in Logistics and Intermodal, I'd say the miss is -- could be attributable to -- in Truckload could be attributable to weather..

Okay. Okay. Got you.

And then as it relates to the ability to hit the upper end of that guidance range this year?.

Yeah, Jack, we are certainly leaning into that. And to us, it's really as we think for what is the inflationary impact on the capacity side that, when we look back to 2018, we were adding drivers into those -- into that cycle, where this period has been much more challenging and more costly to do that.

And so that's really at the heart of where do we want to get to that right size, particularly in our network business. And so I think that is where we have the biggest opportunity. Obviously, in the short term, when you're growing dedicated, you have some start-up costs associated with that, and that had an effect on the first quarter.

We've seen much improved revenue metrics as it relates to the dedicated arena coming out of the second half of March. And now that we're into April, as we get some of those start-up elements behind us because we did have a big start in the first quarter.

But that's why I think Steve opened with the question relative to whether we see our long-term margin performance in truck. We're not exactly obviously satisfied where we are presently, and we should expect and everyone should expect us to perform closer to the higher end of that range over time..

Okay. That makes sense. And I guess for my follow-up, Steve, could you give us a sense for what your outlook is for gains on sale for the rest of the year? We're seeing some significant gains at certain carriers.

Just sort of curious if you would expect that to ramp in the back half of the year? And then more broadly, how is equipment availability? Are you able to get the equipment that you need from your OEM partners? Thank you..

Yes. So each company has a little bit different philosophy around your underlying depreciation policies and thus, the interplay between gains and losses as you go through different used equipment cycles. We try to play in the middle of the fairway there. So to the extent we can, we try to minimize losses or gains and just have depreciation do its job.

Obviously, when you get in conditions like this where things get heated up even more, I would expect us to have at least modest gains across the remainder of this year compared to some modest losses in the first half of the year last year, but the market began to improve a bit as we got into the second half of 2020.

I don't think there'll be big noise items, but generally, it would be a favorable year-over-year comp as we go through the remainder of this year..

On the OEM front, Jack, we are in a bit of a delay of delivery here. We would assess ourselves to be about six weeks behind delivery schedule at this point.

We do think as we get in here in the middle of the second quarter, we will start to see the return at the pace that we expected of our new equipment to come in, but that's been delayed, as I mentioned on the tractor side, about six weeks.

Probably a little less visibility to the Intermodal container front, which is another area that we wanted to build by midyear, to have some increased capacity available coming through the second half. And that's a little bit less visible to us right now because of vessel constraints and empty versus loaded options.

And so we're working through some solutions to that. So -- but the tractor front, we're feeling a little bit better about than perhaps even we were several weeks ago..

Our next question comes from the line of Jordan Alliger with Goldman Sachs. Please proceed with your question..

Yeah. Hi, morning. Just curious, some more color on the dedicated side.

Obviously, when you think, and you alluded to things are pretty solid, can you talk about the big pipeline? Is it still sort of accelerating from here? And I'm just sort of curious in terms of the types of contracts, are you finding that the requests in terms of the amount of dedicated trucks involved are getting larger than they were sort of pre-pandemic? Or are they generally about the same size?.

So Jordan, maybe just to step back and really where our commercial and strategic focuses as it relates to dedicated, and we're very mindful that we are looking and pursuing durable dedicated solutions, not those that are just looking for opportunity to gather capacity in tight one-way kind of network markets.

And so there are certainly people who would look to that as a solution from a customer standpoint. It's just a place that we don't place emphasis because of the lack of durability through cycles.

And so ironically, what that generally leads to then is more specialty-type dedicated private fleet type replacement opportunities, and they generally are on the smaller size, in the 10 to maybe 25 truck range versus the larger kind of network-based nondurable dedicated that may have been more prevalent back in the '90s and the 2000s.

And so because of that, our average win size is generally a little smaller because of that, but that's very consistent with the stickiness and the durability that we're looking for and generally, comes with some of the value-added actions or processes that we're doing in support of the customer, and so that's what our pipeline is targeting..

Great. Thanks so much..

Our next question comes from the line of Allison Landry with Credit Suisse. Please proceed with your question..

Thanks, good morning. So just wanted to ask about the Intermodal OR. Q1 was quite a bit better than normal sequential trends would apply even in spite of weather and some of the rail service challenges.

So just as we think about the progression of the OR for the balance of the year, is sort of the 92.2% sort of the right baseline or starting point? And sort of from there, we can apply normal sequential trends? If I run that math, it basically implies more than 300 bps of improvement for the full year.

So just wanted to get your thoughts on if that's a fair way to think about it..

Yeah, Allison, Steve here. Obviously, compared to 2020, which Intermodal bore the brunt of the COVID impacts in our portfolio, at least, so....

Second quarter, especially..

Yes. So we definitely would expect very solid year-over-year improvement in margin off that basis of comparison.

But just sequentially, to the other part of your question, moving into a time of year where we expect smoother fluidity and further enhancements in our ability to turn containers and street efficiency and ramp efficiency to improve, and all of that should contribute as we go through.

And then once we get later in the year, what type of opportunities would be in the market in both peak season if it -- peak season's evolving over the last few years and spreading out a bit, but what types of premium opportunities will be available later in the year will ultimately determine what we are able to post for fourth quarter margins, but feel like we are executing well and have ample opportunity for margin expansion there and continued top line growth at the same time..

Perfect. So look, on the Logistics side, I mean, obviously, very strong performance in the quarter in terms of both revenue and operating income contribution year-over-year.

So could you just talk about how much of the improvement here is embedded in the full year guidance range versus maybe the other segments?.

Without getting specific, my comments earlier in the call suggested that we expect 45% to 50% of our enterprise earnings to come from Intermodal and Logistics. So inherent in that is an increasing contribution from both of those segments to the overall by than where we've been historically..

Okay. All right. Thank you, guys..

Our next question comes from the line of Chris Wetherbee with Citi. Please proceed with your question..

Hey, thanks. Good morning. Maybe I wanted to come back to the for-hire fleet and just wanted to kind of get a sense of maybe practically how you see that stabilizing, both from a timing perspective and maybe sort of what will be the drivers of maybe getting more drivers, I guess.

When you think about sort of wages going up, is that sort of the primary tool that you think you can use? And if you maybe need to wait for some of these extended unemployment or enhanced unemployment benefits to roll off later in the second half of the year before it becomes a little bit more easy to get those folks? I'm just trying to get a sense of sort of practically how that works because really since the market tightened up post-COVID, post the initial COVID onset, it seems like the tractor dynamic has become increasingly more challenged, challenging to add.

So I just want to get a sense of how you guys are practically thinking about addressing that..

Yeah, Christian, it's, as you mentioned, it's been a challenge.

For us, specifically, we've been focused on stabilizing a couple of elements of that for-hire network fleet which was the team component which I mentioned that we've made some adoptions to some of our approaches to that policies to that -- to improve our value proposition to the team, professional team drivers.

Again, as we get farther along into the recovery of COVID here because what we lost was the non-family teams who have been comfortable being together, we're starting to see some improvement in comfort as folks get through the vaccination phases to get back into those type of team configurations which is a productivity driver for us and premium freight a driver for us as well.

And so that's very positive development. And the second area was this extended spot market visibility that the owner-operator community was moving towards, and we had some shrink relative to drivers and owner-operators looking for those opportunities.

So we think we're largely through that, so that gives us a stabilization effect of kind of where we are. Then it's focusing in on then how do we increase and get some momentum going in the company solo driver side.

And part of that, like some others, is that we have instituted some schools and we've done that in the past, and we have several sites now that we're helping folks get and produce their own CDLs.

And so that's a place that we haven't played in a very large way since about 2009, so it gives you kind of a sense of kind of actions necessary in this environment to do some things differently.

And so we have several places around the country in certain Intermodal markets and certainly in our network business that we are creating, helping people brand new to the industry get their CDL..

Okay. Okay. That's helpful color. I appreciate it. And then I guess on the for-hire side, just thinking about utilization and the potential step-up that we might see coming out of the first quarter, presumably, weather did disrupt that to some degree. Obviously, the rate side of that has probably been quite good.

Just kind of curious as you think about sort of the truck utilization, miles per tractor and how that might sort of progress as you go through the rest of the year?.

Yes, Christian, as you mentioned, the price side has been very, very solid, particularly in the network business where we've had our issue was centering around the productivity side of that, particularly because of the hit we took in February. The fleet is fairly tight. Our seated truck - unseated trucks are in pretty good shape.

And as we start to get traction, the elements that I talked about here, I do think that you'll see and we would expect to see improved utility through the remainder of the year. So it will be a combination of both price and utility..

Okay.

And that starts in 2Q, I would assume, to some step up?.

Correct..

Got it. Thank you very much for the time. Appreciate it..

Our next question comes from the line of Jason Seidl with Cowen & Company. Please proceed with your question..

Hey, thank you. Hey, guys. Gentlemen, good morning. I guess I'm playing anchorman here today. Congratulations on 1Q. I wanted to talk a little bit about sort of the overall market and how you see supply and demand.

We've heard from many carriers, both public and private that they expect sort of the strong market to continue throughout the remainder of the year.

How do you sort of view capacity as it can potentially come back to the marketplace? So sort of what are the drivers there, no pun attended, in terms of driving schools coming back and maybe new ones opening up versus just still COVID restrictions and then some restrictions you have on the OEM side? How do you view sort of capacity? And I think you alluded to maybe your seated tractor count?.

Yes. We don't see a great deal of relief on the capacity front for the remainder of the year. I think someone commented earlier, the incentives for people to stay on the sidelines from a government stimulus standpoint is, depending upon the state that you reside in is certainly a barrier.

We hear that from our recruiters, we hear that from the truck driving schools, and that's going to be with us, I believe, at least through September. And so we're not going to see any relief in the short term of that being any sort of catalyst for folks perhaps to get back in the seat.

I think what you are seeing, whether it's private fleets or whether it's LTLs and what I just mentioned, you're seeing the constraints that are happening at new schools which still is highly constrained relative to availability there that people are doing a little bit more build their own.

So that trend, I think, will have some impact, but it is a long cycle to get those folks. It's a long cycle to get them trained and it's a long cycle to get them feeling the production into the various fleets that are pursuing that. So again, that's not a short-term response.

And as we look at the overall demand picture and we're sitting in April which generally is the second less robust month of the year and it's very untypical seasonally and we're just now getting into the month of May, we'll have the inspection week which will take trucks off the road and then we'll get into our seasonal periods of the summer and particularly with folks looking, I think, to get back out and to get together and have the barbecues and do the things that drive consumer products and food.

So we would expect that combination to really just carry us through into the peak season. And so we don't see demand -- or excuse me, capacity being solved any way, shape or form for the remainder of this year..

Well, that was actually going to be my follow-up question.

So with that backdrop with not really a lot of capacity coming back in the near term and with the demand backdrop that we're seeing now and potentially a really strong back-to-school season with most of the kids getting back in-person learning and the economy humming along as it is, can the market get a lot tighter from here?.

Great question. I don't know how it gets any tighter in some respects based upon the offers that we get daily versus what we can accept.

But that's why I think as we're looking at our portfolio of leveraging everything that we have to offer from the truck to the train and then increasingly now with our logistics capability, I think we have an excellent opportunity to play that portfolio in that market through the remainder of the year which is really anchored to our increase in guidance.

But - so that's why we're - I think we're fairly bullish on the condition..

Clearly, the ability to provide your customers with capacity across the supply chain is king right now. Listen, I appreciate all the time and everyone stay safe..

Customers are looking for options, and that's why we're in the business of giving..

Our next question comes from the line of Scott Group with Wolfe Research. Please proceed with your question..

Hey, thanks. Morning, guys. So I wanted to go back to Truckload margins. You referenced you're not pleased with where they are. And I looked at Knight and Werner at low to mid-80s ORs and they're dealing with the same weather and driver issues.

I guess, what specific changes are you guys making to try and close that gap?.

Yeah. Scott, this is Steve. Over the course of time, there will be a series of opportunities that we are identifying that we can implement in our network business. And like Mark said earlier, we like the space, and it's not as though that we're trying to gradually work our way out of it. We would like to increase.

Having some higher volume and revenue across the portions of this network configuration that are more fixed in nature, obviously, would be contributive to margin.

And if we reach a point where we don't feel like we can reach the volume and revenue levels that we need to, then we need to adjust some of that fixed cost structure over the course of time. That's a potential lever that we're evaluating, what type of footprint we have across the country and so on.

But there's also ample opportunity for productivity enhancements, and so we'll focus on those as well. And it's a variety thing. It's like any network business is not a simple answer because there's a lot of moving parts and you push on one part and it impacts another. So we have to be sensitive to all of that.

But we do have a belief that, especially on the network side of our business, that we have an opportunity set here to take a step function up in our margin performance over the course of time. So that's -- we're very determined to achieve that goal..

Okay. And then you mentioned Truckload rates are up more than Intermodal rates to start the year.

Can you just - do you have any perspective on where that spread is right now between Intermodal and Truckload pricing? Is it wider than normal? Similar with normal? What's holding Intermodal pricing back? Do you expect the gap to close? Just any thoughts there..

Yeah. There's - we would expect there still to be obviously a gap between the 2. I think what we'll see coming out of the second quarter is the increase year-over-year will be close between truck.

And as I mentioned, we were low double-digits in truck, high single-digits in Intermodal and the renewals that we had scheduled and the book that we had renewed in the first quarter as we project those same renewals that are in front of us in the second quarter that we will have that was, I think, pretty much on par.

And so that means there will be some lift - we would expect some lift in the Intermodal increases on a year-to-date basis as we finish up the second quarter. So there really is - and obviously, Scott, there isn't a long term - this is more of a timing issue between what is being renewed than it is a change in the spread..

Okay. Thank you, guys..

Out next question comes from the line of Tom Wadewitz with UBS. Please proceed with your question..

Hi. Yeah, good morning. So my first question is kind of a little more strategic or longer-term frame on the network business. If I look back at first quarter '17, you had about 8,000 trucks in network and you're running about, I don't know, 33% below that if I look at first quarter this year, call it the 5,400 level.

I know some of that is strategic and more emphasis on dedicated.

But how do you think about the level you want to be at in the network business? Is there kind of a critical mass where your profitability is stronger if you're 5,000 or 6,000 trucks? Or is that something just because it's the toughest business for drivers that you can let that get kind of smaller over time and put those trucks in dedicated and it can still be a strong margin business for you in terms of the network business?.

Yes, Tom, I - we certainly - as to kind of repeat maybe what we were covering there is that we like the network business, we think we can add great value to customers. We certainly, though, as we think about strategic growth, our primary strategic growth areas remain dedicated, Intermodal and our Logistics segment.

And so I didn't want to come into this year, get below 6,000 units. The market condition and the challenges there has got us now at 5,500, and so we would like to get some stability there, clearly.

And as Steve mentioned, we need to look at our overall network and infrastructure associated with our network because when you are running a largely -- a much more focused dedicated network, you're not using all the same locations, all the same facilities because of the specialty nature of what you're doing and the route that you're running in support of those dedicated contracts.

So you make some long-term investments over time that you have to kind of look at and challenge and see what makes sense as you shape your organization, and that's a bit of the mix we're in. And right now, our network business carries most of those costs, and that's what we're looking at..

Okay. My second question is just, I guess, trying to get a little bit more information on what's happening in Logistics. Obviously, the business is performing very, very well.

Can you give us a sense of how much of the loads are Power Only? And then perhaps also a sense of how does the headcount growth relate to the volume growth? I don't think you mentioned a volume growth number. I don't know if you want to offer what that number is.

But how does your headcount growth in Logistics compare to the volume growth?.

Yes, we're getting more productive, which we measure on transactions or orders, both from a buy/sell on both sides of that equation through the technology investments we're making. Power Only, which, on a percentage basis, is growing a lot, but it's still a much smaller piece of what our overall brokerage volume is on a daily basis.

But it is more productive than a traditional transactional brokerage model, so that also helps, we think, over time, drive additional people productivity into the business. But what we're seeing in our results in Logistics is not simply rate in the growth.

We are growing volume double digits in addition to growing the top line on a rate per order basis. So both elements of volume and rate are contributing to the growth in Logistics..

Do you mind telling us how much volume was up?.

I don't think we'd disclose that, Tom. Competitively, yes..

Okay. All right. Thanks for the time, Mark..

Thank you..

Our next question comes from the line of Bascome Majors with Susquehanna Financial Group. Please proceed with your question..

Thanks for taking my questions. Mark, the idea that this favorable trucking environment can continue at least into early '22 isn't unique to Schneider. But I'd be curious if you could unpack the one or two biggest items that are giving you that conviction in an industry that typically doesn't have three or four quarters of visibility..

Yes. I think it would be back to kind of our kind of assessment of the marketplace. The availability of capacity to really solve this is which is what -- much different than 2018 while the market was -- had several quarters of very robust supply-demand condition. There was this correction going on in the midst of it.

We just don't see that correction in capacity at this juncture. It doesn't mean it won't come at some point, obviously, but we don't see it presently. We think we still have some industrial economy coming back. We're seeing that in our bulk business which basically almost exclusively serves the industrial side of the economy.

And we are definitely, over the last several months, have seen a recovery in volumes there which is the precursor to more finished goods coming. We look and talk to our customers about where they are in their inventory levels and what they expect to happen and what they're at.

And there's very few folks or some that's made some improvement, but many, many are not where they want to be or where they need to be there, so we think that has a contributor to some legs. And overall, I mean, there is plenty of help and the consumer is pretty healthy and there's money being injected into the system, more of that.

So it just all sets up for the condition that we have now. It may moderate, who knows. We'll see if there's some moderation to it, but there's a lot of moderating to do before we're not busy on a per-load basis..

Thank you for mapping that out. And you did allude to how this could be different than 2018, at least on the capacity response side. I mean if you zoom out further, does this remind you of any historical corollary or any other market? Just been trying to think of analogs and how you guys think of that internally would be helpful..

Yes. This is my 33rd year doing this, and I don't recall the capacity side not having kind of a light at the end of the tunnel which we generally have seen. And so to me, that's just the biggest difference is the overall labor condition in the country and what's going to -- in any reasonable period and any reasonable level correct itself to the point.

So to me, it's going to have to be an economic correction is what's going to drive kind of the change in where we are..

Thank you..

All right. Our last question comes from the line of Brian Ossenbeck with JPMorgan. Please proceed with your question..

Hey, guys. Good morning. Thanks for taking the question.

Just to get a little more specific - I'm sorry?.

We're just under the wire. Go ahead, sorry..

Okay. Thank you. So I'll try to keep it quick. I'll keep it to one. When you think of fluidity improving in the Intermodal side, I know we're expecting better weather, which will help, of course.

But when you look at like the street turns and the fluidity at shipper locations, are you seeing any sort of improvements when you drill down into that level of detail, realizing there's still a lot going on and it does tie back to the rail to certain points? And then, I guess, second part would be on a rail capacity side.

With the constraints on teams and the priority for freight moving fast, are you seeing any TOFC taking some priority or maybe taking up some capacity as the rail network serve more of that premium LTL and parcel?.

Lot to unpack there.

So the first part of that, again, Brian, was?.

The street turns and warehouse fluidity, anything in your supply chain you're seeing improvement there in addition to what you expect on the rails..

Great. Thank you. It is still a bit of a challenge, and our metrics are not back to where we would expect or need them to be from a customer fluidity standpoint.

What we are able to do, however, is that we are driving more of that on our acceptance and what we're saying yes to every day that has more of an influence now than when we can get that box -- when we would expect to be able to get that box turned.

So the customers who do that most effectively are getting favor on the acceptance front, so we're driving it based upon those type of decisions. And we have great data that -- by ship and consumer [ph] location to kind of bend our acceptance and bend our network to get favor there.

And so that's -- so we're kind of driving that more so than perhaps some of the labor challenges and some of the demand challenges that are slowing folks down on getting equipment turned.

And then certainly, there's no doubt the e-commerce push and the parcel push and the LTL push is having some impact relative to the fluidity of the rails, particularly in the West. And so we can see that, we know that.

And it's getting better and it's getting more fluid, but certainly, as we went through the fourth quarter last year, it certainly had more influence than we would typically see..

Got it. Thanks a lot, Mark. Appreciate it..

There are no further questions. I'd like to hand the call back to management for closing remarks..

Since we've already got everybody passed, thanks for tuning in. And any other questions, please follow up with the team. Thank you..

Ladies and gentlemen, this does conclude today's teleconference. Thank you for your participation. You may disconnect your lines at this time. And have a wonderful day..