Good morning and welcome to the Ryder System First Quarter 2021 Earnings Release Conference Call. All lines are in a listen-only mode, until after the presentation. Today's call is being recorded. If you have any objections, please disconnect at this time. I would now like to introduce you to Mr. Bob Brunn, Senior Vice President, Investor Relations, Corporate Strategy and New Product Strategy for Ryder. Mr. Brunn, you may begin.

Thanks very much. Good morning and welcome to Ryder's first quarter 2021 earnings conference call. I'd like to remind you that during this presentation, you'll hear some forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations and are subject to uncertainty and changes in circumstances. Actual results may differ materially from these expectations due to changes in economic, business, competitive, market, political and regulatory factors. More detailed information about these factors and a reconciliation of each non-GAAP financial measure to the nearest GAAP measure is contained in this morning's earnings release, earnings call presentation and in Ryder's filings with the Securities and Exchange Commission, which are available on Ryder's website. Presenting on today's call are Robert Sanchez, Chairman and Chief Executive Officer; and Scott Parker, Executive Vice President and Chief Financial Officer. Additionally, John Diez, President of Global Fleet Management Solutions; and Steve Sensing, President of Global Supply Chain Solutions and Dedicated Transportation, are on the call today and available for questions following the presentation. At this time, I'll turn the call over to Robert.

Good morning, everyone, and thanks for joining us. On our call this morning, we'll provide an overview of our first quarter results. We'll then review our updated outlook for 2021, as well as the meaningful progress that we're making on actions to achieve our ROE target. Following our prepared remarks, we'll open the call for questions. With that, let's turn to an overview of our current environment. Overall, we're encouraged by the significant improvement in economic and freight conditions. The recovery for a great number of our customers has been stronger than anticipated even just a few months ago. Accelerating growth trends in logistics and transportation outsourcing, particularly in e-commerce fulfillment and Ryder Last Mile, continue to support long-term growth opportunities for Ryder. We remain primarily focused on increasing returns in our business and are encouraged by the meaningful progress we've made towards reaching our target. While we are driving for higher returns, at the same time, we also continue to invest in innovative customer solutions, such as RyderShare, our freight visibility and collaboration platform; and in our SCS and DTS Ever better brand awareness campaign in support of our long-term strategic objectives. As customer awareness of supply chain resiliency continues to grow, so does the market demand for innovative technology and strategic partnerships that can provide end-to-end logistics solutions with flexibility and scale. As a result, technology has moved to the forefront of supply chain sales discussions, resulting in a robust pipeline and record sales activity. First quarter earnings were higher than our forecast driven by outperformance in FMS, primarily lease and rental as well as better used vehicle sales results. In addition, we saw strong sales activity across all three business segments, and our multiyear maintenance cost savings initiative remains on track for this year's targeted savings of $30 million. We raised our full year EPS forecast to reflect our updated outlook. First quarter free cash flow was higher than prior year due to higher used vehicle sales proceeds and lower cash capital expenditures. Our full year free cash flow forecast remains unchanged at $400 million to $700 million. Assuming strong economic freight conditions continue with no change in tax policy, we now expect to achieve ROE of 12% to 13% in 2021, above our previous forecast due to stronger FMS performance. We believe we're well positioned to realize our 15% long-term ROE target in 2022. At this point, I'll turn it over to Scott to discuss our first quarter results and key trends that we saw in each business segment.

Thanks, Robert. Total company results for the first quarter are on page five. Operating revenue of $1.8 billion in the first quarter increased 3% from the prior year primarily reflecting higher supply chain and rental revenue. Comparable earnings per share from continuing operations was $1.09 in the first quarter as compared to a loss of $1.38 in the prior year. Higher earnings reflect improved used vehicle sales results and a declining depreciation expense impact related to the prior residual value estimate changes. Improved lease and rental results also contributed to higher earnings. Return on equity improved, reflecting a lower depreciation impact and improved used vehicle sales results. We expect continued improvement in ROE, our primary financial metric, as we move past the earnings impact from the prior residual value estimate changes in COVID and continue to benefit from our actions to increase returns. Free cash flow for the quarter was higher than the prior year, as Robert just mentioned. Turning to FMS results on page six. Fleet Management Solutions operating revenue increased 1% as higher rental pricing was mostly offset by declines in SelectCare and other revenue. Rental revenue increased 8% driven by a 9% increase in price, reflecting a robust market environment. Although rental demand was down slightly, it increased during the quarter with year-over-year comparisons turning positive for March and April to date. ChoiceLease revenue increased 1% primarily due to higher pricing on leased vehicles, partially offset by a smaller fleet. FMS realized pretax earnings were $63 million, up by $178 million from the prior year. $92 million of this improvement resulted from lower depreciation expense impact related to prior residual value estimate changes and higher used vehicle sales results. Improved lease and rental results also contributed to increased FMS earnings. Higher lease pricing and fewer vehicles to…

Thanks, Scott. Turning now to our EPS outlook on page 12. We're raising our full year comparable EPS forecast to $5.50 to $5.90 from our prior forecast of $4.15 to $4.65 and well above our loss of $0.27 in the prior year. We're also providing a second quarter comparable EPS forecast of $1.25 to $1.35, significantly above the prior year loss of $0.95. Our forecast assumes the strong freight and economic conditions continue through at least 2021. Lease rental on used vehicle sales performance are the key drivers of higher expected results. We expect lease to benefit from price - from our pricing actions, increased sales activity and improved operating performance. We also expect pricing in rental on used vehicle sales to remain strong, and we're forecasting quarterly gains for the balance of the year in line with first quarter levels. In FMS, the depreciation impact from prior residual value estimate changes is expected to continue to decline, resulting in year-over-year earnings benefit of approximately $70 million in the second quarter of 2021. This benefit does not include any potential impact from gains or losses on sale or valuation adjustments. Accelerating outsourcing trends in supply chain, including growth in e-commerce and last-mile delivery, support strategic investments in new products and technology aimed at driving future growth opportunities. In SCS and DTS, we're on track to meet or exceed our high single digit revenue growth targets. Supply chain and dedicated returns are also anticipated to be impacted by strategic investments in new technologies and our brand awareness campaign. Finally, the semiconductor shortage is impacting activity levels for some of our supply chain automotive customers and could delay delivery of new lease and rental vehicles in FMS. We have assumed there will be some impact to supply chain earnings due to semiconductor…

Thank you. [Operator Instructions] And we'll go ahead and take our first question from Justin Long with Stephens. Please go ahead.

Thanks, good morning. And congrats on the quarter.

Thanks, Justin. Good morning.

I wanted to start with a question on the depreciation impact. Robert, I think you said in the second quarter, it would be $70 million. Curious if you have updated thoughts on the tailwind for the full year this year, in 2022. And then also on the theme of used trucks, I'm curious if you're seeing any change in the mix of used truck buyers, if you're seeing some of the non-traditional buyers enter the market just given the capacity tightness out there? Thanks.

Okay. Thanks, Justin. Well, just to remind you, what we said at the beginning of the year or in the last call, we said it was $220 million year-over-year benefit this year. And it would be $50 million in the first quarter. So we're saying now $70 million of it is in the second quarter. Scott - I'll send that over to Scott. I don't think there's significant changes in that number. Scott, is there anything you want to add to that?

Yes. Justin, there's no change to what we did. Robert's right. We talked about a $220 million benefit, and we still kind of think that, that is the outlook for the remainder of the year. And the $100 million improvement that we mentioned for 2022 is, again, our best estimate at this point.

So - and then your question on the used truck market, let me hand that over to John Diez, and he can give you a little bit of color on what we're seeing in the used truck market.

Sure. Justin, a few comments there on the used vehicle sales side. One, we are seeing, as noted in the deck here, improved results from our retail investments. And as part of that, through our digital channel, we are seeing new buyers coming into the marketplace, many of which are new to trucking or looking to engage in the e-commerce side. So we are seeing good activity both in straight trucks as well as in the tractor market to meet that e-commerce need. So that's where we see the new buyers coming in and that's what they're looking for.

Okay, helpful. I appreciate the time.

Thanks, Justin.

[Operator Instructions] And we'll go ahead and move on to our next question from Scott Group from Wolfe Research. Please go ahead.

Hey, thanks. Morning, guys.

Morning, Scott.

So I want to ask the - you raised the earnings guidance significantly, no change in CapEx guidance. How come the free cash flow guidance doesn't move up at all? And then I just want to clarify one thing. The $220 million of depreciation tailwind, I think that excludes valuation adjustments. Just now that prices are above the longer-term residual assumptions, are there incremental valuation adjustments to contemplate this year?

Well, let me just answer the question on the free cash flow. I think the key there is-- Scott, is we have a pretty wide range in our free cash flow forecast. It was $400 million to $700 million. So all we're saying is that the impact of the change in earnings and offset by some of the CapEx doesn't - hasn't really taken us out of that range yet. So some puts and takes, but we're still in that same range. Scott, do you want to address the other - the second part of the question?

Yes. Scott, on the perspective, at least thinking about the $220 million, yes, it excludes any impact of UVS gains. As you remember, we had a little bit of accelerated depreciation in 2021. And most - there's very little of that remaining. So your - in the deck, we factor that into kind of our outlook in regards to the gain on sales that we're seeing on the current assets that we're selling. As you remember, we did accelerate the depreciation at lower than policy for all those units that we expect to sell through the mid of 2022. So those will just result in seeing better gains on the portfolio. From a policy perspective, I think we've talked about that on the last earnings call, I think we will revisit our policy depreciation. As we mentioned, we are at or above those levels. And as we kind of work through this year, we'll kind of look at kind of any adjustments on that as we kind of get to the end of this year and see the kind of trends in the overall market and pricing.

Did you ever give a rule of thumb on if we...

Like I said...

Yes. Go ahead, please.

No. I'll just tell you that the valuation adjustments are in that net UVS gains. And what we're saying is it's going to - we're expecting for the balance of the year to be similar to what we saw in the first quarter, which is about $30 million a quarter on net UVS gains.

Okay. I was just going to say, did you ever give a rule of thumb if we - if - maybe I'm getting ahead of myself, but if we increase the residual assumption by 5% or 10% or something, what that means from an earnings standpoint?

Scott, we have not historically provided that kind of sensitivity from a rule of thumb perspective.

Okay, all right. Thank you, guys. appreciate it.

Thanks, Scott.

And we'll go ahead and take our next question from Todd Fowler from KeyBanc Capital Markets. Please go ahead.

Great. Thanks and good morning. Robert, on the change to the full year guidance, at the midpoint, it looks like you're raising it by about $1.30. It looks like maybe half of that was the upside in the first quarter. In your prepared remarks, you talked about better lease rental pricing and gains. Can you maybe help bucket kind of the pieces to bridge the increase in guidance where you're really seeing the drivers between those three areas?

Yes. Look, it's primarily an FMS story. And what we're seeing is better performance in lease, the impact of pricing and also the fact that we've gotten a lot of the vehicles that were being redeployed, we've gotten them out of the system. We're seeing rental demand coming in better than we had originally expected. And as you know, throughout the year, we expect - we had expected the rental demand to increase throughout the year. So the benefit of that maybe isn't as big in the out quarters as it is in this quarter. And then obviously, UVS, we're expecting gains to be better than what we had originally estimated. Remember, we originally said it was going to be a little bit below what we saw in the fourth quarter, and now we're looking maybe at close to $30 million. Some of the offset to that is some of the headwinds that we have from the semiconductor piece in our supply chain business and then also some of the additional investments that we're making in that area. But John, is there any other color you want to add to that?

The one item that Robert mentioned around rental, it's both better demand and also momentum around pricing that we saw in Q1 and that carrying through the balance of the years is the one thing I would add to that, Todd.

Okay. John, just for clarification, I think Robert mentioned that rental pricing was going to be consistent with 1Q for the rest of the year. Is that 1% increase? So the double digits that we saw in 1Q, is that what we should expect for the rest of the year? I know the comps get more difficult in the back half. If you could just clarify that, I'd appreciate it. Thanks.

Yes. I would say, look, the first half, you should expect that. As you saw in the second half of last year, we started taking some pricing actions as we saw demand coming back into the system. But there's still going to be healthy year-over-year increases for the balance of the year. It may wobble a little bit from Q2, down in Q3 and Q4, but they're going to be good improvements year-over-year throughout the year.

That’s helpful. Thanks for the time.

Thanks, Todd.

And we'll take our next question from Stephanie Benjamin from Truist. Please go ahead.

Hi, good afternoon.

Hi, Stephanie.

I wanted to clarify just on the updated outlook. It appears you didn't give a new outlook on top line expectations, and it sounds like primarily the increased guidance is due to FMS performance. So suffice it to say, should we assume that the full year top line outlook for that segment should be higher than kind of what was provided when the fourth quarter performance was released? Or - and then similar in that question, I'd love to hear a little bit about - it appears to be a very strong demand environment, but also, I think it's clear that there's a shortage in equipment, too. So I'd love to hear how you're balancing the high demand as well as being able to meet that demand. Thanks.

Yes. Well, I'll just give you a high level. I mean the forecast top line, there's some improvement, but a lot of it is not proportional, I would say, to the bottom line. I think we're getting more than our fair share on the bottom line. And I'll let John address the second part of your question.

Yes. So Stephanie, what I would highlight here is what we're seeing is the order book for the lease business is pretty robust. We do think that the lease activity, even though we are seeing some challenges on new vehicle delivery, is going to come in better the full year than what we had expected. And then previously, we had mentioned rental, especially on the pricing and demand side outperforming, you're going to see that carry through on the top line as well. So you are going to see some of that outperformance from rental revenue through the balance of the year.

Absolutely. Appreciate it. And then secondly, on the supply chain business, you noted an increased focus in investment behind technology and going forward. Can you maybe talk a little bit about that and what we should expect in terms of those investments as we move through the year?

Yes. We talked about it at the beginning of the year, the fact that we're investing in different technologies. We're investing -- making some additional investments in our Ryder Last Mile, adding some nodes and facilities and investing in technology also for our e-fulfillment product line. So I think what - really, the takeaway from this quarter is we're just very encouraged by the results that we're seeing so far. I would say even beyond the e-fulfillment piece, just the acceptance of the RyderShare visibility and collaboration tool that we developed over the last 1.5 years, two years, we're really - it's really becoming a big driver for us winning supply chain business and dedicated business. So let me hand it over to Steve so he can give you a little bit more color.

Yes. Stephanie, I'll dig in a little bit deeper. I think as you think about technology investments, as Robert said, we're really hitting across multiple product lines. RyderShare certainly serves our dedicated business and our transportation management business where we act as the traffic department for our customers. So we're well on to launching that for those customers. We'll be rolling out an application for warehousing later this year and early into '22 as well as brokerage. If you think about e-comm, we have to continue to invest in technology not only to retain our customers, but to make it easier for them to do business with us. So we're focused on that, and we'll be rolling out an order management system later this year. And in Last Mile, we're improving our customer experience. So the visibility of orders in transit to our end customers is a key focus area for us there. So I'd say it's really across the board. And as Robert said, it's not only retention, but it's also top line growth.

Great. Well, thank you so much for the color.

Thank you, Steph.

And we'll move to our next question from Jordan Alliger from Goldman Sachs. Please go ahead.

All right. Can you maybe provide a little more color on the line of sight on the dedicated operating revenue growth? I think the year started out flat, but I believe you still believe sort of high single-digit revenue growth. So I'm just wondering what are you seeing in the pipeline or contracts closing? And when is the acceleration sort of kick off? Thanks.

Yes. I'll tell you, we're - it's a great question. We're really encouraged by the sales activity we saw this back half of last year and into the beginning of this year. We're really looking at high single digit, maybe even double-digit growth in dedicated this year. And those are deals that - many of those are deals that we've already signed or close to signing. And a lot of it is the activity that you might expect as the driver shortage is no secret. Everybody's challenged with it. And we're seeing more and more companies looking for help around that and around really running their private fleet. So I'll let Steve give you a little more color on what we've seen.

Yes. We had a really good close to the end of the year last year. I'd say, already this year, to date, we're ahead of expectation there. I think the continued investment in our Ever better campaign is certainly increasing our pipelines to historical levels. And the deal size that we're seeing right now is some good large deals. So we're excited. As Robert said, I would expect to see that at or above the range here in Q2 and for the balance of the year.

Great. Thank you.

And we'll move on to our next question from Brian Ossenbeck from JPMorgan. Please go ahead.

Hey. Good morning, everyone. Thanks for taking the question. Just a follow-up on the dedicated. Are you seeing any challenges, whether it's a type of customer or certain regions where you're seeing a little bit of slowdown or maybe a bit more money you have to put into the market to get drivers? Are you seeing any shortages even on your side with the dedicated that are impairing the growth? Or are you not having that sort of issue right now?

Yes. I'll let Steve give you more color. But I'd tell you, the driver shortage affects everybody, including us. However, net-net, it is a positive because we are -- I believe that we're a lot better at hiring and retaining drivers than most private fleets are. That's what we do for a living. We have a team that specializes in driver recruiting in each of the markets. So even though it is more challenging for us also, it's actually a very good thing because more companies look for help when things get difficult, and that's what we're seeing. I'll let Steve give you a little color on what we're seeing maybe by geography.

Yes. Brian, I think that's a really good way to sum it up. It is kind of ZIP code by ZIP code as we go after some of the challenges. I'll give you a little bit of detail on what we're doing. Certainly, we're always reviewing the driver compensation and working with our customers to recover that, and we've got - had good success there. Another investment that I didn't speak about earlier is our RyderDrive technology, which is effectively making a paperless driver experience. So that's very attractive to attracting drivers and retaining them, making their jobs easier. As Robert said, we've increased investment in our recruiting teams, and those recruiting teams are really focused on geographies. So they know the nuances of those geographies and can be very proactive there. One last thing, we are adding out sign-on bonuses in key markets, and that's been effective to date.

Thanks, Steve, for the color there. If I can just follow up on the tax policy changes. I know you're not expecting anything to come through, and we don't expect anything. I know what might actually come through at this point. But just at a high level, can you remind us - I know you had a white paper out the last time tax changed. This time, it might go in the opposite direction. So I guess post mortem from the last time the tax changed, was that a big impact when you had things like tax shields and accelerated depreciation moving around? Did that affect the buy versus lease? Or is it too noisy? Can you even really tell on a customer-by-customer basis? Just sort of what to think about when we start to see these headlines moving forward, I'm assuming towards the back part of the year on taxes.

Yes. I guess you're talking about the impact on the demand for our services, such as the truck leasing side?

Yes.

Yes. I would - yes, I'd tell you that, first of all, the reason most companies are leasing trucks from Ryder is really for the maintenance and the fleet management component of it. There is always somewhat of a financial piece, but this is not like your typical pure operating lease where all they're doing is getting a lease. It's really the bundle with the purchase of the vehicle, the bundle with the maintenance and the financing and then finally, the residual guarantee. So we don't expect that to change with a tax law change. I don't see that having an impact on demand much at all. And I think that you'll still continue to see strong demand for the maintenance capabilities. And again, the growing complexity around the technology of vehicles will continue to drive more people to outsource.

All right. Thank you, Robert.

Thank you, Brian.

And we'll go ahead and take our final question from Jeff Kauffman from Vertical Research Partners. Please go ahead.

Thank you, very much. Thank you for taking my question. Well, first of all, congratulations, just a fantastic looking quarter. I'm going to go in a different direction with the question. As you probably were aware, one of your warehouse logistics fulfillment competitors will be spinning off that business into its own independent subsidiary later this year and valuations, depending on who you listen to, could be 13, 14, 15 times EBITDA. You probably have one of the better global businesses in this area, trading at 4.5 times EBITDA, any thoughts? Is that something you would consider evaluating if we had a publicly traded comparison 2.5 to three times the value?

Yes. Brian, obviously, we're always focused on making sure that we're going to get full value for what - for the pieces of the business that we have that's why you've seen us providing much more disclosure around the specific returns of each of the businesses. We really - as you know, our strategy has really - has been - over the last couple of years is really to have moderate growth in our leasing business, generate free cash flow and invest that in accelerating the growth in our supply chain, dedicated businesses, which have a higher return. I think that strategy over time - I mean it's still early. I think that strategy over time is going to pay dividends and really have the company value differently. But we will - we were - we do look at things on a regular basis, and we will continue to evaluate as we move forward. But as you know, we don't comment on either acquisitions or spin-offs or anything else like that. But again, the important thing is we really like the portfolio of businesses that we have. I'd tell you, I'm very encouraged by the progress that we've made in our move towards that 15% ROE because I think that is an important milestone to get to, to really have the company value differently. And again, I want to remind everybody, right now, we think we'll do 12% to 13% this year, 15% or more next year. But our goal is really 15% over the cycle. And that tells you that we still got work to do, and there's still a lot of runway of things that we can do to continue to improve the return. So the depreciation roll-off has helped us. But we are still carrying quite a…

Yes, terrific strategic overview. Thank you.

All right. Thank you, Jeff.

At this time, there are no additional questions. I'd like to turn the call back over to Mr. Robert Sanchez for closing remarks.

Okay. Well, thank you, everyone. I certainly look forward to seeing most of you over - during the quarter as we get out to some conferences and road shows. Stay safe.

And that does conclude today's conference. Thank you for your participation.