Schneider National, Inc. (SNDR) Q4 2021 Earnings Report, Transcript and Summary

00:08 Greetings and welcome to Schneider’s Fourth Quarter 2021 Earnings 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. 00:27 It is now my pleasure to introduce your host, Steve Bindas, Director of Investor Relations. Thank you. You may begin.

00:34 Thank you, operator and good morning, everyone. Joining me on the call today are Mark Rourke, President and Chief Executive Officer; Steve Bruffett, Executive Vice President and Chief Financial Officer, and Jim Filter, Senior Vice President and GM of Intermodal and Chief Commercial Officer. 00:51 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, and prospects for Schneider, which constitute forward-looking statements for the purposes of the Safe Harbor provisions under applicable Federal securities laws. 01:15 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 risks identified in today's earnings release. All forward-looking statements are made as of the date of this call and Schneider disclaims any duty to update such statements except as required by law. 01:45 In addition, pursuant to Regulation G, a reconciliation of any non-GAAP financial measures referenced during today's call can be found in our earnings release, which includes reconciliations to the most directly comparable GAAP measures. 02:00 Now, I'd like to turn the call over to our CEO, Mark Rourke. Mark?

02:04 Thank you, Steve and hello, everyone and thank you for joining the Schneider call this morning. I will open our dialog today with commentary on the performance of our segments in the fourth quarter and the solid momentum that we are taking into the new year in each of them. It has been a busy start to the New Year. The market in general remains challenged in terms of network fluidity and insufficient resource availability including professional driver, warehouse and maintenance technicians. 02:31 At the same time, freight demand remained strong. Additionally, and specifically to Schneider, we have added a dedicated focused trucking acquisition with Midwest Logistics Systems or MLS as we call them, and announced a 2023 strategic alignment change regarding our Western rail partner in our Intermodal offering. 02:50 On that point, Jim Filter has joined us this morning, and his role of General Manager of our Intermodal offering. Jim will offer additional strategic insight on that opportunity and what we expect in terms of growth for the business and in support of our value customer community. We will then turn to Steve Bruffett for commentary on financial performance in the quarter and provide insight into 2022 full year earnings per share guidance and an update on our recently completed review of our long-term margin performance targets across our segments. 03:22 Finally, Steve will provide insight into our 2022 net capital expenditure guidance. So as a result, you can expect our opening comments to consume more time that we normally do before getting on to your questions. 03:33 Our enterprise delivered record earnings performance in the fourth quarter and the full year of $178 million and $534 million respectively. These results reflect our strategy to create a premier multi-modal transportation platform that enables us to aggregate demand and capacity in a way that provides all stakeholders with access, visibility and insights to meet their supply chain needs. 03:59 I am grateful to our talented and committed associate base who adapted to the broader market conditions throughout the year and leaned into the work necessary to achieve top-tier results in it. I'm also appreciable of our valued customer base. The integrated multi-modal approach increasingly enabled by our Schneider Freight Power Platform is resonating with the needs of our diversified customer community. 04:22 In addition, customers have been highly supportive of addressing inflationary costs being introduced in the business in support of higher wages, equipment and other variable cost categories. But we don't intend to guide on 2022 price performance, we do expect to continue to address inflationary costs through our 2022 renewals across our segments. 04:45 Importantly, our strategic growth drivers of dedicated Intermodal and brokerage take a great deal of momentum into 2022. Dedicated grew organically from January to December last year by over 900 driver associates. The result of delivering great value to our existing customers and our new business development team bringing in dozens of new business wins. 05:06 Combining our organic growth with our MLS acquisition, Dedicated is nearly 2,000 driver associates larger than a year ago. The new business pipeline in Dedicated remains robust and we have several hundred units of new business ahead of us in the new year and we're off to a strong start in the first quarter. 05:25 Growth in Dedicated is partially in recognition of the preferences of the professional driver community and the type of work in the customer alignment that most -- they find most satisfying. The allocation of our people and our rolling assets have increasingly shifted from network to dedicated configurations. 05:42 That said, we are working diligently on stabilizing the tractor count and our network configuration, as it offers great value to our customers and to our business as indicated by revenue per truck per week and network increasing 23% year-over-year in the fourth quarter. 05:58 In Intermodal, the team overcame rail fluidity challenges and container turn delays at customer locations by effectively managing network yields, minimizing the use of higher cost third-party dray resources by leveraging our highly productive company driver dray fleet and disciplined allocation of containers to where they could be turned most efficiently. 06:20 Order count was down 3% year-over-year and revenue per order increased 20% over the same period. And as we discussed last quarter, we expected to overcome the supply chain issues from Asia to take delivery of additional containers by year end. In fact, we netted up to 1,300 containers in the quarter, bringing our full year container growth to 15% or a net of 3,300 containers for the year. Intermodal margin performance for full year 2021 finished at nearly 14%. 06:51 Now, I'll bring in Jim to talk more about the strategic positioning of Intermodal for growth and our recent announcement. Jim?

07:00 Thanks, Mark. Good morning. I am glad to be here today to share more on our recent Intermodal news. As Mark indicated, we announced plan to partner exclusively with Union Pacific to service our Intrawest and transcontinental Intermodal business as of January 1, 2023. This partnership aligns with our Intermodal growth strategy and our environmental goal to reduce carbon emissions. 07:21 Our plan to double our Intermodal business by 2030 is rooted in both our expectation of increased market demand for environmentally friendly capacity and our goal to grow faster than the market by providing exceptional value for our customers. We have established a differentiated scaled Intermodal offering through our own containers and chassis coupled with our company driver dray model. This differentiated position will be accentuated through our partnership with the Union Pacific. 07:48 Schneider will have the only asset-based UP, CSX Railroad solution increase in the number of destinations we serve with more direct connections for transcontinental freight. This will improve customer transfer times and increase driver efficiencies, especially in Chicago, a traditional bottleneck in the North American Intermodal system. 08:09 Schneider was the largest company driver dray fleet of any Intermodal carrier hauling freight on the Union Pacific and we'll be the only carrier with both company-owned containers and chassis. We believe the UP CSX combination and commitment to PSR pairs well with our asset-based execution. 08:27 In summary, this combination creates a compelling and differentiated value proposition for our customers, which in turn delivers shareholder value. We are working diligently to ensure the transition is done in such a way that is, as seamless as possible to our customers and our business. As I mentioned, we will be fully transitioned to the Union Pacific by January 1 of 2023. 08:49 We are excited to work more closely with the Union Pacific and realize the opportunities our partnership creates to accelerate growth and long-term value for our customers and for our enterprise. 09:00 And with that, I'd like to turn the call back to Mark.

09:02 Great/ Thank you, Jim. And before I turn to Steve for his commentary on the financials and our outlook, I will finish up with the outstanding contributions of the third leg of our multimodal platform Logistics. For the first-time in our history, Logistics finished the quarter as our largest segment as measured by revenue at $548 million, surpassing truckloads revenue of $524 million. 09:25 Two notable achievements stand out to me in the quarter. Brokerage 23% order volume growth year-over-year and cresting 50,000 approved carriers. The 50,000 carrier number represents nearly a 40% year-over-year growth as Schneider Freight Power for carriers enabled us to more economically reach and digitally connect to the long tail of the small carrier community and that's been a segment of driver capacity that historically has been under-represented in our brokerage business. 09:55 For the year, Logistics finished with $92 million of earnings nearly double that of 2018, which was our prior most profitable year. While I'm pleased with our accomplishments in 2021, I'm even more encouraged by what's ahead. 10:10 Now, I'll turn it over to Steve Bruffett.

10:11 Hey, great. Thanks, Mark. Thanks to each of you for joining us this morning. Our fourth quarter adjusted earnings represented not only record earnings, but the third consecutive quarter of record earnings. For the complementary benefits of our multimodal platform are evident throughout 2021, as all segments posted meaningful year-over-year increases in earnings and in margins. 10:37 In the fourth quarter, Intermodal and Logistics combined to represent more than half or 51% of segment earnings as compared to 42% in the fourth quarter of 2020. In addition, dedicated revenues comprised 44% of Truckload segment revenue versus 39% in the fourth quarter of the prior year. Purposeful reshaping of our portfolio is progressing and we're targeting further advancement in 2022. 11:10 For the full year of 2021, adjusted earnings of $533 million, were 77% higher than the prior year. In addition, revenues excluding fuel surcharge crested the $5 billion mark for the first time and reflected a 22% increase over 2020. Regarding the MLS acquisition that closed on December 31, we were pleased to find quality company that aligned so well with our strategic criteria and our capital allocation disciplines. 11:47 We look forward to pursuing profitable growth opportunities with the MLS team. Deal structure was all cash and the purchase price of $263 million represented an EBITDA multiple of approximately 6 times. As we have noted, MLS results will be reported as part of our dedicated operations beginning in the first quarter of 2022. Given the timing of the MLS closing, there was no impact on our 2021 income statement. However, our year-end balance sheet reflects the initial purchase accounting for the transaction and our statement of cash flows contains the payment for the acquisition. 12:37 Moving now to our forward-looking information. Our initial guidance for 2022, adjusted diluted earnings is a range of $2.35 to $2.55 a share. This range is inclusive of MLS and the guidance is based on the momentum we have earned as we began the new year. This EPS range also assumes strong freight market conditions continuing throughout the year and at the same time, the guidance incorporates the well-documented inflationary cost pressures that are occurring in the transportation space. 13:14 For further context to our guidance, we expect gains on asset sales to be similar to those achieved in 2021 although, there will likely be quarterly variations on a year-over-year basis. Also, our full year 2021 adjusted EPS of $2.29 contained $0.09 of benefit from our equity investments, while our 2022 guidance assumes none. Our 2022 guidance of $2.35 to $2.55 contains solid growth in quarter earnings above the strong levels achieved in 2021 and a portion of that growth is coming from MLS. 13:59 Mark mentioned our review of long-term annual margin targets for our segments. So let me provide that update. For our Truckload segment, our prior target range was 11% to 13%. Upon reviewing the progress over the past couple of years plus the opportunities we see in front of us, we're moving the target range to 12% to 16%. This moves the midpoint upward by 200 basis points, which is significant given the nearly $2 billion revenue base. 14:33 For the Intermodal segment, our prior target range was 10% to 12%. The updated range is 10% to 14%. So the midpoint increases by 100 basis points and the upper-end increases by 200 basis points for this key component of our growth story. For the Logistics segment, we're leaving the target range at 4% to 6% as the approach is to consistently grow earnings dollars by growing top-line revenue, while also investing in technology. 15:09 These updated ranges are reflective of the progress we've made over the past couple of years and they provide an attractive return on the capital profile that goes hand in hand with our strategic shaping of the portfolio. Our guidance for 2022 net CapEx is approximately $450 million. Consistent with our capital allocation framework, the planned tractor investments will focus on further improvements to the fleet age and on growth in Dedicated. We also plan to invest in trailing equipment to support growth in Dedicated, Intermodal and our power only offering. 15:51 We intend to advance our investments in technology, both internally and externally, including our mastery partnership by focusing on our key themes of automation, digital capabilities and simplification, all of this complements our rapidly growing Schneider Freight Power Platform. 16:13 In closing, we carry a lot of positive and hard earned momentum into 2022 and we will continue to deliver shareholder value with a constant focus on our strategy to profitably grow and further broaden our multimodal portfolio. 16:30 So with that, we'll now open up the call for your questions.

16:35 Thank you. Ladies and gentlemen, at this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question comes from the line of Jack Atkins with Stephens. Please proceed with your question.

17:11 Okay. Great. Good morning and congrats on a great quarter.

17:14 Good morning, Jack.

17:15 So I guess maybe this one is for Mark or Jim because it's about Intermodal. I guess, can you help us think about the balance of your Intermodal business today between East and West as it sort of stands today. And then maybe where you want that to go as you look out over the next couple of years with your new partnership with the UP? And I guess kind of more broadly, is this sort of strategic shift of rail partners, is that tied more to opportunities to take market share or is it more about improved economics on your current portfolio?

17:50 Well, great question, Jack and I'll let Jim weigh in on some of your questions -- elements here as well, but as we've discussed, we've been very pleased with our growth in the East and the ability to convert effectively from over the road to our Intermodal product, it's really where we can get great leverage of our dray offering to compete really effectively. We have felt that we have been under represented in our growth profile in the West. And so, the strategic shift for us is really unlocking what we think is a great transcontinental connection point to unlock the growth potential that we think we have in front of us. And so we'll ultimately get, I think, to more balance in our growth between East and West and it's been for last several quarters been disproportionate to the East.

18:38 Yeah. And Mark, I expect the way that we can get there is by leveraging these new strengths that we're creating because we'll have more toll lane choices, including more direct connections to the CSX. And then we're improving our differentiation, we will be the only private asset company with the UP, CSX connection, leverage our largest company driver dray fleet, the only company with private chassis on the UP and you put all those together, we're creating more value for our customers and that will unleash greater growth potential.

19:09 Okay. That's great to hear. And I guess maybe a follow-up there on Intermodal, if I could. There have been a couple of announcements around partnerships shift from the BN to Union Pacific, both Knight and yourselves. Any concerns around potential service issues just given all the additional volume that will be going on to that network? And would you expect the UP to make some investments in their network to help improve velocity?

19:37 Yeah. We've shared our volumes with the UP and we're comfortable with their capital plans, and as you add more volume onto that UP CSX direct lanes, we may actually see more lanes that have more direct connections. So we'll be improving the efficiency of those two rails.

19:54 Okay. That's great to hear. Thanks so much for the time.

19:59 Our next question comes from the line of Bascome Majors with Susquehanna. Please proceed with your question. Q - Bascome Majors 20:05 Yeah. Good morning and thanks for taking my questions. On the one way bid season, could you give us an early read on how prevalent the mini bids and shorter duration contracts are versus how that was last year? And any thoughts on the competition, you're seeing or not seeing from non-asset brokerages in the contractual one way bid season? Thank you.

20:30 Yeah. We're really early in the process there for the calendar year. I think, I would characterize most of our discussions involve around ensuring capacity coverage and customers working through perhaps a bit more direct discussions versus throwing everything into the bid discussion. I think we've learned over time that both the carrier and the shipper can benefit from working together on more long-term arrangements. And so we're really early in the process, but we would expect a fruitful season getting through. Obviously, we're all dealing with inflationary costs through the supply chain and our customers are also highly engaged in solving those problems. But, Jim, any other comments commercially?

21:13 Yeah. We have not seen a change in the market conditions and specifically those revenues productive discussions with customers. They're are seeking out multimodal solutions to create stability in their networks and what they are specifically looking for our providers that have the scale, so we have the scale within network dedicated Power Only, Intermodal and then our ability to integrate those service offerings to address their supply chain challenges.

21:44 I mean, to follow up on that, did the duration of your typical one-way contract shorten in any material way last year and has that stabilized or started to go out a bit?

21:55 No. We have now asking them of shorten. In fact, there is customers seeking to engage in some longer-term discussions.

22:04 Thank you very much.

22:07 Our next question comes from the line of Ravi Shanker with Morgan Stanley. Please proceed with your question.

22:15 Thanks. Good morning, gentlemen. I get that you're not giving us specific price guidance or color for 2022 in the trucking business, but if you can just characterize how, you see conditions are evolving through the year, kind of any potential differences between the first half, second half, kind of any color would be really helpful. Thanks.

22:32 Yeah, Ravi. It is probably a little early for us to have a total feel for the full year. I will tell you we're carrying a lot of price momentum into the year contractually. And we have had incredible and appreciative support from our customers on the inflationary cost pressures that they're feeling across their supply chain and certainly as a provider to them that, we're feeling and so I would consider the market constructive and supportive. And again, the demand and the supply issues are still prevalent. So we would expect that we're still going to have pretty favorable freight conditions for the full year, but again, that all has to play out.

23:17 Understood. And Steve, if I can sneak two follow-ups to you, sorry. The new IM targets, was that primarily driven by the UNP switch or was that going to happen anyway? And also, sorry if I missed this, but did you quantify how much actually MLS actually contributes to 2022 EPS?

23:37 Okay. Sure. The first part of your question, we would have made this update to our Intermodal target margin ranges anyway. I think that the switch to the UP as Jim said earlier, really just reaffirms that range and enhances the earnings dollars growth through more revenue growth potential coming through the pipe. So that's what that is all about. And we have not quantified the contribution of the MLS and we did provide the multiple that we paid so people could make some inferences about the order of magnitude within there, but that's the level of detail that we're going to provide on that one.

24:30 Great. Thank you.

24:35 Our next question comes from the line of Ken Hoexter with Bank of America. Please proceed with your question.

24:41 Hey. Good morning. It's Ken Hoexter. Just looking at the structural shift on trucking margins, is that -- maybe talk a bit about that -- is that a factor of pricing or your view on the sustainability of the market? I guess, if we think about investor concern that at some point, we're going to see loosening up after this peak on pricing, yet you're looking at maybe a structural gain on our margin. So maybe just walk us through, what is shifting here that in your view?

25:13 Great. Thank you. Good morning. This is Mark. Certainly, we're seeing some shift in our portfolio to a higher mix of Dedicated versus network. Some of that by design clearly, because of the preference that our driver community has for that type of work. So I think we would expect that business to have some resiliency to it. Those are longer-term contracts and we're providing great value, both with our existing customer base, but also a series of new customer has been introduced into our portfolio. And so, we would see a disproportionate amount of our growth in truck clearly going forward continuing on that vein. 25:52 And on the network side, we still really like that business. We're working on stabilizing the power count and we're largely a contract provider there as well. So we're a bit more stable, although we do play in the spot around the edges and certainly support our customers around key project work that they find important. So as we look at, at least looking forward, I think our mix of business in the truck side helps us retain earnings and we have a smaller, although highly effective network business that I think will continue to provide value in the marketplace.

26:32 Yeah. Amazing with the network not growing or fleet down but yet in 20% plus revenues, all right. So I get that. Now on for my follow-up, we just talk about technology a lot right with a question and now with your ability to scale Logistics and you mentioned kind of the highest dollar revenue. Maybe talk about brokerage a little bit. What is the outlook and your ability to grow that digital platform and be hands-free? Steve mentioned grow with technology budget and yet a scale that business. So maybe talk a little bit more about the opportunity set there?

27:07 Great, Ken. There is a lot there and I appreciate you are asking the question because we still have a very robust technology appetite and spend. In fact 2022 will be another record year of spend for us in that and it's incredibly important to what we're trying to do to unleash our entire effectiveness of our strategy. When we first started talking about this with Quest, now then years ago -- I'm trying to think how long ago that's been. But we were getting to a single source of the truth thereby putting all of our services on a platform that we could have our data, be in a position to get decision support models, evolve our networks to do a better job of pricing, revenue management, optimization and presenting data to our people in ways that they can make the best-informed decisions. 28:04 What's evolved for us, as we really -- because we started inside out, others have started outside in on their technology spend. We are now taking a number of those data points for insights data and presenting them to our outside partners, whether they be carriers are customers, in the intent of automating more and digitizing our entire value chain. So that's what's exciting for us. We had the great foundation that we've had for a while now. And now, we're taking that foundation and presenting it to our key trade partners. And so that's where our investments are and we're seeing automation, I think, over several hundred orders, I think 600 or 700 orders a day in our brokerage business, particularly around the carrier side where we're not having any people touching a bit the freight. 28:49 It's all automated through tender acceptance and dispatch. We're seeing great progress on Intermodal business the same way that many of our orders now. The first time a person touches when our dray driver shows up at the customer and the whole process before that has been automated. So those are the things that we think can unleash a cost position and grow our business without growing our people count at the same level and that's where our focus is on and -- we say the Schneider FreightPower network, that's what we're really driving towards.

29:21 Can I just get a quick follow-up on a numbers question. I just want to make sure I got the math right. Steve, you mentioned 10% to 14% -- I'm sorry, I just want to make sure I got this right. That Intermodal, you said 10% to 14% range, right. You did 17% this quarter. I just wanted to understand, is that you're saying you're over-earning or your targets have upside?

29:41 10% to 14%, is an annual number. The 17% was the fourth quarter.

29:48 So it's a lot of seasonality, okay. Thank you very much. Appreciate the time.

29:54 Our next question comes from the line of Jon Chappell with Evercore. Please proceed with your question.

29:59 Thank you. Good morning, everybody. Mark, I kind of want to follow up on the last question, the FreightPower platform seems to have hit a pretty significant scale, you crested the 50,000 carrier mark, which I think it's an important threshold for you. Just curious with the scale you have now, with the advancements that you've had there, why hasn't at least the top end of the Logistics margin range moved up, understanding you want to still grow it exponentially. I would think that just with that platform and a certain scale, obviously the upside there could potentially be higher?

30:34 Yeah. I think we're on the front end of the benefits that will start to get into our business particularly on those efficiency factors, but also as you look at our strategy with Logistics, we are much more than an overflow model. And while we're seeing some benefit in this market of overflow and certainly now that we brought our Power Only capability to bear so that we can help large shippers connect with smaller carriers, we also have the capability regardless of market to generate demand and generate care capacity with our brokerage separate from any of our asset services. And so we believe that's a more resilient model than just an overflow and so we have the infrastructure, and we have the capability to really I think thrive in our brokerage business regardless of the business cycle that we're in. And that might be a little bit different than some of the other asset-based approaches, but we think we want a healthy thriving logistics business that can benefit from the assets that would be withholding to them.

31:41 Okay. And then for my follow-up, Jim and maybe Steve, a little bit as well. The long-term strategic rationale for the UMP move obviously sounds great. From a short-term perspective, I know you said you're working to transition with your customers. You're not the first to make this move in the very recent past, and it sounded like others may be put at the bottom of the totem pole with the former carrier as they're making that transition and you certainly gave a lot of heads up. How comfortable are you that there's going to be very little service impact from already raising your hand to move from your existing carrier? And maybe for Steve, what kind of an order expectation have you baked into the guidance from this transitionary year?

32:27 Yeah. Thanks. So while I can't speak to the specific issues that happened to that other channel partner, most of the issues last year across the industry were related to labor and the resulting lack of availability of chassis. So our chassis ownership model higher percentage of dray done by our company drivers better position us to control our own destiny and I expect both us and our rail partners are going to live out our contracts. It's not – and either company’s best interest to live those out and so there is also an opportunity for us to grow our business right now in the lanes that are unique to the Union Pacific as well. Steve?

33:12 I think that captures it quite well. We feel that we have a very solid game plan to transition through the course of this year. It's not a wait till January of 2023 and everything happens on one day, if there is a process that we have outlined as we go through this year and I think that we will be able to execute that with all of our partners in the West as we go through this year.

33:37 Okay. Thanks, Steve and Mark.

33:40 Yeah. The feedback we received from our customers when we did this rollout was overwhelmingly positive. And what I was really impressed with is how many of our customers explain the benefits to us before we start talking about the benefits and what they said was, we're seeking diversify intermodal spend across railroads and at the same time remain asset-based with providers that have the scale. And so, we have this unique rail pairing that addresses this customer need, and as a result, customers are seeking to grow with us.

34:10 Yeah. That sounds like an exciting move. Thanks a lot Jim, I appreciate it.

34:18 Our next question comes from the line of Todd Fowler with KeyBanc Capital Markets. Please proceed with your question.

34:24 Great. Thanks, and good morning. So just on the longer-term targets, just for clarification, the new ranges, are you viewing those as the ranges over the cycle, so a different points in the cycle, that's still low versus the high? And then with the comments around Intermodal potentially doubling by 2030, how do you view the mix of the business over the next couple of years, how much contribution do you see from truck versus intermodal versus Logistics?

34:53 Yeah. This is Steve, I'll take the first part of that. We do intend to these margin ranges to cover the vast majority of freight cycle, at least eight out of ten years, is kind of how we think of it. There's always some outliers things that can happen in shorter periods of time, but we do feel like there's structural changes that we've made within the organization and our execution and performance as well as some structural things within the spaces in which we compete that enables the lifting of these ranges. And so, feel pretty confident that we've landed in a good place that again provides improving and enhanced return on capital as we go forward in time.

35:47 I thought maybe a couple of other parts of that question. Certainly, as we think about our future portfolio shaping and mix and our strategic growth drivers on the truck side is Dedicated and then our two other strategic growth drivers centered around Intermodal, which has a number of structural tailwinds, not only is too much freight because of the current condition converted back to over the road that can convert back to intermodal, there is a meaningful and valuable -- value exchange coming with environmental sustainability. And we have a great product, not only in our dray efficiency but also what partnering with the rails does there. So we see that being very much a tailwind to growth. 36:37 And then certainly as you've seen our fastest growing segment and for the first time in our history in the fourth quarter, our largest segment being Logistics. And so, those are our three primary growers and we would be happy and we don't feel capital constrained or capability constrained on any of those three service offerings and we will pursue them all with vigor.

37:00 Got it. Okay. That helps. And then just a follow-up, do you care to share any thoughts on the shape of the cadence of the quarterly earnings for 2022? I know typically you realize, and it was again this year, a bigger fourth quarter and kind of a slower percent or lower percent excuse me in the first quarter. Any thoughts on kind of how you're expecting the quarters to come together in 2022?

37:27 This is Steve. It'll be interesting to see how the year plays out. We see a constructive environment pretty much throughout the year from where we sit today. As Mark mentioned earlier, we have a lot of momentum coming into the year and I think that we will carry that through but not offering up specific quarterly trajectories at this point in time.

37:53 Yeah. Okay. Understood, Steve. Thanks for the time this morning.

37:56 Our next question comes from the line of Chris Wetherbee with Citigroup. Please proceed with your question.

38:04 Hey. Thanks. Good morning. Maybe just keeping them on the Intermodal topic here for a minute. As we think out to 2022, see I guess you finished ‘21 at about a 14% margin, which I guess is the high end of your longer term target or range. As we think out to next year, maybe can you help us understand what you -- how you expect the business to kind of grow? Would it be that you would expect rail service to get better, so utilization goes up, volume kind of improves and then maybe some of the revenue per load kind of unwinds a bit with lower assets or that might be a negative to the margins, but a positive to the profit? I just want to make sure I understand the dynamic I guess otherwise maybe we're just looking at a kind of flattish from a margin standpoint. Any help you can give us there sort of understanding the puts and takes that go into Intermodal for 2022 would be great.

38:53 Great, Christian. Thanks for the question. Certainly, we've suffered from the productivity of our asset standpoint over the last several quarters relative to getting our boxes turned. And so we've got a couple of things going on there. We do expect over time that that starts to improve. We also have not had the full benefit out of the boxes that we grew in the second half of the year because they came in more second-half loaded. And so we believe those extra boxes that we not only have now those 3,300 for the full year but also more that will be placing into service this year, gives us more assets to deploy and to grow the business. And then some of the other items that we've talked about commercially with the environmental values that we can offer and the starting of our transition on non-competitive lanes with the UPC. Put all that together, we think -- we'd like to think that we'll have more of our earnings dollars overtime here, start to be contributed by growing through our productivity and through our growth of the volume, but we also have with our dray performance and what we can control everything that Jim talked about, we do have a little bit more ability to control our destiny and on decisions that we make and how we execute across that network that we don't think we're done with leading into margin opportunity as well.

40:24 Yeah. I think just add on to that, that we've made tremendous progress over the past several years in our Intermodal margins. So I think we can stand behind the accomplishments that we've made there. And there's two ways to grow earnings dollars, you can grow the top line or you can expand margin. And given the degree of progress we've made on margin expansion in Intermodal, the toggle switch kind of goes more towards volume growth and revenue growth while maintaining that margin. We might make different behaviors in different parts of our business, but where we are right now with Intermodal, I think it makes sense to emphasize volume and revenue growth.

41:08 Okay. That's very helpful. Appreciate that. And then just on the Truckload segment, wanted to get some perspective on how you think about maybe costs in gains for ‘22 and if the gain would be flattish. Looking at the fourth quarter, typically, you have a slightly better ORR in truck 4Q versus 3Q. This year is a little bit worse, so I want to get a sense of maybe how you're sort of experiencing the cost environment driver availability, all the factors that kind of go into that, so we can maybe understand if there is adjusted seasonality, we should be expecting in 2022 and then like I said, where the gains to play out?

41:44 Yeah. This is Steve. You mentioned gains there and if we were to replay the tape from our third quarter ‘21 earnings call and I was providing full year guidance at that point in time, which was really focused on the fourth quarter, given where we were in the calendar, I indicated that we expect gains to be about half of what they were in the third quarter as we got into the fourth, so fourth would be half of third, and that's basically what played out. So the difference in margin sequentially that you're referencing there, I would say, was more than 100% driven by the difference in gains and is not indicative of a cost issue.

42:30 Okay. Gains are flat on a year-over-year basis for ’22?

42:34 I'm sorry?

42:36 Gains are [Multiple Speakers] flat, yeah?

42:40 For full-year 2022, we expect to be in the same range as full year ‘21.

42:46 Okay. Great. Thank you very much. Appreciate it.

42:49 Thanks.

42:51 Our next question comes from the line of Jason Seidl with Cowen and Company. Please proceed with your question.

42:56 Thank you, operator. Gentlemen, good morning. I wanted to focus a little bit on MLS here. As we start modeling it on a quarterly basis, could you talk a little bit about any particular seasonality it might have? Also how does the revenue per tractor, could you remind us how does that compare to your base business?

43:16 Great. Good morning. I would tell you that based upon the business, it’s pretty stable relative -- seasonality it’s pretty stable year-over-year. We think we have the ability to have injected a bit more growth potential into the business and its financial performance is in range of what we see today in our Dedicated business, so it's not all that different, Just more of it.

43:46 Okay. You talked a little bit about the ability to grow. Now, MLS has a pretty high concentration in one particular end market, but it's got a great model with exceptionally low driver turnover, which I can imagine in this day and age is particularly something that you want to focus on. So how do you think you can go about growing into some other verticals and are you already in discussions?

44:07 Yeah. We think there is -- again, they have a great business and we're running them largely separately, but we do and have identified a number of places that jointly that we can collaborate on particularly on different geographies and then they presently play in some international markets, particularly around Mexico. So we think there is ample opportunity to take some learnings that they've incorporated into their operating model, and they do have a terrific driver retention model and not only expand vertical, but expand geography.

44:45 Okay. Perfect. Those are my two. Appreciate the time gentlemen.

44:51 Our next question comes from the line of Tom Wadewitz with UBS. Please proceed with your question.

44:58 Yeah. Good morning. Steve, you gave some comments on some perspective on CapEx. I didn't hear I guess a kind of framework on capacity adds. So I wondered if you could offer some thoughts on what is the net container adds for Intermodal look like, and how should we think about -- setting aside MLS, how should we think about growth in the fleet, I assume network business, maybe you're aiming for static, but how much growth in tractors should we see in Dedicated when you look at across 2022?

45:36 Yeah. We clearly, you've hit on the key strategic areas that we would invest in and are looking to grow in the Truckload segment. The dedicated space is where we would anticipate the vast majority of truck capacity to be added. And that would be in the hundreds -- several hundreds of units without being overly specific. We do feel like we have a lot of momentum and having a commercial success in the marketplace in that and we expect that to continue. So we've got some capital lined up to continue to feed that. 46:16 The trailing equipment in Intermodal, we expect to add several thousand of capacity as we go through the year. Some of these numbers will move around, I imagine as we go through the year and see what's going on with our OEMs and the timing of those deliveries. So there can be a little variation that goes with it. So we're not being overly specific with unit counts at this point but safe to say that we expect to continue to grow our container count and grow into that investment as we move through 2022.

46:59 Okay. And then I guess two quick follow-up ones if I can. I haven't really heard you talk about the timing for rail fluidity improvement and how quickly do you see that such that turns improve and you actually get year-over-year volume growth. So I wonder if you could offer a quick thought on that. And then maybe just like volume growth and Logistics has been very, very strong, should we consider tougher comps in 2022 in terms of volume growth, or you are going to keep chugging along at 20% plus volume growth in logistics? Thank you.

47:37 Yes. So I'll start out and then hand it back to these gentlemen. So what we've seen is our current provider in the West said a number of disruptions. But as of late, we've seen some improvement our Eastern providers remained fluid in their network. The area that, of course, we are still challenged with at times is our customer networks and their ability to unload and expect that we will see improvements as we go through the first and second quarter.

48:09 Yeah, Tom. As it relates to our Logistics business, we continue to see that as a growth driver. And we've added some more capability to our portfolio there with our emerging and growing Power Only capability and that's reported in our Logistics segment. And so obviously, comps do get more difficult, but we also believe we've got a value proposition that will allow us to keep leading into that. I don't have an exact percentage I'll share with you, but we would expect that to continue to be a volume growth driver.

48:43 Okay. Great. Yeah. Thanks for the time.

48:47 Our next question comes from the line of Scott Group with Wolfe Research. Please proceed with your question.

48:55 Hey, thanks. Good morning.

48:56 Good morning, Scott.

48:58 Steve, can you talk about Truckload margin improvement this year and what's in the guidance? Given the environment, is this a year where you think you can or should be at the upper end of that new segment margin?

49:15 Sure. Like we've said we carry a lot of momentum coming into the year. So, that is helpful. And particularly in the network side of Truckload, I think, we have opportunity to resume more normal type operations, especially once we get past the first quarter and weather events and whatnot. I think we'll see some greater productivity and efficiency start to develop in the network side of the business, which will be helpful to overall margins. And then just through top line growth like we've been saying in the Dedicated side of the business, we've achieved some solid margins there and expect that to continue in 2022. So I think that continuing at the levels we've achieved is in our wheelhouse and what we're set out to achieve this year.

50:14 Okay. And then I want to ask about another one on logistics and Power Only. Maybe can you give some directional color how big is Power Only as a percentage of Logistics? And it strikes me that you and all the asset-based truckers are just seeing such tremendous growth in this Power Only business. And frankly, I'm just not really sure how to think about this over the next couple of years if we eventually go into more of a free downturn. How do you think this Power Only business performs through a cycle?

50:51Yeah. Great question, Scott. As I think about Power Only, it is serving in today's world a bit of a surrogate to our network capacity that has been more difficult, particularly on the longer haul one way business, one way network. So it is serving a great value to the customer and we've been very successful in this environment when there is lots of choice from a carrier standpoint to align with us to get after a pretty significant growth in the Power Only offering. So it gives me confidence that if the market does start to subside or go the other direction from a carrier standpoint, we've done a lot of great work there to make it easy to do, and also to introduce the value of our orange box to a carrier that may have a trouble getting their own equipment in this environment as well as certainly a whole different access to different type of freight, different type of flow. 51:50 And I think that's going to play well probably even more so in a market that doesn't offer as much opportunity and choice. And so what we have been able to accomplish with our decision science around pricing to the customer pricing of the care, I think is very applicable regardless of what the business cycle that we're in. So obviously it has to be proven out and I'm sure there'll be some things that we will have to adapt and adjust to, but I think just like brokerage in general, it's pretty resilient through the cycles and I think this has the opportunity to do the same.

52:27 Just so I understand when you use the word surrogate, I know you guys don't report it, but everyone's utilization is under tremendous pressure. And so as things sort of calm down, you don't think that utilization in asset based trucking improves and loads in or Power Only loads in brokerage slow? Does that not make sense?

52:54 Yeah. I don't think we're limited with that thought. I think we can do both. And I think certainly the utilization and productivity will improve on the truck side, but I don't think it has to necessarily come at the expense of Power Only. My surrogate comment centered around if I had another thousand trucks in my network, we would be saying yes to more freight. We can still say yes, because we have the Power Only offering because of our orange trailer pool sitting in that same location. And so, we've been able to in a really seamless way support our customers while growing a carrier base that's different than the carrier base that we traditionally had served with our brokerage business, Scott. So, yeah, I think certainly there will be some bleeding of our back and forth to a degree, but I don't think it's has to be a binary this or that. I think we can do both.

53:46 Okay. Thank you.

53:49 Our next question comes from the line of Brian Ossenbeck of JPMorgan. Please proceed with your question.

53:57 Hey. Good morning. Thanks for taking the question. Just a follow-up on the Power Only and then just the sustainability and how to think about that through the cycle. Mark, maybe you can talk about just on the shipper side, are there any things changing with supply chains and visibility and thinking how they're staging things maybe more drop and hook, is there more of a secular demand for that type of freight and how to move it and therefore Power Only makes a little more sense from that perspective. So curious on your thoughts there. And also if you can just give the competition, If you could maybe elaborate on the carrier retention, if you think that's really more asset based, tech enabled, a little bit of both because obviously it's quite popular right now competitive to hang on to the carriers as well?

54:44 Yeah. I think what plays best for a trailer offering or/and like Power Only offering is the larger shipper who generally through efficiency and scale needed the ability and to have dropped and hook on either have both generally on both ends of the equation, but it's certainly at the shipper level, so they can have efficiency. And so what we like about this offering as we don't ask them to book another box or to distinguish. We can, through our decision science, offer a price, offer up coverage and then, what they really see at the dock and out in their pool is our orange box and then we manage the complexity behind that. So that's why I think you see such great adoption is because we're making it easy and certainly what you're seeing on the 50,000 carriers that we've tapped into a different carrier community than we have traditionally done because we had the line to larger asset providers even in our brokerage business because as a company, we like scale, we'd like to bring scale on both sides of that equation. 55:52 The technologies allowed us to get to a little lower level in that long tail of the carrier community and bring that efficiency with the box and with our technology and so that's why I think we have a growth opportunity because we're playing in a different pool of the carrier community. And we understand carriers, we treat carriers really well, we're sensitive to the quality of freight that we and the time that we ask not only our driver but another carriers driver to spend at a location and we have all of that information that we use that to our advantage.

56:29 Okay. Great. That's helpful. And just a quick follow-up on congestion more broadly speaking, you've touched on it in the prepared remarks and in the press release, but what's behind your view of just the gradual supply chain congestion improvement? Obviously, there's not a lot of visibility and that's kind of the base case, I think from a lot of folks that we talk to you, but is there anything in particular that you're watching and more leading indicators we've seen obviously a lot of volatility to start the year but maybe a little bit more shift back to services from good spending. So how are you thinking about that and monitoring it as you look into the new year?

57:07 Well, as it relates to fluidity, we haven't seen a great deal of that yet. We certainly, as many have dealt with COVID being more pronounced and impacting particularly our driver community of availability coming through the latter part of the year and bleeding over here into the first part of January. The good news is, it's not an as longer period that people are out, but still, it's been disruptive and certainly, the weather has gotten us in more southern and eastern locations than maybe a typical period. So we haven't really seen it yet, but certainly, as we think about Intermodal, as we've talked, we have more assets to deploy. We do think over time that will start to get better. We're already seeing a good performance in the East, so we really are talking the West. So those are more aspirational comments at this point than actually seeing in the day-to-day yet, but as we get through the weather, as we get through it looks like to be more openings and getting this COVID piece behind us a little bit, we think that brings us some productivity opportunities.

58:18 Okay. Great. Thanks, Mark.

58:22 Our last question comes from the line of Bert Subin with Stifel. Please proceed with your question.

58:28 Hey. Good morning and thank you for the time.

58:30 You bet, Bert.

58:30 Following up on the previous Logistics questions, what’s the downside scenario for that business? I mean I look at it as a double-digit grower with steady margins upside from Power Only. In what scenario, do you think that ends up not meeting your expectation, like what would have to happen?

58:52 What are the reasons you like a Logistics business, it has a more variable cost structure versus a fixed cost structure to it, and so that you can adapt quicker to the market and because it also plays in the spot on a percentage basis at a far, far greater level than we play and our asset side. So it just by its very nature and we've been added for multiple business cycles over the last several decades and so, we have some experience as things go up and go down, and the business has been resilient. And it's also allowed us and it does serve as our incubator for particularly our digital technology transformation. And so it's got a lot going for it relative to initiatives. What could go wrong. Well, any type of freight recession, nothing will be completely immune to that, but from the ability to scale, cost, and keep your net revenue margins, I think it's one of the most resilient portions of the portfolio.

59:56 Okay. Got it. That's helpful. Just one follow-up from me, I know you don't specifically break this out. But can you give a rough differential in the percent of your operating income you derived from the network today versus maybe five years ago? I think there is an argument that your business model hasn't changed as much as you guys have sort of pointed out, I think it has, but I think that's the piece that people look at as you know, representing the higher volatility. So any color there would be helpful. Thank you.

60:31 Yeah. I'm not sure I'm totally following the question. But there is -- this is by far the most mix we've ever had as a company in Dedicated versus network resources. So that's been a steady march, but this is by far at a point in time as we go into 2022 here from a mix standpoint, which if you think historically what you generally have maybe is less upside in a dedicated configuration but less downside in the cycle as well because the nature of its business model. So that's where I think the resiliency may come from at least from our view, at least been our experience and I don't know, we're probably 55-45 or something like that at present. I’m trying to [Multiple Speakers]

61:19 Yeah. If we roll the clock back five years, like the question [Multiple Speakers] it's predominantly network driven earnings and volumes in the Truckload segment and today, we're rapidly approaching the 50-50 mark and probably will invert as we go through 2022 where Dedicated becomes a more prominent portion.

61:45 Thank you very much.

61:46 All right. Thank you.

61:51 There are no further questions, I'd like to hand the call back to management for closing remarks.

61:56 All right. So thanks for everyone's attention today. We used the full hour and hope everyone has a good end of your earnings season. We're thankful to get on to the first quarter here and get after what we think is going to be a terrific transportation year.

62:16 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.