BAIRD 2026 GLOBAL INDUSTRIAL CONFERENCE - SCHNEIDER NATIONAL INC

Financial Performance:

• Intermodal volumes were slightly down in Q3, yet earnings grew 35%, driven by contract price adjustments and structural efficiency gains.
• Industry-wide costs have risen approximately 30% since the pandemic; current pricing levels are focused on recovering parity with pre-pandemic performance rather than immediate margin expansion.
• Cost savings targets were met for the previous year ($40 million) and are being doubled down on for 2026 to maintain structural efficiency.
• Long-term margin targets are established: Truckload (12-16%), Intermodal (10-14%), and Logistics (3-5%); current Q3 margins were 8% for Truckload, 7% for Intermodal, and within range for Logistics.
• Net capital expenditure is impacted by favorable proceeds, allowing for continued investment in replacement CapEx despite disciplined growth capital spending.
• Leverage remains extremely low at 0.1x, with $300 million in additional liquidity available following a recent debt agreement expansion.

Guidance and Future Outlook:

• 2027 priorities focus on "disciplined growth," margin repair, and investing only where differentiation exists, avoiding growth solely for the sake of scale.
• Management anticipates a continued need for pricing power to offset structural cost increases, particularly for driver compensation and more expensive trucks.
• A "supply-led cycle" is expected to persist, with capacity growth constrained by the need for proper driver training pipelines rather than quick, low-quality certifications.
• Long-term growth is projected to accelerate as capacity exits the top of the hiring funnel and the company leverages its structurally lower cost base.
• Capital allocation priorities for 2027 include potential M&A to fill service gaps or geography, share repurchases, and selective reinvestment in driver capacity and equipment.

Business Segments and Product Lines:

• Intermodal: Strategic realignment with CSX and Norfolk Southern (NS) positions the company to capitalize on transcontinental and center-of-country lanes; this move is deemed beneficial regardless of the UP/NS merger outcome.
• Dedicated: Focus is shifting toward high-reliability, high-service requirements and specialty equipment, moving away from simple capacity solutions due to increased post-Montgomery liability risks for shippers.
• Brokerage: Leveraging a large asset base and rigorous carrier screening (going beyond FMCSA ratings to identify ownership) to mitigate "chameleon carrier" risks and offer safer, compliant options to shippers concerned about insurance liability.
• Fleet & Technology: Continuing to improve the Asia fleet with disciplined replacement CapEx; looking to utilize AI and eventually autonomous vehicles to reduce structural costs further.
• M&A: Maintaining a proven playbook of acquiring dedicated fleets that integrate well and grow post-acquisition; open to disruptive targets related to AI/AV if they align with capabilities.

Market and Competitive Landscape:

• The market is characterized by a "unique cycle" where incremental fall season costs are not supported by stable year-round demand, unlike typical peaks.
• Competition is shifting toward service reliability and safety compliance; shippers are increasingly prioritizing insurance risk mitigation over pure price/service, favoring large, compliant asset-based providers.
• The number of carriers in the marketplace dropped from 65,000 to 14,000 since 2023 due to heightened cargo security and liability standards, consolidating opportunities for disciplined players.
• Rail partnerships are evolving to address center-of-country routing inefficiencies, with the company uniquely positioned to offer 100% owned containers and chassis on new transcontinental networks.

Risks and Challenges:

• Post-Montgomery Liability: The Montgomery verdict has fundamentally altered risk allocation, exposing brokers and shippers to higher indemnity and lawsuit risks, potentially increasing insurance costs for non-compliant small carriers.
• Driver Capacity: Difficulty in scaling driver numbers quickly due to the need for proper training pipelines (6-8 weeks vs. 2-day programs), limiting rapid capacity expansion.
• Inflationary Pressure: Ongoing inflation in driver wages, fuel, and equipment costs (trucks becoming more expensive) challenges margin recovery.
  Regulatory Uncertainty: Concerns regarding future legislation on negligent hiring practices and the lack of a robust, court-defensible carrier rating system.
• EPA Standards: New emission standards may require fleet updates, though management expects manageable impacts compared to previous pull-ahead cycles.

Management Commentary and Tone:

• Tone is confident and disciplined, emphasizing structural efficiency and risk management over aggressive top-line growth.
• Management views the current environment as a "margin repair" phase where pricing must reflect structural cost increases and the true cost of risk.
• Executives express strong conviction in their strategic realignment of Intermodal lanes and their ability to navigate the post-Montgomery regulatory landscape as a competitive moat.
• Emphasis is placed on "disciplined growth," rejecting the notion of expanding capacity (the "cart") before securing demand and pricing (the "horse").

Analyst Questions and Answers:

• Q (Cycle Dynamics): Management confirmed the cycle is supply-led with stable but not exciting demand, noting the lack of typical peak season pricing due to customer unwillingness to pay for incremental fall costs.
• Q (2027 Priorities): Leaders outlined priorities as cost containment, disciplined growth in differentiated areas, and capital deployment via M&A or buybacks, rather than simple truck count expansion.
• Q (Intermodal Realignment): Confirmed the NS/UP rail realignment creates significant value for transcontinental and center-of-country routes, independent of the merger status, leveraging the company's owned assets for superior service.
• Q (Dedicated Market): Addressed that dedicated demand is driven by tighter supply chain needs rather than capacity shortages; noted the risk of "leased truck with agent" models post-Montgomery.
• Q (Acquisition Strategy): Confirmed a focus on dedicated acquisitions but openness to other targets if they offer service gaps or leverage disruptive tech like AI/AV.
• Q (Fleet Age & CapEx): Stated replacement CapEx is on track while growth CapEx is restrained; noted productivity gains allow for volume growth without proportional equipment additions.
• Q (2027 Margins): Management believes long-term margin targets are accelerating toward achievement due to capacity exit from the top of the funnel and structural cost reductions.

Other Key Points:

• The industry is undergoing a "deep" downturn lasting nearly four years, with the recovery phase potentially lasting 18 months, similar to historical cycles.
• Management highlights that insurance carriers will begin underwriting based on the risk profile of carriers, favoring large, safe, compliant organizations over smaller, riskier entities.
• A specific focus on "chameleon carriers" (those that frequently change names/ownership) necessitated the development of proprietary third-party screening tools beyond standard FMCSA ratings.
• Productivity improvements in intermodal equipment utilization (converting to 2017-2018 volume turn levels) offer an additional 30% volume gain potential without new asset purchases.