Market Overview

Schneider National, Inc. Reports Second Quarter 2017 Results

Share:
  • Operating Revenues of $1.1 billion, an increase of 8.1% compared to
    second quarter 2016
  • Net Income of $46.5 million, an increase of 5.2% compared to second
    quarter 2016
  • Diluted Earnings Per Share of $0.27, compared to second quarter
    2016 of $0.28
  • Adjusted Diluted Earnings Per Share of $0.23, compared to second
    quarter 2016 of $0.28
  • Full year 2017 adjusted diluted earnings per share guidance of
    $0.94 to $1.02

Schneider National, Inc. (NYSE:SNDR), ("Schneider" or the "Company"), a
leading transportation and logistics services company providing a broad
portfolio of premier truckload, intermodal and logistics solutions and
operating one of the largest for-hire trucking fleets in North America,
today announced results for the second quarter and six-months ended
June 30, 2017.

"We are pleased with our performance in the second quarter and reported
overall results that were in line with what we had expected across all
three of our businesses, including a number of key customer wins that we
anticipate will help set the stage for our results in the second half of
2017," commented Chris Lofgren, Chief Executive Officer of Schneider.
"Freight market dynamics improved throughout the quarter. Much of what
we've faced thus far in 2017 stemmed from customer contracts that were
negotiated during 2016 and inflationary driver costs that persisted into
the second quarter."

Lofgren continued, "The second quarter also marked the one-year
anniversary of our acquisitions of Watkins & Shepard and Lodeso, which
enhanced our first-to-final mile service offering. Over the past year
we've worked with omnichannel retailers and manufacturing customers to
reduce complexities in the supply chain and provide a premium delivery
service. The positive impact these acquisitions have delivered relative
to new customers in new markets and revenue growth is undeniable. We are
actively engaged in improving the effectiveness of the "middle mile
network," and fully implementing the operating contribution disciplines
of our Quest platform to accelerate profitability and growth."

Results of Operations (unaudited)

The following table sets forth, for the periods indicated, the Company's
results of operations:

(in thousands, except per share amounts)     Three Months Ended June 30,   Six Months Ended June 30,
2017   2016 2017   2016
Operating revenues $ 1,075,172 $ 994,573 $ 2,081,611 $ 1,922,676
Adjusted enterprise revenue (excluding fuel surcharge) $ 982,615 $ 922,283 $ 1,898,804 $ 1,794,232
Income from operations $ 79,002 $ 79,639 $ 122,552 $ 131,672
Adjusted income from operations $ 67,702 $ 79,639 $ 112,552 $ 131,672
Operating ratio

 

92.7

%

 

92.0

%

 

94.1

%

 

93.2

%
Adjusted operating ratio

 

93.1

%

 

91.4

%

 

94.1

%

 

92.7

%
Net income $ 46,473 $ 44,167 $ 69,042 $ 72,306
Adjusted net income $ 39,693 $ 44,167 $ 63,042 $ 72,306
Adjusted EBITDA

$

136,338

$

143,482

$

249,058

$

259,410

Diluted earnings per share $ 0.27 $ 0.28 $ 0.42 $ 0.46
Adjusted diluted earnings per share $ 0.23 $ 0.28 $ 0.38 $ 0.46
Weighted average diluted shares outstanding

 

174,453

 

156,425

 

165,436

 

156,160

Results of Operations - Enterprise

Enterprise operating revenues for the three months ended June 30, 2017
were $1,075.2 million, an increase of $80.6 million, or 8.1%, compared
to the three months ended June 30, 2016 primarily due to the June 2016
acquisition of Watkins & Shepard and Lodeso (WSL), higher fuel surcharge
revenue, brokerage growth and revenue generated from the Company's
equipment leasing business.

Adjusted enterprise revenue (excluding fuel surcharge) for the three
months ended June 30, 2017 was $982.6 million, an increase of $60.3
million, or 6.5%, compared to the three months ended June 30, 2016.
Truckload revenue (excluding fuel surcharge) increased 4.5% compared to
second quarter 2016 primarily due to the acquisition and improving
market conditions throughout the quarter. Intermodal revenue (excluding
fuel surcharge) increased 3.8% compared to second quarter 2016 primarily
due to higher volume offset by network mix changes and a weaker pricing
environment. Logistics revenue (excluding fuel surcharge) increased 7.2%
compared to second quarter 2016 primarily due to brokerage growth.

Enterprise income from operations for the three months ended June 30,
2017 was $79.0 million, a decrease of $0.6 million, or 0.8%, compared to
the three months ended June 30, 2016 primarily due to inflationary
driver costs and lower gain on sale of equipment. The Company recorded
an adjustment to a contingent consideration liability related to its
acquisition of WSL in the second quarter of 2017, resulting in an
increase in income from operations. The adjustment was caused by a
change in the fair value of the contingent liability, which reflected
three-year growth targets established by the seller prior to the close
of the acquisition.

Adjusted income from operations for the three months ended June 30, 2017
was $67.7 million, a decrease of $11.9 million, or 15.0%, compared to
second quarter 2016. The Company adjusted its income from operations by
($12.9) million in the second quarter of 2017 for the WSL contingent
consideration liability adjustment and by $1.6 million for the duplicate
chassis costs related to the cost of idle rental units due to its
conversion to an owned chassis model. The Company remains on track with
its conversion plan and expects to be completed by the end of 2017 to
coincide with the expiration of the existing lease requirements. See the
"Reconciliation of Non-GAAP Financial Measures" at the end of this
release for additional details.

Interest expense (net) in the current quarter decreased $0.5 million
compared to second quarter 2016 due to lower debt levels and increased
interest income due to proceeds from the Company's initial public
offering in April 2017 (the "IPO"). The effective income tax rate was
38.6% and 40.0% for the six months ended June 30, 2017 and 2016,
respectively. The lower rate is due to resolution of tax credits
claimed. The Company regularly claims tax credits which will impact the
effective tax rate.

Net income for the three months ended June 30, 2017 was $46.5 million,
or $0.27 on a weighted average diluted per share basis, an increase of
$2.3 million or 5.2%, compared to the three months ended June 30, 2016.
Net income as a percent of operating revenues was 4.3% for second
quarter 2017. Adjusted net income for second quarter 2017 was $39.7
million, or $0.23 on a weighted average diluted per share basis, a
decrease of $4.5 million, or 10.1% compared to second quarter 2016.

Adjusted EBITDA for the three months ended June 30, 2017 was $136.3
million, a decrease of $7.1 million or 5.0%, compared to the three
months ended June 30, 2016. Adjusted EBITDA as a percentage of adjusted
enterprise revenue (excluding fuel surcharge) was 13.9% for second
quarter 2017 compared to 15.6% for second quarter 2016.

Cash Flow and Capitalization

At June 30, 2017, the Company had a total of $449.6 million outstanding
on various debt instruments compared to $699.4 million as of
December 31, 2016. At June 30, 2017, the Company had cash and cash
equivalents of $259.9 million compared to $130.8 million at December 31,
2016. The Company's net increase in cash and cash equivalents of $129.1
million was primarily due to proceeds from the IPO offset by debt
repayments.

The Company's free cash flow increased $23.2 million compared to the six
months ended June 30, 2016. Capital expenditures decreased year over
year due to lower purchases of transportation equipment, the result of a
combination of factors including the acceleration of purchases in 2016.
The used equipment market has stabilized in 2017, albeit at historically
weak levels. Chassis capital expenditures for the six months ended June
30, 2017 were approximately $69 million. Net cash provided by operating
activities declined year over year due to a decrease in cash generated
from income tax receivables and the timing of payables related to
equipment purchases.

The Company declared a $0.05 dividend payable to shareholders of record
as of June 30, 2017. The dividend was paid on July 11, 2017.
Additionally, the Company declared a $0.05 dividend payable to
shareholders of record as of September 20, 2017. This dividend is
expected to be paid on October 2, 2017.

Results of Operations – Reportable Segments

Truckload

  • Revenue (excluding fuel surcharge): $543.0 million; an
    increase of 4.5% compared to second quarter 2016
  • Income from Operations: $53.2 million; a decrease of 13.7% compared
    to second quarter 2016

Truckload revenue (excluding fuel surcharge) increased 4.5% compared to
second quarter 2016 primarily due to the acquisition of WSL in June
2016. Second quarter driver capacity, although stable, was below desired
levels in parts of the Truckload segment which partially offset the
revenue attributed to the acquisition. The Company's operational focus
on effective fleet sizing to freight volume and effective freight
selection resulted in Truckload revenue per truck per week of $3,608, an
increase of $103, or 2.9%, compared to second quarter 2016.

The Company's Truckload income from operations decreased 13.7% compared
to second quarter 2016. Inflationary driver costs and lower gain on sale
of equipment due to the continued weakness in the used equipment market
were partially offset by earnings improvements from effective fleet
sizing, freight selection through the Company's Quest platform and
improving market conditions throughout the quarter.

Intermodal

  • Revenue (excluding fuel surcharge): $194.3 million; an increase of
    3.8% compared to second quarter 2016
  • Income from Operations: $11.2 million; a decrease of 17.7% compared
    to second quarter 2016

Intermodal revenue (excluding fuel surcharge) increased 3.8% compared to
second quarter 2016 due to a 10.6% increase in Intermodal volume
partially offset by a 6.2% decrease in revenue per order. Intermodal
revenue per order was $1,858, a decrease of $123 compared to second
quarter 2016 due to growth in the East and Intra-West, which have
shorter lengths of haul, and the continued competitive pricing
environment.

The Company's Intermodal income from operations decreased 17.7% compared
to second quarter 2016. Improved volume and tractor and container
productivity were not able to overcome the impact of the competitive
pricing environment and the increase in duplicative costs due to the
conversion from leased to owned chassis. Duplicate chassis costs; which
represent the cost of idle rented units, had a negative impact of $1.6
million, or approximately 80 basis points on Intermodal's second quarter
2017 operating ratio. The Company remains on track with its conversion
plan and expects to be completed by the end of 2017 to coincide with the
expiration of the existing lease requirements. The full impact of
reduced friction costs will not be realized until 2018; however,
Intermodal has begun to realize decreased costs due to the new chassis
in the areas of driver retention, safety and maintenance.

Logistics

  • Revenue (excluding fuel surcharge): $191.8 million; an
    increase of 7.2% compared to second quarter 2016
  • Income from Operations: $6.6 million; a decrease of
    18.6% compared to second quarter 2016

Logistics revenue (excluding fuel surcharge) increased 7.2% compared to
second quarter 2016 primarily due to growth of the Company's brokerage
business. Brokerage revenue (excluding fuel surcharge) was 73% of
Logistics revenue (excluding fuel surcharge) for second quarter 2017 vs.
72% for second quarter 2016.

The Company's Logistics income from operations decreased 18.6% compared
to second quarter 2016. Despite the growth in brokerage volume, market
conditions resulted in increased third party transportation costs
compared to second quarter 2016 as evidenced by a decline in gross
margin. Brokerage gross margin, however, did increase as the quarter
progressed.

Business Outlook

"The market pressures of the first quarter continued into the second
quarter," said Lofgren. "However, in June indications of improving
market conditions began to appear. July is always a challenging month,
so we will have a better read by mid-August, but we are cautiously
optimistic that the market will see strengthening in the second half of
2017. The market improvement, our efforts to increase driver capacity,
new Dedicated contracts and our ongoing revenue management work
positions us well for the second half of 2017. Last quarter, I discussed
my commitment to be thoughtful and disciplined as to capital
expenditures. In light of anticipated market improvement and new
customer wins, we have increased our anticipated full year net capital
expenditures range to $350 million to $400 million which includes $100
million for chassis. Further, we anticipate full year 2017 adjusted
diluted earnings per share in the range of $0.94 to $1.02, which
includes the impact of increased share count from the IPO estimated at
$0.10 per share."

Non-GAAP Financial Measures

We have presented certain non-GAAP financial measures, including
adjusted enterprise revenue (excluding fuel surcharge), adjusted income
from operations, adjusted operating ratio, adjusted EBITDA, adjusted net
income, adjusted diluted earnings per share and free cash flow.
Management believes the use of non-GAAP measures assists investors in
understanding our business as further described below. The non-GAAP
information provided is used by our management and may not be comparable
to similar measures disclosed by other companies. The non-GAAP measures
used herein have limitations as analytical tools, and you should not
consider them in isolation or as substitutes for analysis of our results
as reported under GAAP.

A reconciliation of net income per share to adjusted diluted earnings
per share as projected for 2017 is not provided. Schneider does not
forecast net income per share as we cannot, without unreasonable effort,
estimate or predict with certainty various components of net income. The
components of net income that we cannot predict include expenses for
items that do not relate to our core operating performance such as
duplicate chassis costs or costs related to potential future acquisition
as well as related tax impact of these items. Further, in the future,
other items with similar characteristics to those currently included in
adjusted net income, that have a similar impact on the comparability of
periods, and which are not known at this time, may exist and impact
adjusted net income.

About Schneider National, Inc.

We are a leading transportation and logistics services company providing
a broad portfolio of premier truckload, intermodal and logistics
solutions and operate one of the largest for-hire trucking fleets in
North America. We believe we have developed a differentiated business
model that is difficult to replicate due to our scale, breadth of
complementary service offerings and proprietary technology platform. Our
highly flexible and balanced business combines asset-based truckload
services with asset-light intermodal and non-asset logistics offerings,
enabling us to serve our customers' diverse transportation needs. Since
our founding in 1935, we believe we have become an iconic and trusted
brand within the transportation industry by adhering to a culture of
safety "first and always" and upholding our responsibility to our
associates, our customers and the communities that we serve.

Special Note Regarding Forward-Looking Statements

This earnings release contains forward-looking statements, within the
meaning of the United States Private Securities Litigation Reform Act of
1995, which are intended to come within the safe harbor protection
provided by such Act. These forward-looking statements reflect our
current expectations, beliefs, plans, or forecasts with respect to,
among other things, future events and financial performance and trends
in our business and industry. Forward-looking statements are often
characterized by words or phrases such as "may," "will," "could,"
"should," "would," "anticipate," "estimate," "expect," "project,"
"intend," "plan," "believe," "target," "prospects," "potential" and
"forecast," and other words, terms, and phrases of similar meaning.
Forward-looking statements involve estimates, expectations, projections,
goals, forecasts, assumptions, risks, and uncertainties. We caution
readers that a forward-looking statement is not a guarantee of future
performance and that actual results could differ materially from those
contained in the forward-looking statement.

Such risks and uncertainties include, among others, those discussed
under the heading "Risk Factors" in our Prospectus dated April 5, 2017
filed with the Securities and Exchange Commission (SEC) pursuant to Rule
424(b) of the Securities Act of 1933, as amended, which is deemed to be
part of our Registration Statement on Form S-1 (File No. 333-215244), as
well other filings with the SEC. In addition to any such risks,
uncertainties, and other factors discussed elsewhere herein, risks,
uncertainties, and other factors that could cause or contribute to
actual results differing materially from those expressed or implied by
the forward-looking statements include, but are not limited to, the
following: economic and business risks inherent in the truckload
industry, including competitive pressures pertaining to pricing,
capacity, and service; risks associated with the loss of a significant
customer or customers; fluctuations in the price or availability of
fuel, the volume and terms of diesel fuel purchase commitments, and our
ability to recover fuel costs through our fuel surcharge programs; our
ability to attract and retain qualified drivers, including
owner-operators, in the operation of our intermodal and trucking
businesses; risks related to demand for our service offerings; our
ability to recruit, develop, and retain our key associates; the impact
of laws and regulations that apply to our business, including those that
relate to the environment, taxes, employees, and owner-operators, our
captive insurance company, and the increased costs of compliance with
existing or future federal, state, and local regulations; significant
systems disruptions, including those caused by cybersecurity breaches;
negative seasonal patterns generally experienced in the trucking
industry during traditionally slower shipping periods and winter months;
exposure to claims and lawsuits in the ordinary course of our business
and the risk of insurance claims through our captive insurance company;
our ability to effectively manage and implement our growth and
diversification strategies and cost saving initiatives; risks associated
with acquisitions and other strategic transactions; risks associated
with obtaining materials, equipment, and services from our vendors and
suppliers; risks associated with cross-border operations and doing
business in foreign countries; risks associated with financial and
credit markets, including our ability to service indebtedness and fund
capital expenditures and strategic initiatives; and risks associated
with reliance on third parties with respect to certain of our
businesses, including railroads with respect to our intermodal business
and third-party capacity providers for our Logistics brokerage business.

We do not intend, and undertake no obligation, to update any of our
forward-looking statements after the date of this report to reflect
actual results or future events or circumstances. Given these risks and
uncertainties, readers are cautioned not to place undue reliance on such
forward-looking statements.

SCHNEIDER NATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (Unaudited)

(in thousands, except per share data)

     
Three Months Ended June 30, Six Months Ended June 30,
2017   2016 2017   2016
OPERATING REVENUES $ 1,075,172   $ 994,573   $ 2,081,611   $ 1,922,676
OPERATING EXPENSES:
Purchased transportation 387,541 358,197 754,869 696,396
Salaries, wages, and benefits 304,907 280,904 602,630 558,370
Fuel and fuel taxes 71,189 64,336 144,386 117,745
Depreciation and amortization 68,636 63,843 136,506 127,738
Operating supplies and expenses 127,667 104,720 233,901 203,983
Insurance and related expenses 20,252 18,599 42,083 37,268
Other general expenses, net 15,978   24,335     44,684   49,504
Total operating expenses 996,170   914,934     1,959,059   1,791,004
INCOME FROM OPERATIONS 79,002   79,639     122,552   131,672
NONOPERATING EXPENSES:
Interest expense—net 4,624 5,087 10,110 9,888
Other—net (221 ) 941   (88 ) 1,274
Total nonoperating expenses 4,403   6,028   10,022   11,162
INCOME BEFORE INCOME TAXES 74,599 73,611 112,530 120,510
PROVISION FOR INCOME TAXES 28,126   29,444   43,488   48,204
NET INCOME $ 46,473   $ 44,167   $ 69,042   $ 72,306
 
 
Weighted average common shares outstanding 174,424 156,295 165,422 156,000
Basic earnings per share $ 0.27 $ 0.28 $ 0.42 $ 0.46
Weighted average diluted shares outstanding 174,453 156,425 165,436 156,160
Diluted earnings per share $ 0.27 $ 0.28 $ 0.42 $ 0.46
Dividends per share of common stock $ 0.05 $ $ 0.10 $
       

SCHNEIDER NATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands, except share data)

 
June 30, 2017 December 31, 2016
ASSETS
CURRENT ASSETS:
Cash and cash equivalents $ 259,931 $ 130,787
Marketable securities 45,282 52,489
Trade accounts receivable—net of allowance of $3,928 and $3,455,
respectively
449,174 443,984
Other receivables 21,918 41,807
Current portion of lease receivables—net of allowance of $1,493 and
$1,036, respectively
94,917 100,211
Inventories 82,958 74,126
Prepaid expenses and other current assets 92,420   80,244
Total current assets 1,046,600   923,648
NONCURRENT ASSETS:
Property and equipment:
Transportation equipment 2,677,729 2,596,668
Land, buildings, and improvements 182,870 178,895
Other 174,479   191,664
Total property and equipment 3,035,078 2,967,227
Accumulated depreciation 1,222,664   1,209,172
Net property and equipment 1,812,414 1,758,055
Lease receivables 138,125 132,121
Capitalized software and other noncurrent assets 75,780 76,782
Goodwill 164,302   164,035
Total noncurrent assets 2,190,621   2,130,993
TOTAL $ 3,237,221   $ 3,054,641
       

SCHNEIDER NATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)

(in thousands, except share data)

 
June 30, 2017 December 31, 2016
LIABILITIES, TEMPORARY EQUITY, AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Trade accounts payable $ 256,633 $ 227,253
Accrued salaries and wages 74,134 81,799
Claims accruals - current 54,477 52,216
Current maturities of debt and capital lease obligations 20,740 258,658
Dividends payable 8,842
Other current liabilities 52,826   57,342
Total current liabilities 467,652   677,268
NONCURRENT LIABILITIES:
Long-term debt 419,049 428,807
Capital lease obligations 8,873 10,820
Claims accruals - noncurrent 107,291 111,542
Deferred income taxes 575,029 538,624
Other 72,830   101,130
Total noncurrent liabilities 1,183,072   1,190,923
COMMITMENTS AND CONTINGENCIES
TEMPORARY EQUITY - REDEEMABLE COMMON SHARES
Redeemable common shares at December 31, 2016, Class A, no par
value, shares authorized: 250,000,000, shares issued and
outstanding: 83,029,500
563,217
Redeemable common shares at December 31, 2016, Class B, no par
value, shares authorized: 750,000,000, shares issued and
outstanding: 73,294,560
497,175
Accumulated earnings 125,175
Accumulated other comprehensive income   883
Total temporary equity 1,186,450
SHAREHOLDERS' EQUITY
Class A common shares at June 30, 2017, no par value, shares
authorized: 250,000,000, shares issued and outstanding: 83,029,500
Class B common shares at June 30, 2017, no par value, shares
authorized: 750,000,000, shares issued and outstanding: 93,811,890
Additional paid-in capital 1,533,653
Retained earnings 52,384
Accumulated other comprehensive income 460  
Total shareholders' equity 1,586,497  
TOTAL $ 3,237,221   $ 3,054,641
     

SCHNEIDER NATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)

(in thousands)

 
Six Months Ended June 30,
2017   2016
OPERATING ACTIVITIES:
Net income $ 69,042 $ 72,306
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization 136,506 127,738
Gain on sale of property and equipment (6,114 ) (10,977 )
Deferred income taxes 36,299 15,890
WSL contingent consideration adjustment (12,900 )
Other noncash items 1,616 (661 )
Changes in operating assets and liabilities:
Receivables 15,026 36,573
Other assets (11,849 ) (13,985 )
Payables 1,986 18,316
Other liabilities (2,919 ) 20,166  
Net cash provided by operating activities 226,693   265,366  
INVESTING ACTIVITIES:
Purchases of transportation equipment (163,029 ) (212,735 )
Purchases of other property and equipment (18,320 ) (20,017 )
Proceeds from sale of property and equipment 34,595 24,141
Proceeds from lease receipts and sale of off-lease inventory 29,943 26,279
Purchases of lease equipment (51,993 ) (45,998 )
Sales of marketable securities 7,232 3,096
Purchases of marketable securities (4,002 )
Acquisition of businesses, net of cash acquired   (78,221 )
Net cash used in investing activities (161,572 ) (307,457 )
FINANCING ACTIVITIES:
Proceeds under revolving credit agreements 75,000
Payments under revolving credit agreements (135,000 ) (83,948 )
Payments of debt and capital lease obligations (114,751 ) (13,255 )
Payment of deferred consideration related to acquisition (19,383 )
Proceeds from IPO, net of issuance costs 341,059
Dividends on redeemable common shares (7,816 )
Redemptions of redeemable common shares (86 ) (16 )
Proceeds from issuances of redeemable common shares   2,298  
Net cash provided by (used in) financing activities 64,023   (19,921 )
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 129,144 (62,012 )
CASH AND CASH EQUIVALENTS:
Beginning of period 130,787   160,676  
End of period $ 259,931   $ 98,664  
ADDITIONAL CASH FLOW INFORMATION:
Noncash investing and financing activity:
Equipment purchases in accounts payable $ 49,365 $ 66,671
Dividends declared but not yet paid $ 8,842 $
Costs in accounts payable related to our IPO $ 412 $
Increase in redemption value of redeemable common shares $ $ (109,961 )
Cash paid during the year for:
Interest $ 11,074 $ 10,069
Income taxes—net of refunds $ (13,546 ) $ (32,432 )
     

Schneider National, Inc.

Revenues and Income from Operations by Segment

(unaudited)

 

Revenues by Segment

(in thousands)     Three Months Ended June 30, Six Months Ended June 30,
2017   2016 2017   2016
Truckload $ 543,004 $ 519,497 $ 1,065,114 $ 1,010,222
Intermodal 194,260 187,209 375,350 372,034
Logistics 191,751 178,847 375,655 345,597
Other 78,900 55,559 129,183 105,108
Fuel surcharge 92,557 72,290 182,807 128,444
Inter-segment eliminations (25,300 ) (18,829 ) (46,498 ) (38,729 )
Operating revenues $ 1,075,172   $ 994,573   $ 2,081,611   $ 1,922,676  
       

Income from Operations by Segment

(in thousands)       Three Months Ended June 30, Six Months Ended June 30,
2017   2016 2017   2016
Truckload $ 53,231 $ 61,705 $ 91,751 $ 103,893
Intermodal (1) 11,232 13,646 17,866 20,735
Logistics 6,592 8,103 11,775 13,280
Other (2) 7,947   (3,815 ) 1,160   (6,236 )
Income from operations 79,002 79,639 122,552 131,672
 
Adjustments:
Duplicate chassis cost (1) 1,600 2,900
WSL contingent consideration adjustment (2) (12,900 )   (12,900 )  
Adjusted income from operations $ 67,702   $ 79,639   $ 112,552   $ 131,672  
  (1)   By the end of 2017, the Company expects Intermodal to have completed
its migration to an owned chassis model, which requires the
replacement of rented chassis with owned chassis to improve safety
and reliability and to increase driver retention. During 2017 we
expect to add 10,000 to our owned chassis units, resulting in a
total of more than 15,000 owned chassis. The existing lease
requirements do not expire until December 31, 2017. Accordingly, the
Company is adjusting its income from operations for rental costs
related to idle chassis as rented units are replaced.
(2) The Company recorded an adjustment to the contingent consideration
liability in the second quarter of 2017, resulting in an increase in
income from operations. The adjustment was caused by a change in the
fair value of the contingent liability, which reflected three-year
growth targets established by the seller prior to the close of the
acquisition.
       

Schneider National, Inc.

Key Performance Indicators by Segment

(unaudited)

 
Truckload       Three Months Ended June 30, Six Months Ended June 30,
2017   2016 2017   2016
Dedicated standard
Revenue (excluding fuel surcharge) (1) $ 71,615 $ 76,358 $ 143,279 $ 150,333
Average trucks (2) (3) 1,615 1,763 1,635 1,765
Revenue per truck per week (4) $ 3,448 $ 3,357 $ 3,423 $ 3,314
Dedicated specialty
Revenue (excluding fuel surcharge) (1) $ 104,537 $ 93,978 $ 200,591 $ 184,046
Average trucks (2) (3) 2,228 1,988 2,178 2,000
Revenue per truck per week (4) $ 3,649 $ 3,664 $ 3,598 $ 3,581
For-hire standard
Revenue (excluding fuel surcharge) (1) $ 285,848 $ 297,339 $ 563,799 $ 586,405
Average trucks (2) (3) 6,287 6,744 6,332 6,766
Revenue per truck per week (4) $ 3,535 $ 3,418 $ 3,478 $ 3,373
For-hire specialty
Revenue (excluding fuel surcharge) (1) $ 81,004 $ 51,822 $ 157,445 $ 89,438
Average trucks (2) (3) 1,574 996 1,619 922
Revenue per truck per week (4) $ 4,003 $ 4,032 $ 3,799 $ 3,773
Total Truckload
Revenue (excluding fuel surcharge) (1) $ 543,004 $ 519,497 $ 1,065,114 $ 1,010,222
Average trucks (2) (3) 11,704 11,491 11,764 11,453
Revenue per truck per week (4) $ 3,608 $ 3,505 $ 3,537 $ 3,432
Average company trucks (3) 8,980 8,846 9,016 8,811
Average owner-operator trucks (3) 2,724 2,645 2,748 2,642
Trailers 37,790 36,885 37,790 36,885
Operating ratio (5) 90.2 % 88.1 % 91.4 % 89.7 %
(1)   Revenue (excluding fuel surcharge) in thousands
(2) Includes company trucks and owner-operator trucks
(3) Calculated based on beginning and ending month counts and represents
the average number of trucks available to haul freight over the
specified time frame
(4) Calculated excluding fuel surcharge, consistent with how revenue is
reported internally for segment purposes, using weighted workdays
(5) Calculated as segment operating expenses divided by segment revenue
(excluding fuel surcharge)

Intermodal

      Three Months Ended June 30,   Six Months Ended June 30,
      2017   2016 2017   2016
Orders (in thousands) 104.5 94.5 200.6 185.0
Containers 17,577 17,368 17,577 17,368
Trucks (1) 1,231 1,279 1,231 1,279
Revenue per order (2) $ 1,858 $ 1,981 $ 1,871 $ 2,011
Operating ratio (3) 94.2 % 92.7 % 95.2 % 94.4 %
(1)   Includes company trucks and owner-operator trucks at the end of the
period
(2) Calculated excluding fuel surcharge, consistent with how revenue is
reported internally for segment purposes
(3) Calculated as segment operating expenses divided by segment revenue
(excluding fuel surcharge)
         
Logistics         Three Months Ended June 30, Six Months Ended June 30,
2017   2016 2017   2016
Operating ratio (1) 96.6 % 95.5 % 96.9 % 96.2 %
(1)   Calculated as segment operating expenses divided by segment revenue
(excluding fuel surcharge)

Schneider National, Inc.

Reconciliation of Non - GAAP Financial Measures

(unaudited)

In this earnings release, we present the following non-GAAP financial
measures: (1) adjusted enterprise revenue (excluding fuel surcharge),
(2) adjusted income from operations, (3) adjusted operating ratio, (4)
adjusted net income, (5) adjusted diluted earnings per share, (6)
adjusted EBITDA and (7) free cash flow. We also provide below
reconciliations of these measures to the most directly comparable
financial measures calculated and presented in accordance with GAAP.

Management believes the use of each of these non-GAAP measures assists
investors in understanding our business by (a) removing the impact of
items from our operating results that, in our opinion, do not reflect
our core operating performance, (b) providing investors with the same
information our management uses internally to assess our core operating
performance and (c) presenting comparable financial results between
periods. In addition, in the case of adjusted enterprise revenue
(excluding fuel surcharge), we believe the measure is useful to
investors because it isolates volume, price, and cost changes directly
related to industry demand and the way we operate our business from the
exogenous factor of fluctuating fuel prices and the programs we have in
place to manage fuel price fluctuations. Fuel-related costs and their
impact on our industry are important to our results of operations, but
they are often independent of other, more germane factors affecting our
results of operations and our industry. With respect to free cash flow,
we believe the measure provides investors with an important perspective
on the cash available to fund our business after payment of capital
expenditures related to the necessary components of ongoing operations.
Free cash flow does not represent the residual cash flow available for
discretionary expenditures as it excludes certain mandatory expenditures
such as repayment of maturing debt. We use free cash flow as a measure
to assess overall liquidity.

Although we believe these non-GAAP measures are useful to investors,
they have limitations as analytical tools and may not be comparable to
similar measures disclosed by other companies. You should not consider
the non-GAAP measures in this report in isolation or as substitutes for,
or alternatives to, analysis of our results as reported under GAAP. The
exclusion of unusual or non-recurring items or other adjustments
reflected in the non-GAAP measures should not be construed as an
inference that our future results will not be affected by unusual or
non-recurring items or by other items similar to such adjustments. Our
management compensates for these limitations by relying primarily on our
GAAP results in addition to using the non-GAAP measures.

Adjusted enterprise revenue (excluding fuel surcharge)

Adjusted enterprise revenue (excluding fuel surcharge) is a non-GAAP
financial measure and is defined as operating revenues less fuel
surcharge revenue. The following is a reconciliation of operating
revenues, the most closely comparable GAAP financial measure, to
adjusted enterprise revenue (excluding fuel surcharge).

(in thousands)       Three Months Ended June 30,   Six Months Ended June 30,
      2017   2016 2017   2016
Operating revenues $ 1,075,172 $ 994,573 $ 2,081,611 $ 1,922,676
Less: Fuel surcharge revenue 92,557   72,290   182,807   128,444
Adjusted enterprise revenue (excluding fuel surcharge) $ 982,615   $ 922,283   $ 1,898,804   $ 1,794,232

Adjusted income from operations

Adjusted income from operations is a non-GAAP financial measure and is
defined as income from operations, adjusted to exclude material items
that do not reflect our core operating performance. For the periods
shown, excluded items consist of duplicate chassis costs and the
adjustment of a contingent liability related to the WSL acquisition,
which are explained below. The following is a reconciliation of income
from operations, which is the most directly comparable GAAP measure, to
adjusted income from operations.

(in thousands)         Three Months Ended June 30,   Six Months Ended June 30,
        2017   2016 2017   2016
Income from operations $ 79,002 $ 79,639 $ 122,552 $ 131,672
Duplicate chassis costs (1) 1,600 2,900
WSL contingent consideration adjustment (2) (12,900 )   (12,900 )
Adjusted income from operations $ 67,702   $ 79,639   $ 112,552   $ 131,672
  (1)   By the end of 2017, the Company expects Intermodal to have completed
its migration to an owned chassis model, which requires the
replacement of rented chassis with owned chassis to improve safety
and reliability and to increase driver retention. During 2017 we
expect to add 10,000 to our owned chassis units, resulting in a
total of more than 15,000 owned chassis. The existing lease
requirements do not expire until December 31, 2017. Accordingly, the
Company is adjusting its income from operations for rental costs
related to idle chassis as rented units are replaced.
(2) The Company recorded an adjustment to the contingent consideration
liability in the second quarter of 2017, resulting in an increase in
income from operations. The adjustment was caused by a change in the
fair value of the contingent liability, which reflected three-year
growth targets established by the seller prior to the close of the
acquisition.

Adjusted operating ratio

Adjusted operating ratio is a non-GAAP financial measure and is defined
as operating expenses, adjusted to exclude material items that do not
reflect our core operating performance, divided by adjusted enterprise
revenue (excluding fuel surcharge). For the periods shown, excluded
items consist of duplicate chassis costs and the adjustment of a
contingent liability related to the WSL acquisition, which are shown
below. The following is a reconciliation of operating ratio, which is
the most directly comparable GAAP measure, to adjusted operating ratio.

(in thousands)       Three Months Ended June 30,   Six Months Ended June 30,
      2017   2016 2017   2016
Total operating expenses $ 996,170 $ 914,934 $ 1,959,059 $ 1,791,004
Divide by: Operating revenues 1,075,172   994,573   2,081,611   1,922,676  
Operating ratio 92.7 % 92.0 % 94.1 % 93.2 %
 
Operating revenues $ 1,075,172 $ 994,573 $ 2,081,611 $ 1,922,676
Less: Fuel surcharge revenue 92,557   72,290   182,807   128,444  
Adjusted enterprise revenue (excluding fuel surcharge) $ 982,615 $ 922,283 $ 1,898,804 $ 1,794,232
 
Total operating expenses $ 996,170 $ 914,934 $ 1,959,059 $ 1,791,004
 
Adjusted for:
Fuel surcharge revenue (92,557 ) (72,290 ) (182,807 ) (128,444 )
Duplicate chassis costs (1,600 ) (2,900 )
WSL contingent consideration adjustment 12,900     12,900    
Adjusted total operating expenses $ 914,913   $ 842,644   $ 1,786,252   $ 1,662,560  
Adjusted operating ratio 93.1 % 91.4 % 94.1 % 92.7 %

Adjusted net income and adjusted diluted earnings per share

Adjusted net income and adjusted diluted earnings per share are non-GAAP
financial measures and are defined as net income and diluted earnings
per share, adjusted to exclude material items that do not reflect our
core operating performance. For the periods shown, excluded items
consist of duplicate chassis costs and the adjustment of a contingent
liability related to the WSL acquisition, which are shown below. The
following is a reconciliation of net income, which is the most directly
comparable GAAP measure, to adjusted net income.

(in thousands)

        Three Months Ended June 30,   Six Months Ended June 30,
        2017   2016 2017   2016
Net income $ 46,473 $ 44,167 $ 69,042 $ 72,306
Duplicate chassis costs 1,600 2,900
WSL contingent consideration adjustment (12,900 ) (12,900 )
Income tax effect of non-GAAP adjustments 4,520     4,000  
Adjusted net income $ 39,693   $ 44,167   $ 63,042   $ 72,306

The following is a reconciliation of diluted earnings per share, which
is the most directly comparable GAAP measure, to adjusted diluted
earnings per share.

        Three Months Ended June 30,   Six Months Ended June 30,
2017   2016 2017   2016
Diluted earnings per share $ 0.27 $ 0.28 $ 0.42 $ 0.46
Non-GAAP adjustments, tax effected (0.04 )   (0.04 )
Adjusted diluted earnings per share $ 0.23   $ 0.28   $ 0.38   $ 0.46

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP financial measure and is defined as net
income, plus provision for income taxes, interest expense and
depreciation and amortization, and is further adjusted to exclude other
non-operating expenses, and other material items that do not reflect our
core operating performance. For the periods shown, excluded items
consist of duplicate chassis costs and the adjustment of a contingent
liability related to the WSL acquisition, which are shown below. The
following is a reconciliation of net income, which is the most directly
comparable GAAP measure, to adjusted EBITDA.

(in thousands)       Three Months Ended June 30,   Six Months Ended June 30,
      2017   2016 2017   2016
Net income $ 46,473 $ 44,167 $ 69,042 $ 72,306
Provision for income taxes 28,126 29,444 43,488 48,204
Interest expense – net 4,624 5,087 10,110 9,888
Depreciation and amortization 68,636 63,843 136,506 127,738
Other - net (221 ) 941 (88 ) 1,274
Duplicate chassis cost 1,600 2,900
WSL contingent consideration adjustment (12,900 )   (12,900 )
Adjusted EBITDA $ 136,338   $ 143,482   $ 249,058   $ 259,410

Free cash flow

Free cash flow is a non-GAAP financial measure and is defined as net
cash provided by operating activities less net cash used for capital
expenditures. The following is a reconciliation of net cash provided by
operating activities, which is the most directly comparable GAAP
measure, to free cash flow.

(in thousands)         Six Months Ended June 30,
        2017   2016
Net cash provided by operating activities $ 226,693 $ 265,366
 
Purchases of transportation equipment (163,029 ) (212,735 )
Purchases of other property and equipment (18,320 ) (20,017 )
Proceeds from sale of property and equipment 34,595   24,141  
Net capital expenditures (146,754 ) (208,611 )
   
Free cash flow $ 79,939   $ 56,755  

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