Werner Enterprises, Inc.

Good afternoon and welcome to the Warner Enterprises fourth quarter and full year 2020 earnings conference call. All participants will be in listen only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note, this event is being recorded. I would now like to turn the conference over to Derek Leathers, Vice Chairman, President, and Chief Executive Officer. Please go ahead.

Thank you, and good afternoon, everyone. With me today is our CFO, John Steele. 2020 was a very challenging and disruptive year. I'm proud of our Warner team for their resilience, tenacity, and perseverance throughout the year. Warner Associates quickly reacted to changing freight and work conditions and delivered record results. The Warner team achieved record operating income and adjusted earnings per share in 2020. Our drivers and mechanics relentlessly kept America moving for Warner customers and end consumers, despite the demanding operational protocols necessitated by the pandemic. Warner Office Associates continued to produce superior service to our customers, drivers, and mechanics, despite restrictive changes to their work environment. Our primary focus continues to be on delivering best-in-class service while protecting the health and personal safety of our associates, their families, and our customers. We are confident that freight demand for our services will be strong in 2021. On the supply side, structural truck driver availability constraints and OEM production challenges are expected to continue to limit industry capacity growth for at least the next several quarters. On the demand side, Our key customers are producing strong sales that are expected to continue as the economy recovers and additional COVID stimulus packages are implemented. Finally, customer inventories continue to be at historically low levels, despite the inherent need for even more forward deployed inventory in a rapidly growing next day service e-commerce market. We are well positioned to succeed in this business environment as we did in 2018 when freight was strong and capacity was tight. We are also positioned to succeed in the event the freight market begins to normalize at some point in the future. You can look to our industry-leading earnings growth in a down market of 2019 versus 2018 as a guide for how we would expect to perform. Warner is well-positioned and committed to thrive in any trucking cycle. The durability of our diversified dedicated one-way truckload and logistics revenue portfolio has demonstrated our resiliency. The constant refinement and strengthening of our 5Ts strategy plus a laser focus on sustainability throughout, allows us to focus on operational execution. Our unwavering commitment and enhanced processes, designed to safely and consistently deliver our customers' freight on time, every time, position our brand for margin expansion and revenue growth in that order. After a review of our fourth quarter and annual financial results, I'll provide you with the latest developments of our 5Ts plus S strategy. Finally, I'll report our fourth quarter 2020 guidance and introduce our 21 guidance metrics and assumptions. On slide four, here's an updated overview of our key market size and fleet size metrics, as well as revenues by segment, industry vertical, and customer. Over three quarters of our revenues are generated by truckload transportation services, with the remainder primarily coming from Warner Logistics. Warner has a consumer-centric freight base with over 70% of revenues in retail, or food and beverage. Remaining industry verticals are 20% from manufacturing and industrial and 9% from logistics and other customers. Nearly half our revenues came from our top 10 customers and almost 80% came from our top 50. In short, we have a long-standing relationship with growing and successful companies and are committed to our strategy of aligning with winning organizations. Revenues from our top 10 customers increased six percentage points to 49% in 2020, compared to the prior three year average of 43%. Many of our larger and successful retail customers produced very strong sales growth in 2020 during COVID, which resulted in more freight shipments. Let's move to slide five for an overview of our fourth quarter and full year financial performance. In the fourth quarter, revenues were flat at 620 million. Adjusted EPS grew 33% to 89 cents per share. Adjusted operating income increased 30% to 82.7 million, while our TTS adjusted operating margin net of fuel increased 420 basis points to 18.2%. For the year, revenues were 4% lower at 2.4 billion. Adjusted EPS increased 8% to 259 per share. Adjusted operating income increased 7% to 241.9 million. For the full year 2020, despite the unprecedented challenges created by COVID, we achieved an adjusted TTS operating margin net of fuel of 14%, exceeding the midpoint of the long-term annual goal range of 10 to 16%. For 2021, we expect our TTS operating margin net of fuel will improve and be in the upper end of that range. Dedicated freight demand and revenue per truck were both strong in the fourth quarter, As our largest dedicated customers in discount retail, home improvement, and beverage continue to produce robust sales, our continued success in Dedicated has enabled us to grow it to nearly two-thirds of our TTS fleet. Dedicated is more difficult to service, produces strong financial performance, and is less cyclical than one-way truckload. One-way truckload peak season freight demand in fourth quarter started sooner than normal in October. and remained strong into December as customers continued to manage the challenges of strong sales combined with supplier and supply chain constraints caused by COVID. We ended the year with 7,830 total trucks in TTS, a decrease of 170 trucks year over year, and an increase of 120 trucks sequentially from the third quarter. At year end, 63% of our TTS truck fleet was in dedicated and 37% in one-way truckload. At this point, I'll turn the call over to John to discuss our fourth quarter financial results in more detail. John?

Thank you, Derek, and good afternoon. Beginning on slide seven, total revenues for fourth quarter decreased slightly with fuel surcharges reduced by 20 million year over year due to lower fuel prices. Our TTS revenues per truck per week increased 5.3% due to improved revenues per total mile and slightly lower miles per truck. which was caused by the increased mix of shorter-haul dedicated trucks. Our logistics revenues increased 8%, a significant improvement from the 16% decrease in second quarter and the 3% decrease in third quarter. Our cost management initiatives and programs continued to perform well in fourth quarter. We effectively managed our controllable costs with sustainable improvements through improved associate productivity, better leveraging our procurement spend, and doing more with less. We aggressively managed expenses, and in 2020, we delivered nearly 23 million in annualized sustainable cost savings. In 2020, we achieved our lowest accident per million mile rate in the last 28 years. While reduced traffic congestion due to COVID was a significant favorable factor, other contributors were the improved safety performance of our professional drivers, our high standards for driver hiring and retention, ongoing safety training, and Werner's enhanced truck safety technology. Also in 2020, we achieved the lowest work injury rate in the last 15 years. Adjusted operating income grew 30%, primarily as a result of our strong operating execution in our TTS segment. Our logistics segment had an 80 basis point reduction in operating margin as a result of much higher capacity costs in the second half of 2020. Our adjusted earnings per share were 89 cents, which was a 22-cent improvement, or a 33% increase over fourth quarter a year ago. On slide eight are our full year results. In 2020, revenues declined 4%, primarily due to lower fuel surcharge revenues. We increased TTS revenues per truck per week by 3.7%, with 2.7% fewer trucks. our adjusted operating income grew 7% due to a 100 basis point increase in our adjusted operating margin. This margin expansion enabled us to achieve an 8% increase in adjusted EPS to $2.59 per share. Beginning on slide nine, let's look specifically at results for our truckload transportation services segment. In the fourth quarter, TTS revenues decreased 11.5 million, or 2%, due to lower fuel surcharges and partially offset by 5.3% higher revenues per truck. Adjusted operating income was $79.9 million, an increase of 32% due to a 420 basis point expansion of our operating margin percentage net of fuel. Our adjusted operating ratio net of fuel continued its favorable decline to 81.8%. Turning to TTS fleet metrics on slide 10. For dedicated, we grew fourth quarter trucking revenues net of fuel by 9% to $258 million. Dedicated average trucks increased 4%, and revenues per truck per week increased 4.8%. Our dedicated customer bid pipeline remains strong. One-way truckload fourth quarter trucking revenues net of fuel decreased 7% to $176 million. Average trucks decreased 13%. due to the challenging driver market, as well as trucks and drivers that moved from one-way truckload to dedicated. Revenues per truck per week increased 7.2% due to the combined effect of a revenues per total mile increase of 6.9% and a miles per truck increase of 0.3%. Moving to Warner Logistics results on slide 11. In the fourth quarter, logistics revenues grew 8% to $130 million. Truckload logistics revenues increased 2% due to a 12% volume decline and a 16% increase in revenues per load. Intermodal revenues grew 23% due to a 21% volume increase and a 1% increase in revenues per load. Our logistics gross margin percentage decreased 280 basis points year over year due to the much higher cost of truckload capacity for contractual brokerage. We made good progress improving contractual rates from third quarter to fourth quarter as our gross margin percentage improved sequentially by 170 basis points and our operating margin percentage improved sequentially by 270 basis points. In 2021, we expect further logistics margin improvement. Last week, we announced the sale of our global logistics freight forwarding business, which had revenues of $53 million in 2020. The sale is expected to close later this month and will result in a gain of one cent per share in first quarter 2021. Going forward, we are focused on enhancing our North American logistics capabilities in truck brokerage, freight management, intermodal, and final mile. On slide 12 is a summary of our cash flow from operations, net capital expenditures, and the resulting free cash flow over the past five years. Expanding operating margins and less variable net CapEx has enabled us to improve our free cash flow during the last four years, rising to a record 180 million in 2020. For 2021, we expect net CapEx to be comparable to the last two years in a range of 275 to 300 million. This guidance range assumes we maintain our new truck and trailer fleet, modestly grow our truck fleet, primarily in dedicated, and we continue to invest in Werner Edge by building out our technology platform with solutions that are more advanced, faster, and with enhanced security. On slide 13 is our discipline strategy for capital allocation. First and foremost, we will continue to reinvest in our fleet with new feature-rich equipment with the latest sustainability features for safety, driver amenities, and fuel efficiency. Over the last three years, $899 million was invested in the five T's plus S, or 64% of our total capital allocation. Our 2021 CapEx plan includes the near completion of two full-service terminals in Lake City, Florida, and Lehigh Valley, Pennsylvania, that will replace our existing lease facilities in those markets. Werner Edge, our digital initiative, continues to develop. as we strengthen our information technology with systems that are better, faster, less expensive, and more secure. During fourth quarter, we repurchased 1.2 million shares, or 1.7% of our shares outstanding, for 48 million. Over the last three years, we repurchased 4.9 million shares, totaling 171 million, or an average share price of just over $35 per share. Over that same three-year period, we paid dividends of $334 million. Our capital allocation plans may include continued share repurchases and increasing our quarterly dividend to enhance total shareholder return. At the same time, we remain committed to maintaining a strong and flexible financial position. Our long-term goal is to maintain a net debt to annual EBITDA ratio range of between one-half and one-turn. During this period of COVID uncertainty in 2020, we intentionally maintained a lower net debt to annual EBITDA ratio and ended the year at 0.3 times. I'll now turn the final portion of our prepared remarks back to Derek. Derek?