Werner Enterprises, Inc.

Good afternoon and welcome to the Werner Enterprises first quarter 2021 earnings conference call. All participants will be in a 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 a touch tone phone. To withdraw your question, please press star then two. Please note this event is being recorded. Earlier this afternoon, the company issued an earnings release for its first quarter 2021 results and posted a slide presentation. These materials are available in the investor section of the company's website at werner.com. Today's webcast is being recorded and will be available for replay beginning later this evening. Before we begin, please direct your attention to the disclosure statement on slide two of the presentation, as well as the disclaimers in our earnings release related to forward-looking statements. Today's remarks contain forward-looking statements that may involve risks, uncertainties, and other factors that could cause actual results to differ materially. Additionally, the company reports results using non-GAAP measures, which it believes provide additional information for investors to help facilitate the comparison of past and present performance. A reconciliation to the most directly comparable GAAP measures is included in the table attached to the earnings release and in the appendix of the slide presentation. I'd now like to turn the conference over to Mr. Derek Leathers, Vice Chairman, President, and CEO. Please go ahead.

Thank you, and good afternoon. With me on the call today is our CFO, John Steele. I'm pleased to report that Werner produced record earnings in the first quarter achieved by outstanding operational execution while we maintain a laser focus on the health and safety of our associates. I sincerely appreciate the significant contributions of our entire Warner team to meet and exceed the needs of our customers. Today, I'll start by sharing our perspective on the current market dynamics, followed by an overview of our first quarter financial results. Then I'll discuss the latest developments from our 5Ts plus S strategy and wrap up with an update on our 2021 guidance metrics and assumptions. We continue to expect strong truckload freight demand through this year and into 2022. Retail inventories need replenishing as their strong sales combined with multiple supply chain challenges produced a 30-year low retail inventory to sales ratio in January. $5.7 trillion in cumulative COVID stimulus relief payments over the last year has helped triple the amount of U.S. household personal savings to nearly $4 trillion. At the same time, As the freight demand pump has been primed, the supply of truckload capacity is constrained due to a tight driver market. Warner is well-positioned to thrive in this business environment as a result of our retail-oriented freight base, driver-preferred dedicated fleets, industry-leading cross-border Mexico business, and engineered lanes in our one-way segment. These offerings are further supported by comprehensive capacity solutions in our Warner logistics segment. Slide 4. provides an update of our key market size and fleet size metrics, as well as our 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. By design, Warner has a consumer-centric freight base with over 70% of revenues in retail and food and beverage. Nearly half our revenues are with our top 10 customers and almost 80% from our top 50. We have longstanding and growing relationships with successful companies. Let's move to slide five for a summary of our first quarter financial performance. For the quarter, revenues increased 4% to $616 million. Adjusted EPS grew 72% to $0.68 per share. Adjusted operating income increased 68% to $62.7 million, while our TTS adjusted operating margin net of fuel grew 570 basis points to 14.2%. We generated margin expansion from higher revenues per total mile, strong safety performance, effective cost management, and improved gains on sales of trucks and trailers. As we communicated last quarter, we implemented driver pay increases in January that increased driver pay per company mile by nearly 7%. Driver pay in TTS was flat year over year due to a 6% decrease in company truck miles, resulting in from a few factors, including the proactive steps we took to avoid safety risk during times of severe winter weather, fewer team drivers, and a higher percentage of our total truck fleet and dedicated, with an increased mix of shorter haul, lower mileage trucks. Despite the more difficult driver market, our retention efforts are paying off and we are holding the line on turnover. In addition to attractive driver compensation, Warner strives to be the truckload employer of choice by providing a modern truck and trailer fleet with the latest safety equipment and technology, a wide variety of driving positions, including daily and weekly home time opportunities, and an industry-leading driver training program. Despite the tight driver recruiting market, we are maintaining our stringent hiring standards, and we remain focused on attracting and retaining the best professional drivers. Dedicated freight demand remains strong in first quarter. as our largest dedicated customers in discount retail, home improvement retail, and beverage continue to generate robust sales. One-way truckload freight demand was also seasonally strong. The recovering economy, combined with several factors limiting capacity, resulted in a very good first quarter freight market. We made further strides in our logistics segment in first quarter, stepping up our growth in both revenues and operating income. Improved pricing and operational efficiency led to better logistics results. The abnormally severe winter weather events in February and March were disruptive to operations. As each event developed, we made safety the highest priority by working with our drivers to park their trucks until it was safe to resume operations. These actions lowered our miles per truck and we experienced increased weather-related maintenance, driver pay, and other costs. However, We were pleased that our safety first focus resulted in a 10% decline in our chargeable DO2 reportable accident rate per million miles in first quarter. The unusually cold mid-February weather and resulting power outages also temporarily closed certain driving schools and terminal locations. We estimate that severe winter weather negatively impacted our first quarter earnings by $0.07 per share. We ended the quarter with 7,735 total trucks in TTS. a decrease of 100 year-over-year and a decrease of 95 sequentially. At quarter end, 64% of our TTS truck fleet was in dedicated and 36% in one-way truckload. Warner Fleet sales capitalized on an improved market for our premium used trucks and trailers by achieving substantially higher average gains for truck and trailer and higher unit sales, which resulted in equipment gains of $10.5 million in the first quarter, an increase of $8 million. At this point, I'll turn the call over to John to discuss our first quarter financial results in more detail.

John? Thank you, Derek, and good afternoon. Beginning on slide seven, total first quarter revenues increased $23 million to $616 million, or plus 4%. Our TTS revenues per truck per week increased 1.3%, Due to a high single-digit percentage improvement in revenues per total mile, offset by a high single-digit percentage decline in miles per truck, which was caused by the adverse winter weather, 17% fewer driver teams, and an increased mix of dedicated. COVID and social distancing protocols reduced the number of our driver teams. We expect improvement in our team count going forward as the number of vaccinated Americans increases. and logistics continued to strengthen, growing revenues by 23%. Adjusted operating income grew 68% due to our strong performance in TTS in improving logistics results. Adjusted earnings per share were 68 cents, or a 72% increase year over year. Beginning on slide eight, let's review results for our truckload transportation services segment. In first quarter, TTS revenues were flat due to higher revenues per mile, lower miles per truck, and 1% fewer trucks. Adjusted operating income was $58.9 million, or a 67% increase due to a 570 basis point expansion of our adjusted operating margin net of fuel. Our adjusted operating ratio net of fuel continues to show strong improvement with an 85.8 OR. Turning to TTS fleet metrics on slide 9. For dedicated, we grew revenues net of fuel by 10% to $254 million. Dedicated average trucks increased 7.5%, and revenues per truck per week increased 2.1%. Year over year, strong rate growth was partially offset by lower miles per truck due to winter weather challenges. Our dedicated customer bid pipeline remains strong. One-way truckload revenues net of fuel decreased 12% to $157 million. Average trucks decreased 12.7% due to trucks that moved into dedicated and the challenging driver market. Revenues per truck per week increased 1.0% due to strengthening revenues per total mile, which grew 9.5%, and a miles per truck decrease of 7.7% due to winter weather and fewer teams. Moving to winter logistics on slide 10. In first quarter, logistics revenues grew 23% to $138 million. Truck load logistics revenues increased 20% due to a 22% increase in revenues per load offset by a 1% decline in volume. Loads handled by our power-only solutions increased nearly 50% in the quarter. Intermodal revenues grew 24% due to a 6% increase in revenues per load and a 23% increase in volume. our logistics gross margin percentage decreased 190 basis points year over year due to the higher cost of truckload capacity for contractual brokerage and intermodal shipments. To address the increasing cost of truck capacity, we reduced our contractual truckload logistics shipments from 55% to 49% of total shipments. The previously announced sale of our global logistics freight forwarding business, WGL, closed at the end of February. We remain focused on expanding and enhancing our North American logistics capabilities in truck brokerage, freight management, intermodal, and final mile. WGL had annual revenues of $53 million in 2020, and the sale resulted in a gain of one cent per share in first quarter 2021. As we move forward, we expect to see continued performance improvement from Werner Logistics through revenue growth, and margin expansion. On slide 11 is a summary of cash flow from operations, net capital expenditures, and our growing free cash flow over the past five years. Expanding operating margins and less variable net CapEx enabled us to improve our free cash flow during the last four years. We expect to generate meaningful free cash flow going forward. 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, the innovation arm of Werner, by building out our technology platform with solutions that are more advanced, more productive, and with enhanced security. On slide 12 is a summary of our discipline strategy for capital allocation. The first priority is reinvestment in our new fleet with feature-rich trucks and trailers with the latest safety, driver-friendly, and fuel-efficient capabilities. In February, we opened a state-of-the-art terminal in Lake City, Florida, replacing a smaller lease facility in the Florida market. In June, we will open another newly built terminal in Lehigh Valley, Pennsylvania, also replacing a smaller lease facility. We are making meaningful and sustainable progress enhancing Warner Edge, our IT initiative and platform. During the quarter, we repurchased 130,000 shares and raised our quarterly dividend rate by 11%. And we will consider strategic acquisitions that are both additive and accretive. The increase in our quarterly dividend, share repurchases, and ongoing cost containment initiatives reflect our strong earnings performance and confidence in our business plans moving forward. We are committed to maintaining a strong and flexible financial position. Our long-term leverage goal is a net debt to annual EBITDA ratio of one half to one turn. During COVID, we intentionally maintained a lower debt level and are currently at 0.2 times. I'll now turn the final portion of our prepared remarks back to Derek. Derek?