Werner Enterprises, Inc.

Q2 2021 Earnings Conference Call

7/29/2021

spk_0: good afternoon and welcome to the winner enterprises second quarter two thousand and twenty one earnings conference call or distance will be in a listen only mode did you need assistance please ignore covered specialist a person's thirty followed by zero after today's presentation will be an opportunity to ask questions to ask the question you a press story than one earlier this afternoon the company issued an earnings release for a second quarter two thousand twenty one results and posted a slide presentation these materials are available at the company's website at were dot com today's webcast is being recorded and will be available for replay be getting later this evening before we begin please direct your attention to the disclosure statements on sites you have the frequency as well as the disclaimers in her earnings release related to forward looking statements race remarks may contain for looking statements that may involve risks uncertainties and other factors that could cause actual results differ materially additionally the company reports results using non get measures would you please provide additional information for investors to help facilitate the comparison a past and present performance a reconciliation to the most direct we comparable guess measures is included in the table attached to the earnings release in the appendix of the slide presentation oh now likes to the conference every mr derek leathers chairman president and ceo please go ahead sir
spk_1: thank you good afternoon everyone with me to raise or see if oh john steele i'm pleased to report that one are delivered record earnings and second quarter which was achieved through outstanding execution in a robust free market with unprecedented driver incapacity challenges the one or two more tirelessly and creatively to provide our customers with best employ i solutions and superior on time performance we continue to expect wrong for demand to the rest of this year and well into twenty twenty two retelling him tories require significant replenishing which will take time and bodes well for retail freight demand going forward strong sales combined with persistent supply challenges resulted in the retail into to cells ratio said in another new thirty year loan this quarter at the same time the driver shortages as severe as i've ever seen traditional industry headwinds remain inclination demographics in recruiting for the trucking life warner's well positioned to thrive in this business environment as a result of our consumer oriented for a base driver prefer dedicated fleets industry leading cross border mexico business engineered lanes and are one way truckload segment and our comprehensive capacity solutions within one or logistics in addition just after quarter and we add did five hundred drugs and skilled professional drivers to the one family by acquiring eighty percent of the regional truckload carriers of the easy him transport group slide for provides an updated snapshot of warner to include the addition of easy am acquisition which we completed on july first tcm ads five hundred drops in two thousand and trailers to our combined one way truckload fleet and provides us with a short all regional police presence to serve customers in the mid atlantic ohio and northeast geographic markets you see him as strong safety and service performance and outstanding leadership team and highly skilled drivers with extremely low driver turnover after the acquisition warner continues to have a consumer centric for a base with over seventy percent of revenues and retail and food and beverage nearly half or revenues or with our dropped and customers and almost eighty percent from our top fifty one are uneasy and have long standing and grow in relationships with successful companies let's move to slide five for summary of our second quarter financial performance for the quarter revenues increased forty percent to six hundred fifty million adjusted dps grew forty percent to eighty six cents per share adjusted operating income increased thirty seven percent to seventy nine point one million while or tts adjusted opry margin that a fuel group three hundred and forty basis points to seventeen point one percent we generate a margin expansion from higher revenues for total mile continued strong safety performance effective expense management despite continued cost inflation and improve games on sales of trucks and trailers do too much better than anticipated pricing and strong sales execution dedicated freedom and remain strong and second quarter as or largest dedicated customers and discount retail home improvement and beverage continued to generate robot sales are dedicated team once again executed well and second quarter one way truckload freedom and was also strong the rapidly growing economy combined with several factors limiting industry capacity resulted in excellence and quarter free market conditions and are one way truckload team performed well we made further strides in our logistics segment in the quarter stepping up or growth in both revenues and operating income despite much higher capacity costs which impacted our gross margin percentage for a contract business improve pricing and operational efficiency lead to better logistics results the driver recruiting and retention markets became more challenging and second quarter high quality drivers are increasingly harder to find and retain with intense competition from other carriers and industries that are labour constraint to address driver turn over we implemented additional selected compensation increases our tts company driver paper mario increase nearly eleven percent year over year in addition we continue to deploy innovative strategies to strengthen our driver positioning which i will discuss and a few minutes incident or one or fleet sales capitalized on a significantly improving pricey market for a premium use drugs and trailers by realizing substantially higher average games for truck and trailer and achieved equipment gains of thirteen point five million fleet sales or a core part of our business for the last thirty years and are wonderfully sales team performed well in the court or as well in first quarter we made a strategic minority and equity investment into simple and on thomas technology company to simple completed it's i feel in april and experienced stock price appreciation through june as a result we recognize the twenty point two million unrealized gain on our investment or twenty two cents a share which increased are not operating income and second quarter twenty twenty one we reduced our second quarter gap be as for this item in our just a dps reconciliation in future quarter's we will mark to market disinvestment based on the change in to simple stock price we ended the quarter with seven thousand six hundred and forty five drops and tts five fewer than last year and nine be fewer sequentially the extremely difficult driver rookery market prevented us from achieving our goal and organically grown are fully during second quarter a quarter in sixty six percent of our tds ds was in dedicated and thirty four per sam was in one way one following see cm acquisition are dedicated and one way truckload fleet percentages changed to sixty two percent and thirty eight percent respectively
spk_2: at this point i'll turn to call over the john to discuss or second quarter financial results in more detail john thank you direct and good afternoon beginning on slide seven total second quarter revenues increased eighty one million to six hundred and fifty million or plus fourteen percent our tts revenues for truck for a week increase six point seven percent did well low double digit percentage improvement in revenues for total model offset by amid single digit decline and miles per truck caused by a greater vex of shorter length of hall dedicated versus one way truckload and your team drivers and logistics continued to strengthen drawing revenues by twenty nine percent adjusted operating income growth thirty seven percent based on thirty three percent growth and tts twenty five percent growth and logistics and improve financial performance from our driver training school network adjusted earnings per share ware eighty six cents a forty percent year over year beginning on slight a let's review results for our truckload transportation services segment and second quarter tts revenues increased ten percent of higher revenues for mile lower miles per truck and one percent fewer average trucks adjusted operating income was seventy four point four million or thirty three percent increase driven by a three hundred and forty basis point expansion in are adjusted operating margin that appeal our adjusted operating ratio continued to show strong improvement with an eighty two point nine o r turning the t s flick metrics on slide nine for dedicated we grow trucking revenues that of your by ten percent to two hundred and sixty two million dedicated average trucks increase seven percent and revenues for track for week increase two point four percent dedicated rates increased above our guidance range of three to five percent and miles per truck were lower due to fleet makes changes are dedicated customer pipeline remain strong one way truckload revenues now fuel decreased one percent to one hundred and sixty six million average trucks decrease fourteen percent did the trucks it moved into dedicated and the challenging driver market revenues for truck per week increase fourteen point eight percent as a result of higher revenues for total mile which grew sixteen point seven percent this was partially offset by a miles per truck decrease of one point seven percent did to fewer team drivers like others we anticipate ongoing inflationary pressure for our main tossed specifically fuel driver wages and driver sourcing we will continue to drive operational excellent initiatives to gain greater efficiency and address cost issues including working with our suppliers and attempting to recover these costs from help summers wherever possible moving to water logistics on slide ten and second quarter logistics revenues of one hundred and forty two million route twenty nine percent adjusting to the sale of or global logistics in the prior quarter total logistics revenues grew fifty two percent truckload logistics revenues increased forty nine percent driven by a thirty the percent increase in revenue per shipment and a ten percent increase in shipments power only and project business continued to generate strong revenue growth more than doubling from second quarter a year ago intermodal revenues group fifty two percent supported by a seventeen percent increase in revenue for shipment and a thirty percent increase in shipments our logistics gross margin percentage decreased three hundred and fifty basis points year over year due to the much higher cost a truckload capacity for contractual brokerage and intermodal shipments the address the increasing costs to truck capacity we reduced our contractual truckload logistics shipments from thirty eight percent to forty eight percent also intermodal dwell time increased the customer and rail locations during second quarter which impacted profitability as we move forward we expect to see continued performance improvement from wonder logistics through revenue growth and margin expansion and flight eleven is a summary of cash flow from operations neck capital expenditures and are growing free cash flow or the past five years expanded operating margins and less variable metcalf eggs resulted in higher free cash flow during the last four years we expect to generate continued meaningful free cash flow going forward for two thousand twenty one we continued expect net cap x to be comparable to the last two years in a range of two hundred and seventy five to three hundred million this guidance range assumes we maintain our new truck and trailer flee and we continue to invest in water as the innovation arm of warner by building out our technology platform with solutions that are more advanced or productive and with enhanced safety and security arnett kept guidance assumed no significant delays and delivery of new trucks and trailers in the second half on flight twelve the summary of are disciplined 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 earlier this month we opened our second new terminal facility of twenty twenty one this terminal is strategically located and lehigh valley pennsylvania and replaces a smaller least facility we are making meaningful and sustainable progress enhancing warner edge or technology initiative and platform and during the quarter we race or quarterly dividend by twenty percent and prior quarters we said we would consider strategic acquisitions that are attitudes and a creative just after quarter and we were excited to announce the acquisition of the elite regional truckload carriers of the cm transport routes he cm operates with industry leading operating margins and it's accomplished inexperienced leadership team remains in place as a standalone business unit we will leverage our collective strengths and generate synergies to serve our existing and new customers and even higher levels we're committed to maintaining a strong and flexible financial position or long term leverage goal is inept at the annual event our ratio of one half to one turn we added a one hundred million fixed rate loan on june thirty at an interest rate of one point three percent to partially sunday cm acquisition the following day since the acquisition did not occur until the beginning of third quarter or net that to even now ratio was zero point two times a quarter an increase to a pro forma zero point four times the following day and slight thirteen is a summary of the benefits of the cm acquisition bcm strategically expands or operations in the mid atlantic ohio and northeast regions by adding a terminals and eighteen drop yards to our footprint is shown on the map
spk_3: our company shares similar cultures based on the high standards of safety and on time service and the combination will boost our fleet size by nearly seven percent
spk_2: the integration is going smoothly and the transaction is expected to be a creative to adjust to dps and your one
spk_4: while now turned the final portion of are prepared remarks back to their
spk_1: dirt thank you john over the past five years we implemented structural and sustainable upgrades to our a segment with a modern safer and more efficiently raise hiring and retention standards for our quality say professional drivers and delivered on our commitment to best in class customer service or trucks and trailers continue to have young average fleet ages of two and four point one years respectively every one or truck is equipped with advance cause you mitigation safety systems industry leading emissions and fuel mileage technology automated manual transmissions forward facing cameras and and untethered tablet based on manic solution the driver market is very competitive and dynamic in addition to implementing attractive and competitive drive pay increases we're expanding leveraging the strategic advantage of our industry leading driver training school network this year we've grown or locations from thirteen to sixteen and every more planned openings for twenty twenty one and an additional three and twenty twenty two our goal is to achieve a total of twenty two strategic driver training school locations by the end of march twenty twenty two we also took another strategic action to achieve our fully growth goal similar to our t software strategy of buying rather than building when it makes sense sense you see and truckload acquisition enabled us to acquire five hundred drugs and over five hundred highly skilled regional drivers who have daily own time in addition to a tractor driver compensation one or strives to be the truckload a poor 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 own time opportunities and an industry leading driver training program despite the died bribery market we're maintaining our stringent hiring standards and we remain focused on attracting and retaining the best professional drivers this year we open to new flagship terminals and like city florida and lehigh valley pennsylvania our strength internal network is an integral part of our ability to attract and retain the best drivers and minimize we down time for maintenance issues on the technology front we continue to execute on our cloud first cloud now strategy by developing innovative products and combining them the third party south solutions to work and ways to provide competitive advantages for example one or labour new technology to streamline connectivity would existing and new preferred main offenders this allows us to optimize car oscar for over the road name is program as well as decrease drop mean it's downtime to keep our trucks and drivers rolling with this new technology we accomplished to sixty seven percent reduction and call time and fifty two percent reduction in driver dwell time for each maintenance of them were also run out a new simplified equipment warranty recovery process that is projected realizing the dish tunnel twenty five to thirty percent savings and warranty dollars by the end of the fear warner logistics recently launched our carriers edge digital freight platform this provides archer years with a self service for that enables them to view and book real time for our drivers we launched our drive warner pro mobile app which offers and have features to improve our drivers lives on the road we continue to modernize an update or core t systems with sas applications wanted exciting second quarter milestone is that we are hundred percent migrated to club hdd i solution that easily connect and provides more accurate and time we information to our shippers and carriers we're committed to the modernization of our financial accounting systems with a selection of worked a fine nance which dovetails with our existing workday each or and platform and we're also thrilled rollout mastermind or new transportation management software platform with mastery we began testing with our logistics teams and this is the first of many incremental robots this is the first step on or for your strategy to have a truckload and logistics systems on one combine sas platform with the same but enhanced secret sauce features in applications them a corner successful we will continue to provide status updates as we progress and last year we had a sustainability is a key element of our strategy on slide sixteen i'm excited to announce that we published our inaugural corporate social responsibility report this week with significant amount of new information and specific he as and g goals some important actions were taken been like a highlight because they demonstrate our commitment to become an atheist a leader in our industry are in november we formally and publicly on story as be program including adding sustainability is is to teach pillar and as we embed sustainability organization widen your business decisions in march we heard an associate vice president of sustainability and in january we create a new position and appointed an associate vice president of diversity inclusion learning we are now a signatory of the you and global compact and of aligned with specific sustainability development goals that most support one or values are strategy and aspirations the specific as the geez are good health and wellbeing decent work and economic growth reduced inequalities and climate action this week we published our inaugural see us or report which was a milestone we outlined back in november you can find the report on our website at warner dot com we adopted the sustainability accounting standards board or says be disclosure framework we formerly branded are sustainability programmers warner blue and we will be working to develop a more comprehensive strategy will communicate our progress i'm proud of our team for all the hard work that went into orbit address of the past three months and achieving these important he has she journey milestones it's a great foundation on which to build and we will keep building from here next on side seventeen or the new years she goes milestones that we announced earlier this week for environmental we will disclose go born in scope to greenhouse gas emissions by twenty twenty five we will double or in a mobile users by twenty thirty and will reaffirm our aggressive gold which achieve a fifty five percent reduction in greenhouse gas emissions by twenty thirty five for social we're creating an advancement and retention plan to increase in elevate women and diverse talent and or management team pipeline we instituted an employee volunteer hours program by twenty twenty two and we will have greater impact to the communities we serve by doubling the volunteer hours of are successful warner bloomberg a program by twenty twenty five we're also doubling training hours devoted to human trafficking awareness for governance by next year we will stab was to standalone sg committee for board of directors also we will establish a task force of leaders associates and board members to further the goals of our one or blue he has she strategy while we're still in the early stages of the positive impact we will have i'm inspired by the excitement engagement of our associates and drivers and like everything we do at warner we're committed to leading by example moving the slide eighteen and a review of our twenty twenty one games framework how we're progressing against their guidance and updates to iraq during the second quarter our truck fleet declined one percent and we're down to percent year to date due to the extremely challenging driver recruiting market we believe the sounds will persist and taking this dynamic into account we're updating our expectations for the wonderfully for the remainder of the year we now expect truck or growth for the full year to be in a range of one to four percent including bc employee pricing and the use truck and trailer says market was stronger than expected and second quarter result in in higher equipment games of thirteen point five million for third quarter we expect continued strong pricing with fewer units sold resulting in expected games in the range of nine to thirteen million net capital expenditures were hundred and three million for the first after twenty twenty one we continue to expect for your net cap acts in the range of two hundred and seventy five million to three hundred million which will maintain our truck and trailer fleet ages subject to the timing of opium new truck and trailer deliveries dedicated revenue per trapper week increase two point four percent and second call are due to higher rates partially offset by lower miles for truck dedicated rates into que twenty one versus to few twenty were above our guidance ranch our miles per truck were lower due to changes and fleet max we continue to expect annual growth of revenue for trapper weaken the three to five percent range but more likely at the bottom and of the ranch one way truckload revenues for total mile from the second quarter increase sixteen point seven percent which was above our guidance range of thirteen to sixteen percent as a result of strong execution with our core customers but a second half we are now expecting one way tripled revelers for total mile to increase sixteen to nineteen percent due to hire contract rates and including the favorable impact of these cm acquisition going forward we will were forty cm within our one way trip of results and metrics in the first four weeks of july freedom and friends are one way truckload unit of remained strong so far we're about eighty percent through our annual contracted season negotiations in one way truckload contract rate increases your to date or tracking in the low double digit percentage range more recently contract rate increases a further strengthen to the mid to high double digit percentage ranks dedicated contract rates are also tracking favorably are reaffirming are effective tax rate assumption of twenty four point five to twenty five point five percent and average age of our truck full of two years consistent with what we got into in the beginning of the year
spk_0: one remains well positioned with a superior team and an act of talent pipeline that will continue to yield strong and sustainable results we continue to believe the runway for a demand looks very good for twenty twenty one and well and twenty twenty two at this time i'd like to turn the call over to the operator to begin our to and eight thank you and you will now begin the question and answer session to ask a question requests star than one telephone keypad you're using speaker phone please pick up your hands are pressing the keys
spk_5: to allow with many colors as possible to ask questions we as their color when they are question to one question and what our as coal and at five pm central standard time following the company or her remarks i first question today will come from can hope there with back from africa please go ahead hi tech guy thanks for that wasn't the full detail the real some to say good afternoon that the first call as from had to man alive and follow up on that last comments or are continuing i guess what signs the look foreman as a in terms of that acceleration isis innovation
spk_1: on your well carloads has a terrified that looks like amazon had some and week sales data on the side scatter what we look for said to see that peak looks like you're going to yes have actually can really accelerate the second half i guess is that more just planning a those are my to question self just one on the you know what you look for in in terms of that continued strength and then and then the cat that your confidence on being able to get those trust and from the second half yep job can thanks for joining us today great question so a few things right sauna on the demand side i guess i'll start with wheaton the conversation around with actual customers about their actual expectations relative into the next six months so it's both a combination of macro data that everybody can see and then it's private data the web based on conversations were having with our retailers in particular where we have heavy retail base with successful retailers that are sort of having outsized results inside of the overall macro economy or become itself is still doing well you know even with the six point five percent gdp growth that was maybe below what so many expected it still significant growth even couple that with sell out your amateurs the cells ratios that are now a new thirty year low so there's certainly some replenishment that as to take place and the last thing i think that might just get overlooked is your were supply play involved us and on the supply side you've got a you are those that are publicly reported so far you got a netflix decline of seven percent versus or warner that decline of one percent so we're whole maligned better on our fleet or not something we're proud of your be ever be a negative but on a relative bases certainly are sort of winning the battle or but but my point being there isn't capacity flooding in are coming into the market we in production schedules have been negatively impacted and continue to be as we look forward and i think it's a combination of supply and demand that makes bullish on the back half as relates to cut backs yeah some of it is just timing or it's as simple as that of when things are received and vs maybe when we originally expected to get him we have seen some delays are both on truck and trailer or the truck sides on better than the trailer side by clearly ah and we know where we think through the back out that based on what we now expect that we will end dub somewhere in that range is also impacted by our stated
spk_0: a remarks in in the prepared section around the intent to sell less equipment have a backup two reasons they're one is to provide a hedge for what may continue to be supply chain disruptions in the receipt of our equipment
spk_6: but also it's based on are you know what are our belief that with the additional schools that are coming online with the demand profile of our customer base or that if the opportunities there grow that fleet a little better i and a and it during peak and better support what is going to be a very supply constrained market we're going to do so
spk_7: and our next question will come from scott group with of research leave your head
spk_8: hey thanks
spk_1: afternoon so maybe can you give us and some thoughts on underside how think about that the margins progress and from the back half of the year works were at such as great starting level can can we sort of keep up the normal seasonality or is that get tougher on a nice thought your perspective her yeah i mean i think the seasonality question scott is is tougher than than really any period i can recall because what happens the moment we say that it may not be normal seasonality people read in nevada react to that i'm in ways that are not intended the seasonality is affected by the starting point which i appreciate you pointed that out we we've never really had a second quarter it looked an awful lot like peak to begin with so as you go forward you you won't have normal seasonality simply based on starting and such and oversold environment but our job and what what our expectation is is to continued get creative around capacity or creation through brokerage of intermodal you know the he cm acquisition itself as well as doing a better job of increase in our team count arm and and are seated tracker counter in the back half if we can get more throughput through the existing infrastructure than it gives us opportunity to further expand margins were about eighty percent through the contract rights we talked about that earlier or but they're still twenty percent yet to go and some of that eighty percent it was only implement
spk_9: it in july so it's not in the queue to numbers but but it's it's now been implemented in will start to see the results of it so we think there's skill top line opportunity in the back half bottom opportunity the back half both but the normal sequential incremental gains that you might see in prior years will be tougher to come by now because people won't be a strong not because we won't have
spk_8: as robust of a project opportunity but more because of the strength of the second quarter
spk_2: right that that makes sense and then just from a when we think about our models su se ima i think it helps the other friends that right for miles can you to stop a thing about the implications what that means for utilization am
spk_3: in the that afternoon i can i can jump in scott are you doing
spk_10: can he just a up on the hm acquisition it's about sixteen percent of our one my truck load fleet and that's where will the report going forward so our because the like the hall is substantially lower than our existing one wifely of their like dolls in the mid two hundred
spk_2: as a result the miles per truck will be lower the dead had percentage will be higher the revenue per truck per week is pretty comparable to what we are realizing and are one way flee
spk_0: and then the rate per mile it will be a help so there's a few percentage points to help
spk_11: that the cm fleet will give to our percentage increase in one way truckload rate for mile and the next question will come from check actions with steve please go ahead a good good evening think you're taking my questions i guess it out there cause you to take this this this is more for john but i'd be curious as if you guys could maybe help us think through the impact that the lower than expected tractor count this year
spk_10: because of the dry recruiting challenges that the impact of that having on your efficiency
spk_1: within the tts segment i'm just thinking for the next year hopefully we're in a we're in a position to see some acceleration on the up on the fleet next year and and is that perhaps a tailwind for margins as we go into twenty twenty two any thoughts on that would be very helpful it's difficult to predict all out in the twenty two at this point with so many unknowns but clearly you know we have a raid a portion of our cause they're fixing their nature we've actually added some fixed cost and absorb those cost with despite putting up and eighty two nine that a fuel and gts are in the form of new term animals and other investments were making we would like to see more throughput through all of that says it's cost infrastructure into account is certainly a great way to get there utilization is another way we know there's things were going against us on that front relative the congestion of a general motoring public is continuing to pick up but on the flipside of that add the addition of the schools the exploration of the additional unemployment benefits the be hopeful exploration overtime have some of the cautious feelings around be an out over the road during covert as vaccinate as vaccine rates go up could and should give us an opportunity to at a minimum stop the the the attrition and ideally be you have some incremental ads as as we look in the back half dot the cabbie at all that is the the production impact of what's happening at the alien level sort of macro level your we've i've said starting them to one that year that i thought two hundred and eighty five thousand bills was about where they would be i'm a bad time most experts have the number and the three twenty five or even higher in some cases i think we will get the to eighty five when the dust settles on the year i really don't and and so it's difficult to fight for trucks fight for drivers and and and fight to overcome some of the covered hesitancy that still exists out there and source just too early to say that about twenty two but in terms of where's our mind the share right now in the building
spk_11: yeah that's the that's the type of mindset that we have we want to look to kind of do more for our customers grow little bit in the back half of feasible but but with all those stated obstacles i've talked about and then work to enhance margins through both yield exercises that will be ongoing i believe zu twenty two that we're gonna need to continue to do as well well as some of the cost take out that door are we continue to chip away at every day okay okay that makes sense and i guess from from up our question barrett to meet ya c or a lot of investments going into the logistics business
spk_1: in i think a lot of the the opportunity there's on the common we think about the to pay off from most investors sprinkler on your partnership with mastery and and warner edge of how are you thinking strategically about about the logistics business as up as a revenue and profit driver over the next several years what what portion of your rubbish do you think that could represent if we were to look out call three to five years from now yeah sort of macro level jack i would say that we are some where's certainly looking to be more aggressive with our growth in our logistics group of i at the same time we want to make sure they're properly tooled with the right systems right infrastructure and my processes to be able to handle the growth while enhancing margins we've seen some you're in his recent quarter kind of the impact of our ability to now start really move in the needle on revenue them am for i'm actually more interested in more excited about fact oversee seeing volumes going the right direction and increased volume taking place with it wheaton that's with a lot of effort that has to be taken away from the day to day to work on the strategic relatives the implementation of a new team at tms or that's really company why but logistics is kind of the tip of the sphere of were were implemented and so as those things you get through that not all to couple of things happen the expense rates or the investment raid that we're having to make on the url on the front end with little or no productivity gains into you start getting to roll out phases starts to kind of he's a little in in the second thing is that we get more comfortable with our ability to you utilize
spk_0: as in those tools as laws are into internally developed kind of secret sauce if you will we think we can grow that further so i look out for five years i certainly expect logistics to be a larger percent of the total i'm not yet ready to predict exactly how pig that would be but i but but all expectations all expectations and or
spk_12: only are two more aggressively grow that as we look forward next question will come from rubbish anchor with morgan stanley
spk_1: your head great up i set up a gallon on a direct i can you give us some color on the dedicated side of the business in terms of what the pipeline looks like what our customer interested like and clearly it is to a couple of years ago that a lot of momentum and customers or next shift a dedicated to guarantee capacity are you still seeing that are gonna what's the organic kind of truck coward going to look like linux up the quarters yes your reviews okay thank you to the question so first off on start with the some extremely excited about what dedicated was a little couples in a quarter if you think about yo the two point four percent revenue per trip with number or that's muted to say the least ray to me that's not where we want to see a number like that and yet or with it be in the predominance of our fleet with only two point four percent revenue per trip for week against we were able to still posted tts o larvae to nine i think i pointed out because it once again proves that even and strong markets dedicated can perform very well and not act like the anchor that so many people were fearful of as i look forward the the pipeline a dedicated is stronger days it's going on any of the prior moldable quarters of calls as a matter fact those those beds already landed that we're looking to source and looking to find drivers and fill open seats is actually greater as of this moment that it was on the prior to calls the obstacle is that although those jobs are better and and or more easy to fill that a one way trip a job they're still very very difficult to film and the last so so the battlefront is clearly on the driver a we must continue to gain traction with how we how we treat our drivers are we pay our drivers and in the tools we give him to equip them than themselves to do their jobs effectively and we're seeing and momentum so that's the good news
spk_12: my i know if said of before but i'll say it again the additional schools coming online we're very excited about because we've already seen the impact from those schools we opened earlier in the year so we think that gives us some left we grew three hundred trucks plus in dedicated year over year and a quarter that's something to be excited about because in a market it's says tough it's hard to grow at all so that shows the ability to landfill and and then operate profitably those new those new fleet as they start up are so there's a lot to like there
spk_1: and we're going to continue to lean into it as we go into twenty two a great are as far up our on on the you am acquisition ah when you look at the recent history of or to yell emanates ah in most cases are you see an exodus of drivers either voluntary or involuntary some the acquired ah said ah kennedy you can of whoop by the reason he made his acquisition is to get those five hundred drivers on board are you pretty costly knitting and which you can redeem them yeah it's a great question and i would tell you something i'm probably most happy with thus far as a relay cesium acquisition is that the due diligence in the work and and frankly the very cautious nature of warner arm in terms of how getting something across the finish line and then deciding that this was the right one has been proven true thus far ah the driver morales the driver retention has been very strong same on the customer front i in fact i would say at the moment we feel like we have some momentum with tcm and our conversations were having her about growth not retention or or not attrition at all and we think in the back out because of the high desirability of the types of jobs they have home nightly stable pay regional repeatable work or that we actually have an opportunity or with this acquisition to grow that one way truckload group but that a lot of that growth may end up residing with any easier
spk_0: based on the early returns and conversations we've been having with their leadership
spk_13: and their fleet not directly so so far so good and if anything a little better than good so what we're pretty excited
spk_1: on our next question will come from jones so with evercore please go ahead thank you and directors to follow up on a dedicated at thanksgiving john mentioned as on some of the trucks from one way or shifted to dedicated because of the digital sox how did some abominable that decision has given the strength in one way to their to take a long term view that you are service class or get them on board for a long term and give us canada the torch so to speak on how do you think about that the back half the i know you some more optimistic about the and feeding trucks and but it's stop pretty decent trade off between long term and short term will bring i guess a couple of things are john mean first off in our network the trade off isn't what some might expect a meme both of those divisions operate very well and we have a model that has been able to produce results and dedicated that that replicates one way more closely than i evidently many others and so we're going to continue to focus on operate matt dedicated food as efficiently as we can as to how we make the decision obviously there's gonna be based with a little bit longer term view but the bigger deciding factors the defense of nature of it the fact that we think those dedicated returns can come stabilize through the cycle and a premier level if you compare it to other or truckload players out there are it's pretty exciting stuff if i give their driver that level of stability
spk_13: give up the investor community the same level stability and do so over a year cycle versus just one year be bid to bed in the last pieces back to the driver or frankly even if i wanted to keep a truck in one way and that drivers preferences clearly to be and dedicated i'm not going to risk losing their driver when i have an opening in dedicated or that fits that drivers needs and and and provides as a return profile that our investors would expect so or if that's the
spk_1: case you were going to do we can to build a bubble around each and every driver in this fleet because that's how important our right now it i make thanks and i'm glad he bought the defensive part of the line as a big focus of years and is brought it up on how did the upside even in the up markets are suitable ah think that west i know you see i'm showing up in one way however if not just given the length of all it sounds like it's a more defensive been as well as you think about still being lowered it for four times pro forma farm and any other acquisitions look to make in the future you look to get out of the traditional long haul load market entered into other businesses that may not be his defensive per se as dedicated for a little sticky year a little less cyclical likely cms given in short the answer would be yes i mean we're not going to run from long haul and we have drivers in our fleet and customers nerf leader important was that are profitable that make sense in that long how business but we're always looking across every one of our businesses for more sustainable defensible repeatable work and so those of the things that we want to go after we think the same business if you look at their contracts their customer relationships were talking multi multi year and in many cases actually multiple decade type relationships or and it has proved to be very sticky because what they do is very difficult or if you look at our one way business we do a tremendous amount of injured my koreans within our sins inside outside of our one way business we we do a tremendous amount of of cross border mexico which is also more complex more difficult and more defensible and then we have a a decent component of team expedited that works for very high expectation customers are on business that that is not for the faint of heart the
spk_0: the business we have the least interested in is that stuff gets in the furthest into the commodities spectrum and so yes there are times when their businesses highly fruitful and we know that and understand that but it comes at a price so when the market turns and so even with this quarter's results that we just talk through you know it's it's get your i'm
spk_14: probably most proud of the fact that type of our result was put forth with only about a ten percent exposure to the spot market and that's him aside and are one way network which means our total spot exposure of all miles is well under five percent and so it's not it's not a a we didn't get their that way name when i can get penalty why's that way when the spot market turns because quite frankly we're very limited exposure in that space and our next question will come from army mail from with deutsche bank please go ahead the copyright eric hi john up and yeah
spk_2: eighty two nine our performance and trucking was was obviously very impressive up
spk_3: i thought of answered the dark in the last question was hoping you can deconstruct at forces or what is the level that one way is performing at them and vs dedicated and dedicated business you know we've heard from some some other trucking companies are has been impacted a bad as the cost inflation has come on faster than the contract repricing wonder his you
spk_2: guy saw that at all and you know if there's opportunity for a step up and profitability and dedicated as as some of those contracts to revisit it might have some of the cost inflation yep ah i met this is just as you know we don't report a dedicated in one way margin separately so i'm many to be a general answer as opposed to a specific one but ah margins in both dedicated in one way we're strong that enable us to achieve that eighty two point now nine
spk_1: oh are and we didn't see a deterioration in margins and dedicated as a result of the driver pay market we have good relationships with our customers and when that the driver challenges begun a certain geography for a specific customer were able to go out and get rate increases to ah compensate us for the needed driver pay before it happens are as it happens so that has not been a problem for us the one way margin it's obviously improved from last year because of the strength of the the frank martin the dedicated has been solid both years in the only thing i would add to that answers that is when you think about our dedicated had a don't want you have the impression that as our costs go up we simply tell our customers to pay us more and they they just do it
spk_14: it's a combination of that they certainly need to support us because the businesses defensible in our performance warren said but we also look aggressively it you increased creativity to eliminate empty miles better backhaul are so percentages of each of those dedicated fleets work with those customers to better optimize what for the leadership ship when where and what mode and so all these things come into play and that's how you retain that business at ninety six percent or or north of that in many cases are as it does come up for renewal so it's a collaborative effort but the outcome is from a proper profile perspective us is one that that that serves as well and very strong markets like this one
spk_15: we think serves as even better in it would be a when and if this market turns on we don't see a turn and in the foreseeable future
spk_2: that's how four months just from i follow up you know i fully understand the dynamic of of one way truckload counts coming down at increasing that across the industry but the magnitude of of of the decline was pretty sick about he had to go back to two thousand and sixteen to see this type of sequential decline and abstract recounts and am i was wondering john it really been pretty helpful to turn understand the ford outlook for that i know cm will add five our trucks in the back half the or prefer to just put that aside for second have we seen the worst of the organic decline and truckload counts maybe they considered a down but a lower level on the third quarter what's the right expectation that would you take out a cm
spk_10: from our guidance
spk_2: as we said at the end of june we're
spk_3: ah on the upper end of the range were flat and up the bottom end of the range who are down about two hundred trucks so it really depends on doesn't driver market get more difficult from here are not worth taking steps with addition to the new driving school locations to counter that and to give us
spk_0: better recruiting number sword
spk_16: drivers entering the flight but in there's there's risks of other factors in the marketplace like the infrastructure bill for example of that comes to bear and that starts to change the market conditions that may make it harder to get drivers than that easier to get drivers it's it's the most epic
spk_2: market i've seen for drivers in my career i'm in
spk_13: and our next question will come from for to been with steeple your head
spk_1: hey good afternoon and thank you for the time i observed derek i appreciate appreciate your supply comments john as well on of those views change that all over the last ninety days seems like truck live reason to clearly slipping a little to the right but that's probably going to be transitory drivers however aren't getting any easier find it as he highlighted ah the that there may be more structural and need for do you agree with that are just curious did you know how you're thinking about this and sort of how it changed maybe since early of year yeah i would say on the supply side the the the only change over the course of the years it's become more pessimistic in terms of what's going to happen with supply of the years progressed i think the driver market as as become worse as the year has played out now we may see some relief as i mentioned earlier from the expiration of some of the additional on the point of benefits although we think that is gonna be more impactful for our customers at the loading dock levels and jobs of that nature we really hope it'll be impactful there because we have seen increase delays i had customer locations because of the lack of staffing that existence so that's a problem but the trend the trauma truck i am since front yes transitory probably a good word for it but i don't think people realize how long that transitory period might last i think we're going to be in a disrupted state through the end of the year and frankly own eyes at this point all my opinions at this point would point toward further disruption as we get into early parts of next year it's far beyond the chip shortage is far more robust have a list of issues than that and i think it's going to be a tough whole to dig out of
spk_17: and so the i don't see a lot of
spk_13: you're good news on the horizon on the capacity fraud and again i i think the thing that we're proud of here is on a relative basis you know being negative one vs negative seven of the public group and and if you look at eighty a's most recent data your they have large carrier wow fleet wreckage of north of six percent of small carrier fleet shrinkage now approaching four percent and you almost never see through prior cycles both large and small shrink of the same time and right now we're seeing man and that's very unique and him and there's no real end in sight
spk_18: that that that that i can see
spk_1: i am i appreciate that maybe sort of on a similar vein mentioned dot infrastructure ah that looks like it could be becoming a little more tangible are you from an operator prospective hobby plan for that it seems like the of fact would be more supply side for you just on the job competition side probably less so on the demand side just basing your exposure be curious the now maybe how you guys are thinking about that of is that become surreal there's a thank you yeah i think in terms of waiting you're right bird that it's more of a supply side issue than a demand side but there is demand effect even for us because the old trucks of wheels and they moved where the market is and so it doesn't mean our trucks do but it means other drugs that have the flexibility or maybe are more transitory and the type of work like they live will load of those infrastructure projects which further constraints capacity at or of said definitely further increases met the man to us so we think there's a demand impact but certainly on the supply side both on that drivers available drivers leave in the industry to pursue construction jobs and then just drivers being tied up actually holland freight been tied up now with
spk_0: new for a that was not that we were know we were not previously competing with from an overall demand perspective so yeah i do think of infrastructure is gaining momentum i suspect something will say place
spk_19: the oh sometime this year but the as we all know that's a multiyear roll out the last piece of all of it that that we were we spend time thinking about both and driver training but also just and projections and and and thinking about our business is a will increase congestion which is already increasing from cars are to the road when you start doing massive infrastructure projects you know we all know what that looks like in the one thing it doesn't look like as efficient and so the will be some slowdowns in network velocity that we've got a plan for and price for as we think about twenty twenty two
spk_1: and our next question will come from jordan alligator with goldman sachs please go ahead he i just just a quick question am curious with the tightness and supply chains and drivers and trucks from the dedicated prospective he actually saying when customers come to your potential customers a desire for a larger contracts are more sweet outsourced yeah a so jordan i think the the vote both the i'm frequency by which were seen dedicated bit opportunities that the dirt the number i should say of of don't get up to is increasing because of the capacity constrained market where and as well as in some cases the size of those opportunities you know when things within in the pipeline you know you might be looking at five and ten trunk opportunities are right now are we look at everything and if it sits right it's it's a needed it it forms of an important piece in the puzzle that trying to build every day then it may work and implementation of but the propensity for these larger dedicated flee to certainly greater right now and our biggest you know filter you that we wrong
spk_19: is relative to the profile we want stuff that is defensible difficult to do that we take is true dedicated it's not
spk_20: it's not a designated type fleet or a one way replacement fleet or but it has worked characteristics that can only really be accomplice long term who dedicated service levels that's the stuff we want to pursue and really try to avoid just capacity fleets
spk_0: you know when we can because those are those those opportunities blow up on you in the cycle turns and suddenly that defensive position doesn't look so defensive after all so so we have a a very critical i have of as we look through those opportunities and try to sift through are those that we can seat those that we can serve and those that we can sustain through the site
spk_21: go that's great thank you
spk_5: thank you and
spk_1: or next question will come from chris weatherby with city these go ahead he thanks connection and don't land media can just ask quickly on the dedicated a next issue obviously impacted after a protracted we just use little bit more detail on what is driving mad and enemy i think he said to me be true the lower and upper and is a regular thing about the food year outlook there
spk_13: yeah so it's what we we we just wanted to make it clear that what's driving it is fleet makes more than any other factor and so as we bring on new dedicated fleet or we grow with existing dedicated fleets depending on where that incremental truck how cup ends up or you can have a negative effect on revenue per trip for week that may not be
spk_21: negative at all to our overall profitability or because it could be a low mileage fleet or that simply doesn't produce the same mouse revenue but nor does it have nearly the same cost rupture and so it just so happened that in the second quarter both incremental growth of existing fleets as well as a couple of weeks that were seated he landed and implemented are just just had
spk_1: impacts that were greater than originally projected on that revenue per trip for week metric it may not be the perfect metric you're going forward i were actually having discussions about that we think of still the best or to use for now to try to give you guys some sort of his ability to our businesses running but there are anomalies from quarter to quarter are based on fleet makes that that that could play into it him and sermons and quarter was one of those corners lots of also images follow up on the driver pay saturday he mentioned in the neighborhood a ten percent wage increases as with a definite back after year does need to see more of those to produce are all the line on the organic to jump
spk_0: yes so we're about eleven percent i think your rear tds driver wages were up that's accelerated from the first gordon and second quarter eyes we look at the back half of the year we still have some targeted them strategic driver pay raises that are going into the into effect both and dedicated and in one way or were somewhat insulated
spk_5: in that in the dedicated side those are funded increases their worked out collaboratively with the customer arm and that's going to be our approach as we continue to battle through the back half on the one way side they'll be a will be very cognizant of were wrapped murray from our perspective on what's going on with our overall yield efforts as well as what does our peace agreements in dublin andy in as well as we think about rolling out our target of pay increases some could be very very sweet specific some could be seasonal specific i eat peak the old kind of run bonuses and things of that nature so will be very thoughtful in the back half of of but certainly there will be some more pressure on the wage line that we currently believe based on all information we have as well as bid that we know landed in july will be offset ah through rate increase in overall yield initiatives
spk_1: and our next question will come from jeff kaufman with vertical research partner your head thank you very much in taxes to squeeze in me an arm of spotted pulsar question and follow up on you know your insurance claims expanse look fantastic i know follow that and i'm also year ago and then purchase transportation as surprise me a while back out for related the will just takes a lot like or the trucking business purchase transportation's down about five percent emoticon of the that from a lot a suffers how did you manage also those a while and the so so on it insurance line you know that the simplest of answers would be we had a very strong our first half of the year we've been working aggressively on the much revamped training programs or we've been using and learning and involving in our use of simulation training are on onboard in procedures the way we think about art driver leaders interacting with our placement drivers as they come into the fleet and it's banned evidence or we've seen a significant reduction and major accidents technology also plays a part of that all of this tag that i know where redundant on were in are prepared remarks quarter after quarter i realize but it's because we're trying to message of things that we think are very important and that one is one that's very important and so those are some of the dividends that that's paid now i want to be clear as we go forward insurance renewals still look ugly the market is still very very tough market to deal with or going through that process as we speak right now there will be headwinds as it relates to the cost of insurance as we go
spk_2: ford that obviously we have to work to make sure that every are offset through actual performance of the portion of that risk that we hold in house
spk_5: so that's that's gonna be an ongoing evolution as far as the purchase trance thing that's an owner operator issue that's all that is are we know that job vo the market for drivers as stop it's also tougher owner operators are we probably have a more cautious views and some of our competitors on the owner operator model overall we want to stand by those yeah we want to provide opportunities for company drivers to be able to make their conversion to become a fleet owner there if they if they so desire but we're not actively out there trying to increase our exposure in that owner operator environment are given the current regulatory in erbil an environment that we live in in the current administration
spk_1: via we we believe that's going to be a tougher i'm i'm part of the the capacity framework i as we go forward over the next several years and so it's not one we're looking to grow in there for that pt line will probably decrease further as we go forward yeah so jafar or operator count went from four eighty five a year ago to three forty so they're it's right that the reason for that decline in that tts side of rent purchase transportation is a reduction in owner operator past due to fewer owner operator in case so it's it's gone up or he's very much in line with the industry outside of these are offering yourself on and endless the follow up you know it was interesting was quarter of a lot of good on other trotters outlaw will according pretty healthy margin improvements in the road to eye business was called most folks running a dedicated operation had had a decline in the reporting a large i guess i was just reading into your commentary about house or tr just just had a terrific quarter and dedicated had a really high
spk_0: get their of did you buck that trend i mean if we look at the dedicated business on know our basis as good it back though down was it up on a year on your basis i just been surprised i'm most folks run a dedicated fleet since i've struggled with drivers and and pt costs a school
spk_1: the again of your we don't disclose the breakout and i know you're not specifically asking for that but i will say that that in a general terms yes we buck that trend i'm mean are dedicated group performed well this quarter it was not a drag on this quarter and i think it's a combination of the the top quality execute ocean the top quality customers that we work with and the very difficult to do business that were in bob it's not easily replaceable sword gives you the opportunity to have a lot more rational discussions and with your customers and we need your we we have to be good about asking for what we need to continue to provide that service and i think we did that discord quarter so the i know that fully answer your question but yeah i read the same comments and have heard some of the same calls and and our our results in the quarter systems are certainly seem to differ from many of our our competitors in that particular aspect and this will conclude the question and answer session of i turned conference back over to to derek weather's for any for the remarks thank you so i just want think i for been on the call him or this quarter or we appreciated we pursued are you tune in in our think one or so she had thrown they did make the corner possible we're very proud of what we build views a very strong quarter in an extremely challenging labor markets eyes of said several times we're very proud of our ability to hold line on her fleet in that market data good proves the kind of differentiation we've been speaking of are dedicated performed well and will continue to perform well through the cycle and so that's something that we look forward to being able to put on disk
spk_0: player when win enough the cycle turn takes place although we thank god that is well under twenty two if not further out than that
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