Werner Enterprises, Inc.

Good afternoon and welcome to the Werner Enterprises second quarter 2023 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'll now turn the call over to Chris Neal, Senior Vice President of Pricing and Strategic Planning. Please go ahead.

Good afternoon, everyone. Earlier today, we issued our earnings release with our second quarter results. The release and a supplemental presentation are available in the investor section of our website at Warner.com. Today's webcast is being recorded and will be available for replay later today. Please see 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. The company reports results using non-GAAP measures, which we believe provides 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 tables attached to the earnings release and in the appendix of the slide presentation. On today's call with me are Derek Leathers, Chairman, President, and CEO, and Chris Wyckoff, Executive Vice President, Treasurer, and CFO. Derek will begin with a high-level overview of our performance during the second quarter and an update on execution against our drive strategy, specifically with a focus on innovation. Chris will then provide a deeper dive into our results. We will then open it up for questions followed by closing thoughts from Derek. Now I'll turn the call over to Derek.

Thank you, Chris, and good afternoon. Before we get into an overview of our second quarter results, I'd like to thank the 14,000-plus talented Warner team members for staying true to our core values, safely providing superior service to our customers, and delivering on our unrelenting drive strategy. We are proud to be the carrier of choice among our deep portfolio of valued customers who rely on us to solve and service their most complex freight challenges every day. With that, let's turn to our second quarter results on slide six. On our previous two earnings calls, we shared our expectation that freight conditions in the first half of 2023 would be challenging and competitive. As retail inventory destocking runs its course, the Fed continues with monetary tightening, and excess capacity dissipates. Following a moderating freight environment in February and March, freight was progressively weaker in April and May. However, there was slight improvement mid-June, which we've seen continue throughout July. In the second quarter, revenues decreased 3% year-over-year to $811 million. Net of fuel surcharges, our second quarter revenue grew by 2%. Adjusted EPS was 52 cents. Adjusted operating income was $51 million, or an operating margin of 6.3%. Adjusted TTS operating margin was 9.7%. Despite the challenging operating environment, our TTS segment achieved an adjusted operating margin of 12.9% on a trailing 12-month basis, within our long-term guidance range of 12 to 17%. Our primary focus is on operational execution by leaning into the strength of our dedicated fleet, which has performed as expected through superior customer service and fleet efficiency. This focus continues to result in strong customer retention and year-over-year growth in revenue and revenue per truck per week. As anticipated, one-way truckload was challenged by overall market conditions with less freight available, elevated spot exposure, and significant pricing pressure. We remain focused on utilization of one-way assets and optimizing the fleet while maintaining long-term pricing discipline. Within logistics, Q2 volume and revenue remain strong, delivering double-digit growth year over year. We continue to execute on our cost savings program and have seen sequential and year over year progress in multiple expense categories. That said, we continue to experience macro headwinds with lower equipment gains, higher interest expense, and inflationary factors amid a softer freight environment, which collectively contributed to sequentially lower earnings. The second quarter was certainly challenging, but our results continue to reflect a business model that is durable, diversified, and resilient. Even in a lower for longer freight environment, which combined with our elevated rigor on cost saving initiatives puts us in a compelling position to excel as market conditions improve. Let's move on to slide seven. In our TTS segment, revenue per truck per week net of fuel has grown year over year 18 of the last 22 quarters. And while down year over year in Q2 for the first time in 14 quarters, This compares to industry benchmarks showing significantly larger declines. Our dedicated segment continues to perform and grow revenue per truck, reflective of our reliable, highly integrated, and premium offering for large enterprise customers who look to us to service complex and hard-to-serve networks not easily replicated. Dedicated has steadily grown over the last 10 years across all economic conditions, with a customer annual retention rate of over 95%. Our ability to engineer and optimize fleets over time has resulted in dedicated revenue per truck increasing eight of the last nine years. Within our one-way truckload business, revenue per truck net of fuel is also outperforming industry benchmarks, despite being down mid-single digits in the first half of 2023. This durability is the result of our investments and deliberate effort to build a business model consistent largely across border Mexico, engineered, and team-expedited freight. Let's move on to slide eight. Beginning with our five T's strategy, which we launched in 2016 and continuing through today with our drive strategy, innovation is at the forefront of transforming the way we do business. Our cloud first, cloud now imperative launched in 2020 represents a robust multi-year investment plan to leverage technology and innovation towards growth and operational effectiveness. We launched the Werner Edge TMS in 2021. a blend of best-of-breed third-party market solutions with proprietary talent and innovation. In 2022, we successfully migrated our entire organic truckload brokerage business to Warner Edge TMS and are currently transitioning other business units, including Intermodal. Reed, one of our recent acquisitions, is scheduled for full integration by end of this year. We plan to initiate the migration of our TTS segment in 2024. In July, we were excited and proud to unveil WarnerBridge, our latest tech-driven, feature-rich logistics solution designed specifically for shippers and carriers. For our shippers, WarnerBridge makes it easy to get instant quotes, book shipments, and manage orders smoothly from start to finish with full visibility of their network. And of course, our representatives will continue to be available and engaged at any time. For our carriers, WarnerBridge streamlines the process of finding and booking freight instantly, automating freight matching, providing routing guides, and interactive maps for ease and visibility. and a recommended reload feature designed to enhance recurring revenue for the carrier while also further establishing Warner as a recurring and reliable partner. WarnerBridge is a clear demonstration of our commitment to provide innovative and advanced solutions, streamlining operations, and delivering top-notch service to carriers and shippers. When we combine tech-enabled, customer-facing solutions such as WarnerBridge with our large network of qualified carriers and our deep industry expertise, We have a compelling position to organically grow our brokerage business to significant scale with large, medium, and small customers alike. I want to extend heartfelt congratulations to all the Warner associates who poured their energy, time, and talent into launching this exciting next-gen technology. Before I turn the presentation over to Chris Wyckoff, our CFO, I'd like to take a moment to comment that in his first three months with Warner, Chris has hit the ground running, bringing fresh eyes, experienced perspective, and a new and positive presence to our leadership team. And we're just getting started.