Werner Enterprises, Inc.

Good afternoon and welcome to the Werner Enterprises third 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.

Good afternoon, everyone. Earlier today, we issued our earnings release with our third 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. We 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. Our reconciliation to the most directly comparable gap 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. Now I'll turn the call over to Derek.

Thank you, Chris, and good afternoon, everyone. 2023 has presented us with a challenging operating environment. The third quarter was no different and our financial results did not meet our expectations. Despite the difficult quarter, I'd like to start by thanking our 14,000 plus talented Warner team members for all that you do each day to uphold the Warner brand and reputation by staying true to our core values, making safety our top priority and providing superior service to our highly valued customers. During the third quarter, we were recognized for several awards that demonstrate our commitment to our associates. Newsweek named Warner as one of America's greatest workplaces for 2023. in addition to being named one of America's greatest workplaces for diversity and for parents and families. These achievements highlight our focus on building a strong culture for all our team members. We are committed to remaining a company that enables and encourages our associates to thrive in their careers. We were also pleased to be recognized for our environmental stewardship by earning the Smartway High Performer Award for the seventh consecutive year. This recognition is based on companies who lead the transportation industry in producing more efficient and sustainable supply chain solutions. In addition to our focus on our associates and the environment, safety remains our top priority. In the third quarter, we were proud to celebrate Tim Dean, our second professional driver to achieve 5 million accident-free miles, a very significant accomplishment over his 35 years driving for Werner. Tim represents what we desire for all our professional drivers, an unwavering commitment to safety and service one mile at a time. And lastly, we were recognized for our superior quality and service in the industry, including the 2023 Quest for Quality Award. These awards demonstrate our ongoing commitment to excellence and the execution of our drive strategy. As illustrated on slide five, we remain laser-focused on being a brand known for safety, reliability, service, and durable results. Our financial strength, scale, capabilities, and diversified portfolio, combined with our ongoing commitment to innovative technology and sustainability, will continue to drive long-term value and further position Warner as a top North America carrier and logistics company of choice. Let's move on to slide six and highlight our third quarter results. During the quarter, revenues decreased 1% year over year to $818 million. Net of fuel surcharges, our third quarter revenue grew 3% versus the prior year. Adjusted EPS was $0.42. Adjusted operating income was $42 million, or an operating margin of 5.1%. Adjusted TTS operating margin was 8.5%. Our primary focus in this complex operating environment is controlling what we can. This includes operational execution by leaning into the strength of our dedicated fleet through superior customer service and fleet efficiency. This focus continues to result in strong customer retention, a stable fleet, and competitive margins. As we anticipated heading into the quarter, one-way truckload remained challenged by elevated spot exposure and ongoing pricing pressure. We remained focused on utilization of one-way assets and optimizing the fleet while maintaining long-term pricing discipline. Despite a shorter average length of haul, we realized 3.3% year-over-year growth in average total miles per truck per week, the second consecutive quarter of improvement. Within logistics, Q3 volume and revenue continue to perform well, delivering double-digit revenue growth and strong volume growth. We continue to execute our cost savings program and have seen sequential and year-over-year progress in certain expense categories. In addition, We have a line of sight to the non-recurring year-to-date spend that is supporting our long-term technology strategy, and we remain optimistic about the benefit to earnings once complete. That said, we continue to face macro headwinds with lower equipment gains, higher interest expense, and inflationary pressures. In short, freight conditions in the third quarter were challenging, and along with the second quarter, I would describe this as the most difficult period of my career from a market perspective. Despite these challenges, our results continue to reflect a business model that is durable, diversified, and resilient. even in a lower for longer and tough operating environment. Our elevated rigor on cost-saving initiatives, focus on innovation, and reinvestment in the business positions us well to benefit as freight conditions improve. Let's move on to slide seven. Last quarter, I provided a more in-depth update on our Werner Edge and Cloud First, Cloud Now multi-year technology strategy. This strategy combines a blend of best-in-class third-party market solutions with proprietary technology talent and innovation to generate sustainable and operational benefits. It works in tandem with our tech driven feature and data rich solutions and digital freight marketplaces such as the launch of Warner Bridge earlier this year. Our technology and innovation journey is progressing with 100% of our logistics segment absent our one or final mile business expected to be fully transitioned to our Edge TMS platform by end of this year. As we look ahead to 2024, we are preparing for the transition of our TTS business. This marks a major step in our strategic roadmap. Executing our vision requires considerable investment in time, energy, and capital. As shown on the right-hand side of the slide, the OR impact from ongoing development and duplicative platform expenses is estimated to be 30 to 40 basis points on a yearly basis for 2023. By channeling all freight through Warner Edge, we foresee numerous advantages, a better customer experience, lower cost of execution, and improved optimization from better visibility. This results in a more mode agnostic approach and greater revenue and earnings potential as returns on these investments are realized in future years. Before turning over to Chris to discuss our financial results in more detail, let's move to slide eight to highlight our current view of the marketplace. The freight market has remained challenging in third quarter and into October. Dedicated demand remains steady, and we have a pipeline of opportunities that we can capitalize on. The one-way operating environment continues to be challenging, given lower rates, with new contract rate implementations largely behind us, higher than normal bid churn, and rapidly rising fuel prices in the quarter. Despite a very competitive marketplace, we expect solid volume in logistics, but margins will continue to be impacted due to downward pricing pressure and costs related to new business implementations. As we look to peak season to close out the year, our larger retail customers continue to signal more normalized inventory levels, an improved mix of SKUs that better align with a post-pandemic consumer. That said, we remain cautious about consumer behavior given mixed data points and themes impacting spending, particularly for goods versus services and recent global tensions. As a result, we expect a more muted peak season. Looking out as capacity continues to exit the market with 57 consecutive weeks of DOT net truck deactivations, we are well positioned to benefit from a more balanced supply and demand freight market going forward with upward momentum to lock in more contractual freight at improving rates. With that, let me turn it over to Chris to go through the third quarter results in more detail.