Werner Enterprises, Inc.

Good afternoon and welcome to the Warner Enterprises fourth quarter and full year 2023 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 touchtone phone. To withdraw your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Chris Neal, SVP of Pricing and Strategic Planning. Please go ahead.

Good afternoon, everyone. Earlier today, we issued our earnings release with our fourth quarter and full year 2023 results. 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 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 and CEO, and Chris Wyckoff, Executive Vice President, Treasurer, and CFO. Derek will provide an update on our 2023 accomplishments relative to our derived strategy, highlights of our fourth quarter results, and a market outlook. Chris will cover our financial results in more detail. including the 2023 achievement of our cost savings program and provide 2024 guidance for key financial and operating metrics. I'll now turn the call over to Derek.

Thank you, Chris. And good afternoon, everyone. We appreciate all of you joining the call today. Clearly 2023 was a prolonged and challenging operating environment. Our earnings were down and did not meet our expectations. However, we made structural improvements that will set us up for future success as normalization returns. Our dedicated business proved to be durable and resilient. Our one-way trucking business rate per mile decline was more favorable than industry benchmarks, and our logistics business generated full-year volume and revenue growth. Despite the backdrop, our leadership team and nearly 14,000 talented Warner team members stayed the course, executing on our strategy, upholding the Warner brand and reputation, making safety our top priority, and providing superior service to our highly valued customers. Let's turn to slide five to highlight some of our accomplishments in 2023 that created optimism for 2024 and beyond. Our drive strategy continues to help inform our decisions and lead to acceleration across our core businesses. In 2023, our dedicated business performed as expected, showing durability and resiliency in one of the most challenging operating environments that I've witnessed in my 30 plus years in the industry. We grew dedicated revenue per truck for the ninth year out of the last decade, and we Despite the market backdrop, Dedicated performed within our TTS operating margin target for the year, and we expect to see margin expansion when normalization returns. On our results, in addition to logistics growth and operational excellence within one way to mitigate rate per mile decline, we executed on structural cost changes, realizing $43 million of savings. We also leaned into greater network optimization, engineering, and improved productivity, which helped to offset rate pressure, cost inflation, and declining resale values of equipment. Separately, operating cash flow margin remained solid and supported reinvestment in the business. We lowered the average age of our fleet, reduced debt, and returned capital to our shareholders through an 8% dividend increase in 2023. We made disciplined investments towards our continued pursuit and industry leadership of innovation. Our fleet remains modern, safe, reliable, and fuel efficient. We also made significant advancements in our technology stack by transitioning truckload brokerage, including REED, and intermodal business to our new cloud-based Edge TMS solution. In 2024, we are transitioning our one-way business to the Warner Edge platform. This continues to be a journey, but we remain excited about the long-term value. By channeling all freight through Warner Edge, we are committed to a better customer experience and lower cost of execution through improved visibility and optimization across all of Warner. Our core values guide our decisions and behavior every day as we keep America moving. With integrity as our foundation, safety and service is ultimately what Warner stands for, built on the pillars of inclusion, community, innovation, and leadership. We are proud to be recognized in 2023 as one of America's greatest workplaces for diversity, parents, and families. We realized a 19-year low in our preventable accident rate due to the hard work of our drivers, mechanics, and safety associates working together. As always, safety remains our top priority and is demonstrated by our team members every day, one mile at a time. Relative to ESG, notable milestones include naming a lead independent director for our board of directors, increasing our Blue Brigade volunteer hours to over 3,300 hours, and doubling driver training hours to bring awareness to human trafficking. These and other accomplishments are described in more detail in our third corporate social responsibility report released in November. Before we move on, I want to acknowledge the appointment of Nathan Meisgeier, the next president of Warner Enterprises. On January 5th, the board unanimously approved, at my recommendation, the promotion of Nathan. I could not be more excited about this progression in our company's history. Nathan has been our chief legal officer and a transformative executive leader for nearly two decades at Warner. While his background is impressive, including being a Harvard Law School graduate, what stands out to me the most is Nathan's integrity, servant leadership, vision, and embodiment of the Werner culture. And to be clear, I'm not going anywhere. I'm excited about our future and partnering more with Nathan going forward. Let's move on to slide six and highlight our fourth quarter results. During the quarter, revenues net of fuel surcharges decreased nearly 2% versus the prior year. Adjusted EPS was 39 cents. Adjusted operating margin was 4.8%. Adjusted TTS operating margin was 7.5% net of fuel surcharges. Dedicated remained solid and resilient, delivering another quarter of strong customer retention and revenue for truck growth, a stable fleet in the second half of the year, and double-digit adjusted operating margins for all of 2023. As we anticipated heading into the quarter, one-way truckload remained challenged by ongoing pricing pressure. We remained focused on long-term pricing discipline, and continued our positive utilization trend. Miles per truck increased by nearly 9% in the quarter, the third consecutive quarter of improvement as we further engineered the fleet. Within logistics, fourth quarter volume was strong and revenue grew over 6% year over year, extending to 13 straight quarters of year over year growth. In short, freight conditions remained challenging in the fourth quarter with lower rates despite stable customer demand and slightly better than expected peak volume. In spite of this, Our results continue to reflect a business model that is durable, diversified, and resilient. Moving to slide seven to highlight our current view of the market, we expect a challenging freight market to continue through the first half of 2024. While data points suggest capacity should exit at an accelerated pace, the reality is that it continues to be modest, leaving excess supply. Inventory levels have normalized, and destocking appears largely complete, although we are not seeing broad restocking. The go-forward trend in consumer demand will be the focal point to normal replenishment. And while consumer sentiment has improved, mixed data points and themes impacting near-term spending leave us remaining cautious. Spot freight rates remain low and are not expected to improve until the second quarter. A more balanced supply and demand environment in the second half will benefit us as we lock in more contractual freight at improving rates. The dedicated environment is steady, and we perform well in this space, but it is increasingly more competitive. Normal customer turnover exists, but pipeline opportunities remain healthy, and we continue to achieve over 93% client retention rate. The one-way operating environment continues to be challenging with low rates and some customers seeking cost improvement while they can. We expect ongoing pricing pressure during the early part of the 2024 bid season, although moderating later in the year. Within logistics, the marketplace remains competitive and margins will continue to be pressured. Although we are proud of the growth in logistics, our portfolio of customers and our deep network of qualified carriers. With that, let me turn it over to Chris to go through our fourth quarter results in more detail.