Werner Enterprises, Inc.

Good afternoon and welcome to the Werner Enterprises second quarter 2025 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 would now like to turn the conference 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 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. I will now turn the call over to Derek.

Thank you, Chris, and good afternoon, everyone. We appreciate you joining us today. We generated solid results during the second quarter and are encouraged by the sequential improvement in financial performance relative to Q1. The freight market faces ongoing uncertainty related to shifting global trade policy and regulatory issues. We remain focused on providing superior and diversified solutions to our customers by investing in our future through technology and structurally improving our business with a commitment to delivering value. The key priorities we have been focusing on have started to bear fruit as evidenced by numerous positive operating metrics in the quarter, including year-over-year growth in revenue, net of fuel surcharge for the first time in six quarters, a return to profitability driven by decisive action and execution, and sequential growth in various forms, including revenue, TTS fleet, one-way revenue per total mile, gains from sale of used equipment, TTS operating income, and logistics gross margin. As a reminder, on slide five, there are three priorities that underpin our drive strategy, which we execute day in and day out. First, driving growth in core business. In DTS, our fleet is up year to date. Our dedicated solution is winning in the marketplace, one-way rates are increasing, and we realize year-over-year growth in overall combined miles across our one-way tractor assets and power link trailer-only offering. Within logistics, we are back to mid-single-digit growth driven by truckload brokerage and intermodal volumes. Our customers are voting with their freight as we notch several new business awards with strategic customers across our portfolio. Second, driving operational excellence is a core competency. Our focus on creating and fostering a culture around safety never changes. Our DOT preventable accident per million miles continues to trend favorably as we hire quality professional drivers and invest in new technology-laden equipment. We are pleased the Texas Supreme Court has ruled on the accident that occurred in 2014 reversing the $90 million jury verdict from 2018. The court's decision provided much needed clarity in the state of Texas, but legal reform is still needed in many states across the country. We will continue to work at the state level and with others in and outside our industry for fairness and reasonableness regarding these types of claims and lawsuits. This marks the end of a decade-long and difficult chapter. While we are grateful for the clarity this decision brings, we will not lose sight of the tragic loss for the Blake family. Our focus on safety improvement is shown through our investments in technology, an increasing part of our operational strategy, and we are progressing on this front as well. Volume on our Edge TMS platform is growing. Nearly two-thirds of one-way trucking volume is now on Edge and over half of the dedicated volume. Logistics has largely been on Edge TMS for several quarters, leading to 20% productivity improvement in brokerage loads per full-time employee. We are seeing more top and bottom line tech-enabled synergies such as growing no-touch, fully automated load bookings and back office efficiencies like carrier payment automation. We are driving efficiency by scaling the use of conversational AI calling and notifications for reminders and communication with new hires, associates, and brokerage carriers. Our professional drivers have greater technology tools, improving their situational awareness while on the road and providing mobile ease of access to important information when off the road. I'm proud of the efforts of our technology team and the willingness of our associates to lead into change and transformation. These changes are benefiting all of our stakeholders, including our customers, while further securing our IT infrastructure and cloud environments. And finally, our reliability and commitment to excellence was recently recognized, as Werner was named a 2025 Top 3 PL and cold storage provider for food logistics for the ninth consecutive year. Our final priority is driving capital efficiency. We are generating positive cash flow. In supporting this, we are maximizing value on the sale of used equipment, tightening our full-year guide on equipment gains to the upper end of the prior range. Regarding CapEx, we will continue to invest in the five T's, trucks, trailers, terminals, technology, and talent. This year, however, we decided to moderate our equipment spend. With a modern and low-age fleet, we have assets in place to support growth through the rest of this year. With a strong balance sheet, inclusive of low leverage, we're focused on disciplined, return-oriented investments. This quarter, we flexed our share repurchase authorization and bought back $55 million of shares at an exceptional value. When it comes to evaluating the impact of tariffs on our equipment costs, our strong balance sheet yields optionality. Let's turn to slide six and discuss our second quarter results. During the quarter, revenues decreased 1% versus the prior year. Revenues net of fuel increased 1%. Adjusted EPS was 11 cents. Adjusted operating margin was 2.2%. And adjusted TTS operating margin was 2.8% net of fuel surcharges. Results in the quarter benefited from a growing fleet size due to dedicated startups and pop-up truck opportunities in one way. One-way revenue per total mile growth, cost containment, discipline, and action higher volumes in truckload logistics, particularly in brokerage, at stable gross margins, and increased gains on equipment both sequentially and year-over-year. In dedicated, retention remains strong and shipper conversations are constructive as customers look for reliable and flexible transportation partners who offer creative solutions, high service, and scale. The implementation of new dedicated fleet signed last quarter is progressing well, and continuing to ramp into Q3 as we hire drivers and build fleets to targeted levels. Additional fleets were awarded in the quarter, and the opportunity pipeline remains strong. Our dedicated expertise is a competitive advantage that has and will continue to drive growth over the long run. In one-way truckload, revenue per total mile increased sequentially and was up year over year for the fourth consecutive quarter as recent contractual rate changes became effective and deadhead improved sequentially. Our one-way fleet size increased sequentially, driven apart from engineered pop-up solutions in response to customer request. This demonstrates our flexibility and adaptability in meeting customers' needs in an improving market, all while implementing new fleets in Dedicated and supporting brokerage growth and logistics. We are pleased with our Q2 trends in logistics, showing double-digit growth sequentially and mid-single-digit growth year-over-year. We expect continued growth driven by a track record and reputation with large shippers needing additional capacity. In addition to sequential and year-over-year top line growth, expenses were down and operating margin improved. Turning to slide seven, our comprehensive logistics portfolio is a key component of our diversified solution-focused strategy. Warner's mix of large complex shippers requires a combination of multimodal solutions that are coordinated, reliable, and cost-effective. Our solution-oriented logistics service provides expertise that benefits larger customers while also expanding our reach to small and midsize shippers. Truckload brokerage complements our truckload division, offering customers additional capacity and flexibility through creative and competitive solutions. We offer tailored solutions that are mode agnostic, combining the strengths of all Warner services to solve customer challenges. Our large trailer pools provide capacity simplify shipper operations, improve efficiency, and minimize the need for costly labor to live load and unload trailers. Brokerage also enables new customers to be introduced to Warner in a low risk setting, often leading to expanded business relationships and one-way truckloader dedicated. Our intermodal business is a high service product that provides a lower cost options to customers. We have partnerships with all of the major railroads for nationwide rail access and capacity through a combination of private containers and rail-owned equipment to provide high service levels across the United States and Mexico cross-border. Finally, our dedicated final mile division moves big and bulky goods nationwide directly to homes and B2B in verticals such as furniture, appliances, auto parts, and healthcare. Our technological advancements are fueling logistics growth, including running on our Edge TMS platform. and other tools like Warner Bridge, which makes us a preferred user-friendly choice for third-party carriers, and more automation in load booking and back office processes, keeping us agile and cost-effective. Moving on to slide eight to summarize our market outlook for the remainder of the year. Although there could be fits and starts, we expect stable truckload fundamentals throughout the rest of the year. Supply and demand in our industry has continued to work towards equilibrium in recent years. As the current challenging environment lingers, we anticipate ongoing capacity attrition. Long-haul truckload employment is below the prior peak in 2019, and additional exits could accelerate with greater ELP and B1 enforcement, Class 8 truck orders on the decline, and lenders driving out capacity through growing repossessions given resale values are on the rise. Consumers have remained resilient as they search for value and trade down, resulting in relatively stable non-discretionary spending. The one big beautiful bill could stimulate consumer demand and industrial investment over time, both of which would benefit freight volumes. Tariff and interest rate impacts remain uncertain for both shippers and consumers. Retail inventories have mostly normalized. While some inventory was pulled forward from the tariff pause, non-discretionary goods have had more consistent replenishment cycles. Volumes from our value and discount retailers were steady in Q2 and into July. Spot rates have weakened since the July 4th holiday, and we expect spot rates to follow normal seasonal patterns for the remainder of the year. Used truck and trailer values have accelerated since March, benefiting from tariff and other macro uncertainty. With that, I'll turn it over to Chris to discuss our second quarter results in more detail.